Market Positioning & Sizing
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Market Positioning & Sizing

Before getting too far down the road is a good idea to take a step back and check your market positioning. The purpose of this exercise is to double-check (1) if you have missed something in the landscape and (2) to make sure your value proposition makes sense given the alternatives.

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Just because someone else does the same thing as you doesn't necessarily mean you shouldn't do it as well. Most markets need multiple players but you need to think through how you are differentiated.

Alternatives are the ways your target audience are solving the problem today.

“Sometimes employees at Netflix think, ‘Oh my god, we’re competing with FX, HBO, or Amazon,” said Hastings, “but think about if you didn’t watch Netflix last night: What did you do? There’s such a broad range of things that you did to relax and unwind, hang out, and connect–and we compete with all of that.” - CEO of Netflix

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The next thing you want to do is map out the alternatives according to their value propositions (reasons to buy). How are they differentiated? It could be price, speed, effectiveness, convenience or many other things. A common trap entrepreneurs fall into is that they try to be the cheapest, fastest, best thing possible which is both unrealistic and a bad strategy. It is much better to focus on the early adopters you have identified and see what factors matter most to them, hint everyone will say price and this is another common trap for founders. It is a good idea to focus on anything but price at the beginning because you won't be able to create a sustainable profitable business by selling something amazing for less money than it is worth.

Status quo and do nothing

Status quo and doing nothing are nearly always your two of your biggest competitors. People do not like to change, we go to great lengths to avoid changing anything so in order for your solution to succeed it either has to be a lot better, faster, cheaper (10x) or the problem needs to be very bad and no adequate solution exists.

This is a great read to get better aquatinted with the challenges ahead: Eager Sellers and Stony Buyers: Understanding the Psychology of New-Product Adoption. Among other great points the paper discusses the 9x effect. That consumers overvalue what they have by 3x and companies overvalue their innovation by 3x

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Market Sizing

A market is made up of customers, paying to get jobs done in the form of products and services, the key question to ask though is how many customers are there and how much are they spending already?

A great resource to consider these questions is here, it covers a lot of industries and their margins from a US basis. These numbers could help map out what the TAM could be.

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The key question to consider when doing a market sizing is how big of a market does the business need to survive and how big of an opportunity do the founders want to tackle? These questions will significantly impact the way you do your business modelling and financing.