Three key elements form the core of the business strategy for any business: determining the market focus, shaping the value proposition to meet the needs of that market, and defining the business model to deliver the value proposition at a profit. In this first of three installments of Insights "The Idea of the Business" series, we examine Market Focus and its role as the first step toward building an effective strategy for early-stage technology companies.
Goal of market focus
For new businesses, a tight market focus is critical for achieving both initial and long-term success. The goal is to find a market which has deeply felt, unmet needs. People will not respond to a new offering unless it clearly helps them deal with an urgently felt issue or opportunity for which they currently do not have a solution. The more specific the market focus, the better. Determining your market focus is a two-part process:
Step 1: identify markets with urgent needs that are not well served
Based on research and consideration, generate a list of potential target markets currently underserved by your industry. Recently published strategy books, including Blue Ocean Strategy and The Innovators Solution, emphasize the importance of (and provide frameworks for) focusing on non-customers. These include those who buy infrequently, those who choose not to buy at all, and those who never thought to buy.
In looking for such market opportunities, consider why these underserved markets are not buying. There are basically three reasons:
- Needs are not recognized. Non-customers may not recognize the need for your industry's product or service. This may be because existing offerings were not communicated to them, or may have been communicated to a different buyer in their company or household.
- Needs are not being met. Non-customers may perceive that existing offerings do not fully meet their needs. Most buyers typically have only two or three driving criteria in making a purchase. Currently available options may offer unnecessary benefits, and lack the two or three key benefits that this market needs.
- Cannot afford current offerings. Non-customers may not buy because existing offerings are beyond their price and/or risk thresholds.
Step 2: prioritize and select the most attractive opportunities
After generating a list of these underserved markets, prioritize them in terms of the best opportunities for your company using the following criteria:
- Size: How big is the market?
- Urgency: Which buyers have the most urgent, keenly felt need?
- Options: How well do the current available options serve their needs?
- Credibility: To what extent does your company have the credibility in terms of skills and experience to address this need effectively?
Prioritizing potential markets according to these factors will make evident the best target market for your company and offering. In next month's edition of Insights, we will look at, how you can develop an effective value proposition tailored to your target market's specific needs and concerns.
