the 6 market dynamics

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SmarterStartup.org The 6 Market Dynamics

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The 6 market dynamics that determine whether a startup or product opportunity are going to succeed.

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Page 1: The 6 Market dynamics

SmarterStartup.org  

The 6 Market Dynamics

Page 2: The 6 Market dynamics

PROBLEM STATEMENT

The Great Mystery

8  in  10    Startups    Fail  in  the    First  5  yrs  

WHY DO SOME SUCCEED?

We’ve all met people who worked very

hard to make a business succeed and yet it

failed. We’ve also met people who did

seemingly everything wrong and yet they

succeeded. Hard work is a necessary

component but it is not the entire story.

WHY DO SOME NOT?

Page 3: The 6 Market dynamics

Benjamin Franklin

PROBLEM STATEMENT

Conventional Wisdom

Diligence is the mother of good luck.

Popular maxim’s (wise quotes) taken in isolation, only give a one-dimensional

view of what you must do to succeed. But its not the entire story.

Page 4: The 6 Market dynamics

Diligent Negligent

Success

Failure

IS HARD WORK THE ANSWER?

Hard work alone is NOT a reliable

predictor of success however. Hard

working people sometimes fail and

negligent people sometimes

succeed.So what’s missing?

PROBLEM STATEMENT

Conventional Wisdom

NOT ENTIRELY

Page 5: The 6 Market dynamics

THE FUNDAMENTAL CRITERIA

START HERE

There are 6 different market dynamics acting upon the market

and affecting opportunity, that must

be considered in order to determine

a good opportunity or to identify

relative strengths and weaknesses.

6 MARKET DYNAMICS

The 6 Market Dynamics

Timing

Customer Product

CompetitionStartup Opportunity

Finance Team

Page 6: The 6 Market dynamics

x  

Working hard is analogous to throwing a ball hard. The velocity is an important part of

reaching the target, but you cannot ignore other interactive forces like gravity and drag.

Gravity  (;ming)  

Direc;on  (customer  need)  

There’s More to the Story? PROBLEM STATEMENT

Drag  (compe;;on)  

Velocity  (hard  work)  

Page 7: The 6 Market dynamics

IS IT A GOOD OPPORTUNITY?

THE 3 APPLIED TOOLS

We’ve created 3 applied tools for implementing the 6 market dynamics: •  Startup Heuristics

•  Startup Scorecard

•  Evaluation Matrix

6 MARKET DYNAMICS

Applied Tools

customer  

product  

compe;;on  

;ming  

financial  

team   The  6  Market  Dynamics  

Page 8: The 6 Market dynamics

6 MARKET DYNAMICS

The Startup Heuristics

Startup Heuristics

Finance

13. Low Sunk Costs

14. Working Capital Float

15. Economies of Scale

Timing

7. Recent Innovation Enabler

8. Demand Already Established

9. No Signs of Commoditization

Competition

10. Clear Market Inefficiency

11. Low Barriers to Entry

12. Differentiable Position

Team

16. Subject Matter Expertise

17. Functional Competence

18. Supplier Partnerships

Product

4. Customer Focused Solution

5. Low Barriers to Adoption

6. Clear Value Proposition

Customer

1. Unmet Need or Desire

2. Right Size Market or Segment

3. Reliable Access to Customers

© 2014 Cabage & Zhang

Page 9: The 6 Market dynamics

WHAT’S A GOOD CUSTOMER?

The ideal customer has an unmet need or

desire. The size of this market should

match your ability to compete and ability

to deliver justify solving the problem.

Validate you can control means of

customer acquisition along the way.

STARTUP HEURISTICS

Customer Criteria

UNMET NEED OR DESIRE Unsatisfied Customer Desire

RIGHT-SIZE MARKET OR SEGMENT Need to Segment? Too Niche?

RELIABLE ACCESS TO CUSTOMERS Diversified Channels? Gatekeepers?

Page 10: The 6 Market dynamics

WHAT’S A GOOD PRODUCT?

A good product will be a direct response to

a customer need or desire. If the value is

well articulated and the customer is

passionate about your new solution, the

reason to buy will be compelling. Consider

deterrents also – are their high switch

costs and is the solution easy to use and

understand?

STARTUP HEURISTICS

Product Criteria

CUSTOMER FOCUSED SOLUTION Solves Unmet Need or Desire?

LOW BARRIERS TO ADOPTION Low Switch Cost, Usability

CLEAR VALUE PROPOSITION Compelling Reason to Buy

Page 11: The 6 Market dynamics

WHAT IS GOOD TIMING?

Every market has a natural lifecycle

driven by innovation and circumstance.

Look for new demand or interest in

something that wasn’t possible just a

couple years ago. Be a “fast follower”

into a validated emerging market rather

than speculating on new opportunity.

