How to identify a good market for your startup.

We are often too focus on people and product. Understanding the market is crucial. If you have a good team and a good product, the market is probably the differentiating element between a fast success and a long failure. I tried to identify what I think can be a good market.

You thought team + product was everything.

People are the key (and only?) asset of a startup. You have a good team, you are complementary, you work well together, you have fun and you are ready to ship an amazing product. Everything is fine to launch the next big thing. Except your market.

Thinking about market since day one is crucial

Let’s imagine you are building an amazing product or service with your rockstar team. If there is no one willing to pay for your solution or not enough people, you are screwed. Among the 9 out of 10 startups that fail, there are a lot of good products in non-existing market.

We usually say that we will build a product and figure out the market later. You can figure out a business model later but the market is a structural element of your startup. Choosing your market is like choosing your spouse, you usually don’t marry the first coming.

The element of a good market.

In order to reduce the risk of failure due to a bad market, I tried to identify some key elements of what I think can be good market. I found that it is simpler to create a 10 times better copycat of a product in a lucrative and existing market. A software sucks but is widely used ? You build the same but 10 times better. Launch a startup to create a new market is riskier.

So here is the framework :

  1. Identify a really painful problem.
  2. The problem is solved by existing solutions.
  3. People are already paying for the existing solutions.
  4. The solutions are crappy.
  5. There are no big barriers to entry the market
  6. The market is growing and so the problem increases

Example 1: Square

Square is the leading startup
  1. It is painful for merchants to accept credit card payments. (problem)
  2. The problem is solved by existing credit card machines (existing solution)
  3. Merchants are already paying a lot for this solution. (people pay)
  4. The solution is expansive and not easy-to-use. (the solution is bad)
  5. There are no big barriers to entry the market. (no big barriers to entry)
  6. With the digitalization of payment methods the problem is increasing and so the market. (the market is growing)

Square breaks into the market with a 10 times better solution. It started small on a niche but growing market and now it offers a bunch of services such as Square Payroll, Square Capital, Square Register or Square Cash.

Example 2: is a leading start-up in the device repairing business
  1. People break their phone (problem)
  2. The problem is solved by existing repair shops (existing solution)
  3. People are already paying for this solution (people pay)
  4. The solution is expansive, the service is bad as well as the quality of the repair (the solution is bad)
  5. There are no big barriers to entry the market. (no big entry barriers)
  6. There are more and more smartphones therefore there will be more broken phone. (the market is growing)

Save offers a 10 times better solution in an existing market. In a year they went from 25 employees to more than 360. Save is now everywhere in Europe and will launch soon in the U.S. It is a good example of how to fit into an existing market and then expend the market thanks to a good solution.

It is more comfortable to develop a solution in an existing and lucrative market where the solution sucks. We are talking about the same solution with a 10 times improvement. Of course, your execution will drastically improve the product and you will innovate but you are at least sure of the market ;)

Follow me in my quest to find such a market : @nico_bst