Understanding your market, including your customers and your competitors, is essential if you’re going to build a successful business. It’s a crucial step in establishing product-market-fit.
In most cases this starts with identifying a problem that a sizable market needs solved and a product that can solve that problem. So it basically starts with a question: Will your product solve a fundamental need in the market such that customers will pay money to purchase or use it?
Understanding your market involves understanding the pivotal stakeholders that will define the success of your business. In particular your customers, competition, key partners and service providers, token holders, and more.
One of the biggest reasons why knowing your market is so important is because it’s one of the most fundamental things VCs look at when considering whether to invest in your project or not and how much money they are going to put into your idea.
The ultimate size of the market opportunity is probably the most important thing they look at.
How to size your market?
When sizing market opportunities, founders should refer to TAM, SAM, and SOM. That’s generally what we tend to work with in pitch decks at OV accelerator programs. Let’s see what each of these acronyms means and why they are helpful in assessing investment opportunities.
- Your Total Addressable Market (TAM) is the total market demand for your products and / or services.
- Served Available Market (SAM) is the segment of TAM that you can target with your products and / or services.
- Serviceable Obtainable Market (SOM) is the portion of the SAM that you can actually require and realistically capture.
What is really important for VCs is what can you capture in the short term versus what is the greater and larger opportunity and how you see that. For this reason, an estimate of the market size is a mandatory part of every business plan that must be presented by a startup in order to receive the investment for the development of their idea.
Getting to know your customers
As an entrepreneur, you need to create a product based on your customers’ needs, not what you want to sell.
So it starts with the question: Who are my customers?
According to Fundera, 14% of startups fail due to not regarding customers’ needs. Hence, it’s important to really understand the problem you’re solving and who is the ultimate end user of your product.
Once you’ve identified your target customer, it’s time to get to know them better: What do they want (this speaks to the problem you’re solving)? How will they react to my product? What will they be willing to pay for my product? Understand their unique needs, traits, pain points, and expectations of your product.
You need to think through and create your customer personas. There’s likely to be more than one.
Imagine you’re building an NFT marketplace. Your end users are on both sides: on one side, there are people who are purchasing and trading NFTs utilizing the marketplace, and on the other side, your users are NFT creators who would deploy assets onto that marketplace. Both of them are equally important for you and you need to cater to them as customers.
When sizing the opportunity and potential value of that opportunity, you may be at a different sector or set of customers whereas when you’re having a look at who your competition is, and what your go-to-market strategy is, you may have to go broader.
In this case, when building a go-to-market strategy for your NFT marketplace, you’re gonna target both creators and users. Whereas when you’re looking at sizing the market and the potential value of the opportunity, you probably only gonna look at the user sector or whatever your revenue is derived from.
If you’re gaining the revenue from the creators taking the upfront fee and then taking fees trading on the marketplace, then the potential size of the value of the opportunity and market would be on both sides. But if you’re taking fees on one side only, then the size of your potential opportunity and market is limited to that.
Your community members are not always your end users
Another thing founders should consider when identifying their target audience is that your users and your community members are not always the same people. So you should keep that in mind when marketing your products and services.
For example, you can have an audience, your community members who may follow your project, actively engage with your content, and invest in your token. But that doesn’t mean they will use your product. You should consider them as investors and stakeholders, and not as your end users.
I’ve seen this quite often when we do token launches or when we start marketing towards the launch. Founders need to market to their target audience – those who are going to use their product, and then also they need to appeal to the broader crypto community who may support their token because often, these are not the same people.
Unfortunately, there’s still remarkably little effort put into understanding the target audience. It’s often an assumption and not thought through much. As a result, 70% of startups fail during the first two to five years. They are not able to identify their real users which results in sizing the wrong market and targeting people who are not interested in their products.
One of the exercises that we’re doing with founders when they come in is to make them do user profile and user journey. It really helps them to understand who they are building it for. And with that clear vision of their potential customer, they are able to determine the potential size of their market.
Getting to know your competition
As an entrepreneur it’s essential that you understand your competitive landscape. We encourage all entrepreneurs we work with to conduct a comprehensive competitive analysis.
This entails researching all major competitors to gain insight into their products, pricing models, and go-to-market strategies and more.
The first step to find your competition is to look if there are other companies that are offering something similar to your products / services. And then, when you found these companies, it’s time to dig in. Look at what their unique selling points are? What makes their products special? What does their pricing model look like? What traction have they achieved thus far (think customers, investment, press, community etc.)? How does your product and proposed pricing compare?
However, identifying your competition can be tricky. Often two projects may overlap to an extent and a lot of founders tend to look at them and say – That’s different, they are not our competition.
But it’s important to look deeper and investigate more thoroughly: maybe this project at some point can solve a similar problem or it has some form of unique selling point that is similar to yours. And then, if it does, you need to analyse what these competitors do, what are their USPs, where there’s overlap with what you’re doing and how do they compare to you on that front.
Or it can be the opposite. Sometimes founders tend to mistake other companies that are trying to achieve the same thing as a competition, where often they can be complementary.
For example, you could have a purpose to onboard the next million users into web3. But 2 different companies can take 2 completely different routes to do it. So one can say – I can do it by solving the problem in UX, but another could say – I’m doing it by making it much more accessible to many more people. And so those two are not going to directly compete but they do have the same purpose.
Another way you can succeed in overtaking your competitors is by offering more than they do and bringing more value to your customers.
UpLink, a collaborative internet network, followed that path. Instead of locking customers into undesirable deals, UpLink provides low-cost internet service through mesh networking, rewarding both buyers and sellers of data. Sellers simply download the UpLink app onto their phone and allow it to project their connection out to the rest of the network. All data is securely encrypted, so users do not have to worry about the safety of sharing their connection.
So they basically changed this centralised provider-client model into a collaborative decentralised network where users can be rewarded for sharing their data.
By taking this approach, Uplink were able to drive in their target audience – people who didn’t like the current system and were looking for a fairer, decentralised way to connect.
Really get to know your competitors’ products and understand why their customers keep going back (or don’t). Study their websites, use their products and speak with their customers and really get a feel for their pain points. Don’t hesitate to talk to your competitors too. I think it’s a great way to get a better grasp on how they think and what they are trying to accomplish. Remember that although they are your competition – they are also your industry colleagues, and you can learn a lot from them.
In this piece, you learned how to understand and size your market opportunity. Here are our top tips:
- Understanding your market – your customers and your competitors – is the key to building a successful business.
So it basically starts with a question:
Is your product going to solve a fundamental need in the market so that customers will pay money to buy or use it?
- Getting to know your market is a complex process that involves identifying the pivotal personas that will define your business’s success. These are your customers, competition and service providers, community members, token holders, and more.
The process might be overwhelming for the founders that have never done this before, and we at OV are focused on helping founders navigate it.
- The first step is to understand your target customers. We help founders build profiles of their potential customers and user journey to understand who they are building for. And with that clear vision of their potential customer, they are able to determine the potential size of their market.
- The next step is to find your competition. You need to think about what your unique selling points are. And then look at if there’s anyone else in the market offering something similar. To be successful in understanding your competition, you need to learn them far and wide, diving into a plethora of fields in order to understand their connections, unique models, challenges, and how you can learn from and apply aspects of each of them to your work.