Estimating the Market Potential for a New Category
Imagine it’s 2010. You come across an opportunity to invest in a new venture that no one ever built before — a fitness tech app, a meal kit delivery service, or a ride-sharing app. How on earth can you make an educated decision?
Untapped markets are incredibly exciting. Being a first-mover allows you to identify and address unmet needs, gain potential for rapid growth, and shape industry dynamics in the absence of established players.
However, venturing into these uncharted territories comes with risks and challenges, such as limited historical data and market insights. In addition, even a completely new product category often lives in rigidly-structured ecosystems that don’t always welcome a new entrant trying to set new industry standards. This poses risks such as uncertain customer adoption, unproven demand, and unforeseen challenges.
That’s why determining market potential is essential for business leaders in all capacities. Drawing on more than a decade of experience as a profitable growth consultant, working closely with C-level executives, product leaders, and investors in businesses from various industries in all shapes and sizes, I’ve collected these 10 valuable dos and don’ts to help you navigate this exciting journey.
1. Focus on “Jobs to be Done”
84% of global executives reported that innovation was extremely important to their growth strategies, but a staggering 94% were dissatisfied with their organizations’ innovation performance. Why? According to Tony Ulwick, product developers put too much focus on building customer profiles and looking for correlations in dataְ — but those don’t explain why customers go out and buy a product. Instead, to create offerings that people truly want, firms need to ask what it is the customer is trying to achieve.
Good innovations solve problems that formerly had only inadequate solutions — or no solution at all. When you need to estimate the potential demand for these products and make informed decisions, you must start by uncovering the hidden demand that existing products fail to fully address.
This is where Jobs to be Done (JTBD) comes in. “Job” in this context refers to anything individuals wish to accomplish in a given circumstance — which is more important than customer characteristics, product attributes, new technologies, or trends.
We all have many Jobs to be Done. Some are small (pass the time while waiting in line) and some are big (find a more fulfilling career). Some surface unpredictably (dress for an out-of-town business meeting after the airline lost my suitcase) and some regularly (pack a healthy lunch for my daughter to take to school).
When we buy a product, we essentially “hire” it to help us get the Job done. If it succeeds, the next time we’ll be confronted with the same job, we probably hire them. If it doesn’t, we’ll “fire” it and look for alternatives.
By applying JTBD, you delve beyond surface-level preferences and demographics and instead, focus on the underlying “job” customers are trying to accomplish. This will allow you to define the unit of value that will eventually translate into the new product usage.
Let’s take a look at some examples. The fitness industry aims to help customers achieve their fitness goals conveniently. This goal is what led to the emergence of fitness tech products like smartwatches, catering to real-time monitoring and personalized guidance. Similarly, in the food industry, understanding that customers struggled to prepare home-cooked meals due to time constraints and lack of expertise paved the way for meal kit delivery services. Lastly, ride-sharing apps disrupted the transportation sector by addressing customers’ need for convenient, affordable, and hassle-free transportation.
JTBD guided these innovations, ensuring they aligned with customers’ underlying motivations and desired outcomes. By applying JTBD, you too can estimate the potential demand for your product, tap into the hidden demand, and create a solution that truly resonates with your target audience.
2. Don’t outsource market research or blindly trust off-the-shelf market reports
If you only judge by pre-seed investor decks, you’d probably believe every company operates in a $50B market with over 20% CAGR. That is obviously not the case, yet too many business leaders believe market research is a task that has to be done by domain experts or backed up by off-the-shelf market reports. While they’re not completely wrong, when it comes to estimating the potential for an untapped market, it’s essential to avoid this pitfall.
Relying solely on off-the-shelf market research reports to estimate your venture’s potential is a crime against yourself. These reports often provide generalized data that may not accurately reflect the unique dynamics and nuances of your specific ecosystem (see commandment #3). They often lack the granularity needed to uncover hidden opportunities or emerging trends that can significantly impact your venture’s success.
Moreover, by outsourcing your market research, you risk losing the valuable opportunity to deeply understand your target market and their needs. Embrace your market research as a crucial aspect of your journey. Stress-test your findings and assumptions with experts.
During my years-long experience, I have created a few simple hacks and tools for interrogating off-the-shelf market research analysts. There are more than a few high-quality reports issued by high-quality companies, but the good ones tend to be laser-focused on very specific verticals where added value is created. Feel free to contact me for recommendations and tips on how to work effectively with online market research report companies.
3. Know Your Ecosystem — Understand who are you disrupting and how the ecosystem will eventually shape up
When estimating the potential for a non-existent product category, it is crucial to have a deep understanding of the ecosystem in which your venture will operate. Every industry has its unique dynamics, stakeholders, and competitive landscape. Understanding your ecosystem enables you to navigate the untapped market strategically, leveraging synergies, identifying collaboration opportunities, and mitigating potential risks.
By mapping out the value chain and identifying your venture’s position within it, you can pinpoint where you can create value, differentiate yourself, and establish a competitive advantage.
Knowing your ecosystem and your venture’s fit within it is like having a compass that guides your decision-making, enabling you to make informed choices and maximize your chances of success in uncharted waters.
4. Build prototypes to gain the most genuine market feedback
Where possible, building a prototype is an important step in estimating the potential for a non-existent product category. Prototyping allows you to bring your concept to life, providing a tangible representation of your idea. It also enables testing your assumptions, gathering feedback, and iterating your design. It gives you first-hand observation of the audience’s reaction to your idea.
