Robert Ochtel’s Blog

An Experienced Approach to Venture Funding

Entrepreneurs, A Breath of Markets Approach Will Lead You to the Right Conclusions

Having a business “idea” or “concept” does not necessarily provide the entrepreneur with much direction in getting started in developing a valuable and fundable business proposition.  This beginning point in the development of a start-up company often leaves first time entrepreneurs in the dark as to which direction to proceed forward with regard to their proposed technology, product or service offering.  They often ask themselves: “Where do I start?”  The best answer here is to begin by focusing on the markets.  Why, because it is the markets where you will sell your technology, product or service offering.  It also the markets that will determine the “problem” or “need” you will be solving.  This focus on the markets will also help you determine how to position your technology, product or service offering against your competitors.  In short, by focusing on a broad breath of markets and the possibility of potential opportunities they represent, you will come to the right conclusions as to where to take your initial “idea” or “concept”, how to develop a value added product offering, what your product offering will ultimately look like and it will in the end provide you with the ability to determine the best return on investment for your venture investors. This article addresses this breath of markets approach in determining how to take your product “idea” or “concept” into reality of a valuable business proposition.

Look at a Broad Breath of Markets

In the beginning of your product definition process, all markets look the same.  Why, because at this point you do not have any details on the size of the market, the growth of the market or the potential “market needs” you will be addressing for any particular market.  Therefore, you should look a broad breath of markets that can potentially be addressed by your technology, product or service offering.  Don’t pick a favorite market at this time.  All you need to do is to determine the baseline market characteristics (size and growth), and potential “needs” or “problem” you will be addressing for a given market.  This analysis will provide you with a high level overview of the market opportunity and at the same time give you the necessary background to determine if a particular market or a number of different markets may be of interest to you and your start-up company.  Remember, this is not the time to discount a given market.  Why, because you do not have enough information on the details that will make your product competitive in this space.  All you are trying to do is to determine, from all the markets you could address, which set of markets are of potential interest and why.  This preliminary market data will be useful in drawing your final conclusions as to which markets are of interest and how to prioritize these same market opportunities.

Review the Competitors for Each Market

Once you have a list of the targeted markets that are of interest, you should next look at the competitors in your potential target markets and review their positions and product offerings.  As such, the competitors for each market will most often be different and have unique product offerings to address the market needs and requirements for that specific market. Pay particular attention to the details of each competitor’s product offering by market. Why, because different markets will require different product features, functions and capabilities, and each given competitor’s product offering will provide you with the appropriate insight as to the necessary key differentiators that make their product offerings competitive for a particular market of interest. These key product differentiators are often unique to a particular market or they may be common across a number of potential markets.  This is something you need to pay attention to since you generally at this point are looking to address as many markets as possible with your product offering.  In addition, you are looking to determine the features, functions and capabilities that will give your start-up company’s product offering a competitive advantage over your competitors for a particular target market.  Here, it pays to be very detailed.  As it is these details that will ultimately lead you to the right conclusions in determining the competitive advantage of your start-up company’s technology, product or service offering.

Define the Product Requirements for Each Market

After you have had time to review the various competitor product offerings for each potential target market of interest, you need to spend time sweating the details on the necessary product requirements for each potential market of interest. Here, you need to develop a product feature, function and capability list for each potential target market. Why, because it is this product requirements list that will provide you with the necessary insight as to what it takes to not only be competitive in a target market of interest, but what it will also allow you determine what additional product capabilities are necessary to make your product a “complete” product offering.  This often requires you to add capabilities (e.g., software, hardware, services) to your start-up company’s “core” capabilities that are well beyond the scope of your company and will require you to secure these capabilities through a strategic partnership or by other means.  In the end, you will have a compelling and “complete” product offering that addresses the needs of each particular target market. This is your goal.  Finally, it is through this market driven product requirements process that you may determine that certain markets cannot be addressed by your start-up company or will necessarily need to be addressed in the future, with follow-on product offerings, once you first establish yourself in other markets. Therefore, defining the detailed product requirements, for each given market will give you the insight you need to not only determine the necessary feature and functional requirements, it will given you insight so setting your start-up company’s targeted market priorities.

Develop Focus for Your Targeted Markets

Once you have looked a breath of markets, reviewed your competitors’ product offerings and defined the product requirements for each potential market of interest, you need to focus in on your target markets.  Here, you need to first identify which markets you believe, based on the above information, you have a clear competitive advantage.  Then you need to identify which of these markets have the highest potential for return on investment for your potential investors.  That is, which markets are the largest and have the highest long term growth.  Finally, you need to prioritize these markets in terms of total financial investment requirements and associated risk.  Some, target markets may be attractive, but will require substantial up-front investment and result in much longer time-to-money and profitability. Alternatively, other target markets may not be as attractive, but are easier to penetrate and will allow you start-up company to generate early cash flow and at the same time provide higher potential near term returns while you establish your start-up company in these target markets.  The point here is to take a look at the whole breath of markets that are available to you and your start-up company and develop a focus for a given, limited number of target markets that make sense logically, strategically, financially and opportunistically. Doing so will provide your start-up company with the focus necessary to move forward with a targeted market driven plan and at the same time provide your start-up company with higher potential for success.

As a first time entrepreneur with a product “idea” or “concept” it is not always easy to see how to move forward to develop a compelling, value added business proposition.  To take this leap forward it is always necessary to start from the markets. This market focused approach requires the entrepreneur to identify a broad breath of markets that have the potential to use their start-up company’s technology, product or service offering to solve an unmet market “need” or “problem”.  Following this market opportunity analysis with a both a review of the competitors product offering and the development of listing of the product requirements for each potential targeted market will provide you with the necessary insight to determine which target market you will ultimately have a sustainable competitive advantage.  In addition, it will provide you with the ability to prioritize these same markets, based on market opportunity, investment requirements, potential risk, and projected overall return on investment.  So, take the time to use a breath of markets approach in the development of your start-up company’s “idea” or “concept”. It will lead you to the right conclusions and provide your start-up company with necessary focus to be successful in your final target markets of interest.

This information was taken from Robert’s new book: “Business Planning, Business Plans and Venture Funding – A Definitive Reference Guide for Start-up Companies”.  Available at www.amazon.com.  For more information on the book go to www.carlsbadpublishing.com.

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September 21, 2009 - Posted by | Business Planning, Competition, Competitive Analysis, concept, Customers, Target Markets, Venture Capital, venture finance, Venture Funding

6 Comments »

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