STARTUP HEURISTICS

Timing Criteria

RECENT INNOVATION ENABLER Was it Possible 2-5 Years Ago?

DEMAND ALREADY ESTABLISHED Build It & They Might Not Come!

NO SIGNS OF COMMODITZATION Shrinking Margins. More Products.

Page 12: The 6 Market dynamics

GOOD COMPETITIVE LANDSCAPE?

Avoid being marginalized by excessive

undifferentiated competition. That

drives margin compression, commodi-

tization and market consolidation. Look

for inefficient markets where there’s

still ‘play’ and find ways to develop a

sustainable competitive advantage.

STARTUP HEURISTICS

Competition Criteria

CLEAR MARKET INEFFICIENCY Stagnant or Fragmented Market

LOW BARRIERS TO ENTRY Easy & Cheap to Compete?

DIFFERENTIABLE POSITION Something Special or Different?

Page 13: The 6 Market dynamics

GOOD FINANCIAL PROFILE?

Look for opportunities to maximize

returns without excess capital risk.

Look for opportunities to start cheap

and to realize higher margins through

focused efforts and economies of scale.

Avoid locking up too much capital.

STARTUP HEURISTICS

Financial Criteria

LOW SUNK COSTS Up Front Capital at Risk?

WORKING CAPITAL FLOAT Gap Between Payable/Receivables

ECONOMIES OF SCALE Margins Increase With Volume?

Page 14: The 6 Market dynamics

WHAT’S GOOD TEAM FIT?

Just because an opportunity exists, doesn’t

mean your team is likely to succeed. Are

you fit to compete? Does your team have a

competitive advantage? Do you possess

deep knowledge, technical skills to deliver,

& access to key partners and resources?

STARTUP HEURISTICS

Team Fit & Fitness Criteria

SUBJECT MATTER EXPERTISE Deep Knowledge of Market?

FUNCTIONAL COMPETENCE Technical Skills to Deliver

SUPPLIER PARTNERSHIPS Access to Materials at Good Cost

Page 15: The 6 Market dynamics

We’ve also developed an easy-to-use worksheet called

the Startup Scorecard for scoring your opportunity (A-

F). Consider the 3 heuristics for each market dynamic

and give a letter grade for each. This exercise will walk

you through considering all aspects of the opportunity

ad surface any weaknesses that need to be considered

or resolved before proceeding.

The Startup Scorecard

Startup Scorecard

Finance

• Low Capital Requirement

• Clear Profit Model

• Economies of Scale

Finance Score ______

Timing

• Recent Innovation Enabler

• Demand Already Established

• No Signs of Commoditization

Timing Score ______

Competition

• Clear Market Inefficiency

• Low Barriers to Entry

• Differentiable Position

Competition Score ______

Team

• Subject Matter Expertise

• Functional Competence

• Supplier Partnerships

Team Score ______

Product

• Customer Focused Solution

• Low Barriers to Adoption

• Clear Value Proposition

Product Score ______

Customer

• Unmet Need or Desire

• Right Size Market or Segment

• Reliable Customer Channels

Customer Score ______

Overall Score _______SmarterStartup.org

Title _____________________________________________________________________

A A

B- B+

D A-B

Real Estate IDX Integrated CRM

Page 16: The 6 Market dynamics

6 MARKET DYNAMICS

The Evaluation Matrix

    Customer   Product   Timing   Compe33on   Finance   Team   Overall  

   IDX  WordPress  Theme C   B   B   B   A   A  

   Virtual  Assistant

   Marke3ng  CRM

   Property  Search  Site

   Lead  Genera3on

Alternatively, we can apply this same grading technique to multiple startup ideas by applying the

market dynamics to a matrix t see how different opportunities compare (strengths & weaknesses).

Page 17: The 6 Market dynamics

EVALUATION MATRIX

Score Your Ideas

    Customer   Product   Timing   Compe33on   Finance   Team   Overall  

   IDX  WordPress  Theme C   B   B   B   A   A   B+  

   Virtual  Assistant

   Marke3ng  CRM

   Property  Search  Site

   Lead  Genera3on

Alternatively, we can apply this same grading technique to multiple startup ideas by applying the

market dynamics to a matrix t see how different opportunities compare (strengths & weaknesses).

Page 18: The 6 Market dynamics

THE SMARTER STARTUP

STRATEGY FOR STARTUPS

The Smarter Startup looks at why some

startups succeed while others fail. By taking a

more strategic approach to entrepreneurship,

founders can improve their own outcomes.

Written by Neal Cabage and Sonya Zhang,

PhD, and published by Pearsons/NewRiders.

SMARTER STARTUP

The Book

Page 19: The 6 Market dynamics

SMARTER STARTUP

SmarterStartup.org

The framework, including the part

described here, are posted on the website,

along with downloadable worksheets and

reference material. Everything is free to

use, so enjoy!.

www.SmarterStartup.org