5. Segmentation, Segmentation, Segmentation
The late Lord Harold Samuel, a real estate tycoon in Britain, coined the expression: “There are three things that matter in property: location, location, location.” When evaluating the need for a new product category, segmentation becomes a crucial aspect of your market analysis, to the extent that you can replace it with “segmentation, segmentation, segmentation”.
By segmenting your target market into distinct groups based on shared jobs to be done or reactions to your prototype, you gain valuable insights that can shape your understanding of the potential demand. Each segment represents a unique set of customers with specific preferences, pain points, and motivations.
Through segmentation, you can gain a deeper understanding of the diverse audiences that react positively or negatively to your idea, allowing you to gauge the tangible and immediate potential of the new product category.
6. Don’t strive for accuracy
In the pursuit of estimating the potential for an untapped market, it’s important to embrace the reality that absolute accuracy is elusive. Market dynamics are constantly evolving, customer preferences are subjective, and uncertainties abound. Instead of striving for absolute precision, focus on gaining directional insights and making informed assumptions.
Estimates and projections are inherently imperfect, but they can still provide valuable guidance for decision-making. Embrace a mindset of agility and adaptability, allowing yourself to refine your strategies based on feedback and real-world outcomes. This will help you navigate the untapped market with greater confidence and flexibility, adjusting your course as new information emerges. Don’t aim for perfect accuracy; instead, aim for informed decision-making and continuous learning, which will position your venture for success in the ever-changing untapped market.
7. Don’t over-complicate
When estimating the potential for an untapped market, the amount of information and insights you gather can be overwhelming. To make sense of this vast knowledge and effectively communicate it to stakeholders, condense everything you’ve learned into a single-page summary.
This summary serves as a strategic document that captures the key market trends, customer insights, competitive landscape, and value proposition.
By distilling the information into a concise format, you create a powerful tool for aligning your team, attracting investors, and guiding strategic decision-making. In addition, the single-page summary ensures that the most critical information is readily accessible, enabling you to maintain focus on the factors that truly influence your venture’s success in the untapped market.
8. Don’t work in a silo, get feedback from optimistic and pessimistic people
A research study published by the Harvard Business Review found that diverse teams make better decisions 87% of the time compared to individual decision-makers. That’s why engaging with diverse viewpoints provides valuable insights and challenges assumptions, leading to more robust market assessments.
Optimistic individuals can offer creative ideas, envisioning the market’s potential and possibilities. Conversely, pessimistic individuals bring a critical lens, highlighting potential pitfalls and risks. By considering both perspectives, you can refine your strategies, mitigate blind spots, and increase the chances of success in the untapped market.
9. Quantify the Hidden Demand by determining the unit of value and willingness to pay.
To accurately estimate the potential of an untapped market, it’s essential to quantify the hidden demand. This involves determining the unit of value that customers associate with your offering and understanding their willingness to pay for it.
The unit of value refers to the specific metric or dimension that customers use to assess the worth of a product or service. By identifying and quantifying this unit of value, whether it’s time saved, convenience, improved performance, or cost reduction, you can better understand the economic impact and potential market size.
Additionally, assessing customers’ willingness to pay provides insights into pricing strategies, revenue potential, and market viability. Understanding the value customers place on your offering helps optimize pricing levels, develop compelling value propositions, and capture a fair share of the untapped market.
10. Don’t rely on a single data source or research method
Estimating the potential of an untapped market requires a comprehensive and multi-faceted approach. Relying on a single data source or research method can lead to incomplete or biased insights, which can be detrimental to your decision-making process. To ensure accuracy and reliability, it’s crucial to triangulate your research by gathering data from multiple sources and utilizing various research methods.
This approach helps validate your findings, uncover hidden patterns, and provide a more holistic understanding of the untapped market. By combining quantitative and qualitative data, leveraging primary and secondary research, and employing techniques such as surveys, interviews, and focus groups, you can paint a more robust picture of market dynamics, customer preferences, and competitive forces. Triangulation minimizes the risk of making decisions based on limited or flawed information and enables you to make informed choices that drive your venture’s success in the untapped market.
Key success factors: Broaden your knowledge, share your experience, reach out for advice
Determining the potential for a product that doesn’t exist can be a challenging task, but by identifying the problem your product solves, conducting market research, estimating market demand, and building a prototype, you can begin to get a better sense of whether your product has the potential to be successful. It’s important to remember that market potential is just one aspect of a successful product launch. Don’t forget to consider factors such as pricing, marketing, and distribution when bringing a new product to market.
To deepen your understanding, I recommend reading or listening to “Jobs-to-be-Done: Theory to Practice” by Tony Ulwick along with “Competing Against Luck” by Clayton Christensen for insights on JTBD and “Lean Analytics” by Alistair Croll and Benjamin Yoskovitz for effective data-driven decision-making.
If you have specific dilemmas or would like to pick my brain during a 45 minute free of charge consulting session, feel free to contact me at bettercallisaac@gmail.com. I welcome your valuable perspectives, comments, and contributions based on your unique experiences. Let’s collectively expand our understanding of determining market potential for non-existent product categories and drive success in untapped markets.
