As a founder, picking your market is the most important decision youâll make. It will impact every aspect of your journey, from product development to sales, and ultimately determine how profitable youâll be. A good market compensates for poor execution on your part, while even the best execution will struggle with a bad one.
So what goes into a good market?
The key attributes are:
Your customers have money to spend.
If you ever want to make money from your product, youâll need to charge your customers for it. If they donât have money to spend then itâs a non-starter. Youâll have to grind much harder doing direct sales, just to find the few people that have money to buy.
A corollary is that they are not too price sensitive. For SaaS, making the initial sale is far from the finish line. You may well need to alter pricing in the future, and it will make everything easier to have understanding customers instead of an angry mob because you increased the price by $1.
An often overlooked benefit is that customers that meet these requirements are less likely to churn.
The general conclusion is to avoid B2C (Business-to-Consumer) products. Businesses have much more money to spend than consumers and are less price sensitive. This isnât to say you canât make B2C work, but know that youâre now playing on âhard modeâ.
You are solving their #1 problem.
Itâs important to solve a visceral source of pain.
A common mistake is solving a problem that isnât actually a problem. Just because you thought of something that theoretically sounds like a problem doesnât mean it will make for a good business.
Pay attention to the language they use when describing it. Is it a genuine âpainâ point? Or is it merely âinconvenientâ or âannoyingâ?
This isnât something you can figure out by yourself. You must do customer interviews to accurately gauge this.
You directly enable them to make more money.
This feels intuitive but is often overlooked. In what ways does your product save them money (usually via time) in doing so, enable them to make more money?
If you can nail this, itâs a huge advantage in that it takes a tremendous load off your sales and marketing skill. You wonât need to be the smoothest salesman or the more persuasive copywriter if they see that itâs a no-brainer to buy your product. This is as close as youâll get to a product that sells itself.
You are creating something they already understand.
New founders underestimate how difficult it is to merely explain their product to other people.
If you can identify a product that your market already understands well, it streamlines the sales process and similarly takes the load off.
How do you do this? You pick a product that already exists and that they already pay for. And you make it way better for their specific use case. You niche down.
Something that leads a lot of founders astray is the misconception that they need to think of something ânovelâ and âexcitingâ for it to be successful. That they need to conduct novel research or create some secretive proprietary intellectual property.
This may be true if you have rocket-to-the-moon goals, but if youâre just trying to make something that pays your rent, you may well be better suited for a âboring, but profitableâ product.
You are not in a cut-throat market.
Youâll likely have competitors, especially if you go the âboring, but profitableâ route. But if you choose your market well, this doesnât have to be a big problem.
First, choose a market that is sufficiently large. This decreases the need for cut-throat competition and makes it easier to find enough customers to reach your revenue goals. Everyone can have a slice of the pie.
But donât choose a market thatâs too large. This opens you up to competition from larger companies with more resources than you. If your market is small enough, it wonât be worth it for those companies to directly compete, as thereâs not enough revenue potential. While they still may compete indirectly (i.e. with a broader scoped product) youâll always be able to create an advantage by specializing for your niche who you serve better than anyone.
Lastly, choose a market that is not winner-takes-all. In a winner-takes-all market, a prospective customer using a competitorâs product actively decreases the value of yours. An example is social mediaâ Facebook and Twitter depend on having as many people on their platforms as possible, and derive their value from their near-ubiquity.
The CRM space, on the other hand, is not a winner-take-all market. While it may seem crowded, a business using CRM A does not make CRM B any less valuable for CRM Bâs customers. This creates a friendlier environment without the need for cut-throat growth tactics. This was a key reason for Tyler Kingâs success with Less Annoying CRM.
Conclusion
Itâs worth thinking deeply about your market before diving into product development. It is the single most important decision youâll make when starting out, and has implications on every aspect of your business going forward, including whether and how fast you reach profitability.
References
- https://www.indiehackers.com/podcast/140-arvid-kahl-of-feedbackpanda (On selecting a good problem to solve)
- https://www.indiehackers.com/podcast/105-jason-fried-of-basecamp (On price sensitivity of a B2C product)
- https://www.indiehackers.com/podcast/128-tyler-king-of-less-annoying-crm (On winner-take-all markets)