Evaluating a Market
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Evaluating a Market

What is this?

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"I think the biggest determinant of success tends to be the market. I’ve seen really, really good teams in terrible markets get completely crushed. I’ve also seen really bad teams in good markets do really well. So first and foremost, I care about if you’re building something interesting in a market that is large enough." Elad Gil

When people talk about "the market" they're typically referring to the relationship between who is the customer and who are the players that serve those customers. You could get a rough sense of the size of a potential market based on the market cap of all the companies that play in a certain market. Mapping a market requires both an understanding of the problem that is being solved, the customer that has that problem, and the people solving that problem.

Introduction

The Problem to Be Solved

Related: 💳Evaluating an Opportunity

Introduction: You need to first understand what the "problem statement" is as part of the market you're evaluating. What are people trying to accomplish? Is it a painful problem or a small annoyance? Is the solution to this problem medicine or a vitamin?

Frameworks:

  • Jobs-To-Be-Done: A Job to be Done is the process a consumer goes through whenever they aim to change their existing life-situation into a preferred one, but cannot because there are constraints that stop them.

The Customer with the Problem

Related: 📲Talking to Customers

Introduction: As you seek to understand your addressable market you have to understand who the real customer is. If you're selling men's underwear it doesn't make sense to say all 330M people in the US are in your "target market." You need to hone in on the aperture of what makes an "ideal customer." You want to find the balance between specific enough to really understand while broad enough to not limit potential customers.

Frameworks:

  • Ideal Customer Profile (ICP): An ideal customer profile (ICP), commonly referred to as an ideal buyer profile, defines the perfect customer for what your organization solves for. This is a fictitious company that has all of the qualities that would make them the best fit for the solutions you provide.

The People Solving that Problem

Related: 📐Evaluating Competition

Introduction: People will sometimes refer to this as evaluating the Industry; identifying and comparing the key players in a given market.

Frameworks:

  • Value Chain: As you map out a number of solutions you start to see a web of relationships form. Companies interact with each other, either dependently or competitively, to satisfy what the customer needs.
  • Core Competencies: When you start to segment companies into categories you can focus on their "core competency." You'll see a lot of companies claim that they can do what feels like everything. But the more digging you do and the more people you talk to the more you'll realize that most companies have a "core competency;" the thing that they're best at.
  • Adjacencies: Companies that play in the same value chain but have different core competencies are typically adjacent players. Over time companies can evolve to become closer competitors but adjacent relationships are typically dependent on each other to make sure the customer is satisfied.
  • Differentiation: As you narrow in core competencies of a number of companies in a space you can then evaluate those companies based on how they differentiate themselves from each other. For example, Costco and Walmart may be competitors by focusing on low-cost general purpose retail but they differentiate by focus on general population and smaller quantities vs. membership populations and bulk quantities.

Creating a Market Landscape

A market landscape is the opportunity to immerse yourself in information about a specific category. You're focused on developing an understanding of how a market works and the most important pieces for you to dig deeper into.

Keep a running list of questions; things you don't understand, ideas that seem obvious but aren't the case, things that seem strange in how they're done. Other areas to build a knowledge base around include:

  • Key Terms
  • Key Drivers
  • Key Players
  • Market Framework
  • Resources
  • Key Contacts

Resources

[TEMPLATE]: Market Landscape[EXAMPLE]: Second-Hand Clothing Market Landscape[EXAMPLE]: Second-Hand Clothing Market Landscape

Building a Market Map

How to determine the criteria to use

People talk about markets all the time so there is plenty of information out there.

What is the big-picture market trends that are working for AND against the company? Everything researched needs to be brought back to the company. It's easy to fill a page with stats from Google. But you need to make it meaningful or else people will skip it.

Pay special attention to the headwinds, not just the tailwinds. For example, COVID actually made things harder for smaller medical clinics because they couldn't meet patients anymore. Not very intuitive that COVID would negatively impact healthcare!

Examples

AgTech

Data Tooling

Data & AI Landscape

Market Sizing

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Tips & Tricks

  • Where to Look
    • One of the easiest ways to start is to google "_______ industry report pdf" and you'll usually find some industry specialists that have published their perspectives
    • Keep up to date on 📑Blogs & Newsletters can be a great to way to feel the pulse of what is interesting and what trends are repeatedly coming up
  • Opportunity CanvasingOpportunity Canvasing
    • Similar advice to finding companies to invest in extends to finding markets that are worth evaluating to better understand the bigger picture

What People Are Saying

Recommendations

Market: Other Resources