You Have to Start With a Core Market
"There are so many markets and they are all so large. If we get just 1%..." This is the typical thought process of a new, emotionally charged entrepreneur. They see nothing but an ocean of opportunity. This is the path to indecision. This is a great way to be in the middle of a vast ocean and paddle around like crazy until you're arms are tired. In the end of the effort you have done many, many circles.
Indeed you must shrink the waters and pick a much smaller, more specific market to start. Instead of an ocean you need a decent sized lake and you have to see the shores ahead. You pick the best destination in that lake and you paddle to that destination. (Read supplemental article "Boiling the Ocean - Picking Your Principle Market")
You have an obligation to yourself, your investors and the potential beneficiaries of your product to select AND COMMIT to your CORE MARKET. Your core market is the customer base that you will start and build your business on. You are new with limited resources and you will struggle to successfully enter into and create a strong revenue base within one specific market. Your business risk will go up exponentially if you select more than one. SO DON'T.
Instead you will layer your markets. It is much easier to move into additional markets when you have success in your core market. This is because: 1) you will have the confidence of success, 2) you will have learned how to tailor your product and your marketing to a market, 3) you will have established cost and price points that are real, 4) new markets will take notice of your other markets, 5) you will be able to leverage scale within you business, and 6) you will better understand how to add value and command more revenue in the new markets you enter.
WARNING: You will be tempted again and again to shift to additional markets. You can not do this unless you do a complete reevaluation and you are willing to abandon, for now, the core market you have selected. Do not do this lightly.
Selection Criteria for a Core Market
There are some simple selection criteria that you can use in selecting your core market. The overall size of the market is one of the least important criteria to get started. Remember that in the US - most markets are $1 billion or more in overall gross annual revenue generation. So a market that is $100 million might sound small to you. For a new company, creating a new product that kind of market size is GREAT. It will probably have other advantages of being too small for very large sophisticated players to dominate and may suffer from a general lack of innovation. That is a perfect place to start.
Technical Planning, A Double "Horse" Team
Business planning involves the classic four "Ps" of marketing - product (what you will offer and how you position it in your market), price (what you charge), promotion (how will get buyer attention) and physical distribution (this is more about your method to sell products and not the logistics of transportation). More information on physical distribution models can be found via this link (click here).
Technical planning involves R&D work (including industrial design, mechanical and electronics engineering, tooling, manufacturing, packaging and logistics).
The business planning and the product planning must work in tandem in order to significantly improve the odds of a financially successful launch to market. To this ends business planning is "one horse" and product planning is a "second horse" pulling the product launch forward. They "run" side by side. If one horse is ahead of the other then typically you "pull the product off the road". This causes extra expense, extends timelines and can destroy the chances of bringing a product to market all together.
"The Product Pregnancy"
It is very common for tangible entrepreneurs to focus on "giving birth" to their product. This usually translates into a focus on the technical side. This is only one of the four "Ps". Typically what will occur in this scenario is the entrepreneur will advance on the product side to the point they believe they are ready to begin manufacturing. It is almost never a case of the business planning being far ahead of the technical planning, such as having a bunch of product pre-orders but no product to sell. This tends to be universal regardless of the type of entrepreneur. Technocrat, Marketer or Passionate - almost always the principle focus is on "the product pregnancy". This is the process of bringing an idea only into the world as something real.
In most cases, this is the fun, exciting, scary and determinedly focused "mountain to climb". Ringing in the entrepreneur's head are thoughts like - "If I only had the product I'd..." - "be rich", "sell to everyone", "prove I'm right", "get retailers to carry it", etc. Certainly there are significant business planning dependencies on the technical planning results. For example, you can't truly determine your cost of manufacturing until you've mostly finalized product design, selected materials, etc. But mostly, to almost the exclusion of everything else, people focus on just creating the product because it becomes their obsession and they are blinded to most everything else.
"I can't wait until the baby is born."
Still Born Products
Still born is a terrible term. It is the death of something with such great potential. For most entrepreneurs, focusing exclusively on "the birth" of their product leads to an eventual "still born" situation. It is situations such as only advancing R&D until you run out of personal funds. This usually occurs because you didn't know enough to correctly estimate process and costs for R&D. It can be prototypes that simply don't work. It can be initial product runs that no one is interested in buying or no one will even seriously consider putting on store shelves. It can be engineering plans that result in a product that is far too expensive for the market to buy or limits the market of buyers too much.
To the extent that the product failed to be successfully born - the blame is solely on the entrepreneur. You can't shake your hands at the heaven's and "blame God". This is a not an organic, natural selection of DNA as with biology. The failure usually occurs because of a lack of "environmental focus".
We can think of the markets that we will sell our product into as an environment. If we truly understand an environment and we create something specifically to thrive to its parameters then we have much higher probabilities of success.
In biological environments they can be dry, wet, fertile, dessert, rich in resources or poor soil. If you could invent a new biological creature and you knew the environment you'd be "birthing" it into what traits would you select? A desert needs resistance to heat, dealing with lack of water, etc. You would model existing creatures in the world and perhaps meld together different and even new traits to be "biologically successful".
Why wouldn't you as an entrepreneur do the same thing for the product you are creating. Why would you not select markets and create a combination of traits for your product that increase the probability of "financial success". Financial success is simply positive return on all the investment to create, build and sell your product. In the world of consumer goods - 90 percent of consumer products fail to be "financially successful".
Well for some entrepreneurs it's not about the money, or money is a very limited and distinctly low priority. Since the pursuit of your product is a personal choice this is a legitimate answer. But it will always create limits in your ability to create the product and successfully bring it to market. For example, unless your product has some outstanding social benefit, it is unlikely that outside investors will be interested in your project. It may also limit retail or wholesale distribution interest in your product.
This may require significant alternative solutions such as seeking government grants, foundational non-profit support or non-main stream methods to bring your product to market such as crowd funding (i.e. Kickstarter). But this too creates "an environment" for your product that you must account and design for. It's just that "financial success" may not be your end goal. But you need to pick your goals. Perhaps it's positive social impact. Social entrepreneurism is a rising business model through the developing and developed world. There are several very good books on the subject and many successful business models around it. Here is an overview article to get you started if you have an interest (click here). However, for purposes of the focus of this writing, we're going to examine profit environments. Our environments require "financial success" driven models.
All entrepreneurs need to determine which product market environment they are going to "position" their product into. Is this a large market or niche market? Are prices high with large margins or low with tight margins? Against which existing companies and products must you compete? Are you competing against numerous small players with no market advantage? Are you competing against lumbering, powerful giants like GE?