Startup market opportunity: Avoiding the Gartner trap

​I started down the road of writing about customer discovery because of a consistent frustration. So this week I wanted to take a step back. And get it off my chest. When it comes to talking about the market opportunity we are awful. Far too many startup and SaaS business plans are terrible. Lacking credibility, focus, relevance and anything else you would like to see. It drives me crazy.
 
This post made me feel a little better. The author (Tim Devane) sees the same problems. Why should this be? Every entrepreneur I know is obsessed about the market. Investors rank the size of the market opportunity second only to quality of team. No-one doubts that it is important. Yet still it goes on. 

Blunt and NOT to the point

​I sense some doubt. Some people reaching for the comment box. To explain why market sections in business plans are well researched and written. And I just don’t get it. Let me jump into what the real world looks like….

The bleeding obvious

​Sometimes there is a large and visible market. IOT is a good example. I know it is huge. And I don’t much care which gargantuan estimate you choose to quote. On the other hand I will need a lot of convincing that your product addresses the whole IOT market. Using this type of number is just lazy. You business plan needs to explain your real market. Not just some random mega trend.

The highly competitive

​You have identified a large and credible market. Often that will be a competitive field. This is where the 1% trap kicks in. So the business plan reads something like “We have an addressable market of $XX billion. Just 1% of that market will allow us to return 10x value to investors.” So what? Just throwing a product out there does not guarantee any level of market share. Not even 0.00001%. 
 
If you are attacking a large established market you must set out what your competitive advantage will be. What makes your product better or cheaper? Or your brand more credible? Or your business model more efficient? You don’t need to be certain. But it would be nice to know you have some ideas. On a personal level, I also love to see a product that offers genuine disruption. 

The hard to explain

​Many B2B ideas are aimed at markets that are hard to explain. Large complex industries have highly specialised and segmented supply chains. Big market opportunities exist in fields that the ordinary business person has never heard about. But if your business plan leaves the reader wondering what the market is and what your product does? Investors will be scared off. No-one likes to feel they don’t understand.
 
Here you need to spend a bit more time establishing credibility. Show how the market works. Find credible statistics. And maybe explain who produced them. Your audience may not know the trade body for your industry. Don’t forget that you may still not address the whole market. Tell people what your real market is against this background. And how your new product will be competitive and/ or disruptive.
 
I love this type of opportunity. Such markets are often dismissed as niche. Yet they can be worth billions of dollars. And the participants are often wide open to new ideas.

The true genius

​The genius of Steve Jobs was creating products that no-one knew they wanted. Startups continue to create new markets. Sometimes far from any existing product. This can be thrilling and the opportunity can be huge. If you have an idea that breaks new ground, don’t spoil it by:
 

• Using some random market data (such as the IOT example above). If it is a new market just say so. Use demographics but not market statistics.
• Missing out the monetisation. There are lots of things people want but will they pay for them?
• Not explaining what you do. I don’t care how clever your idea is or what your patent attorney says. If you can’t share what it does, don’t waste my time.

 
You will still find it tough to convince people. Perhaps this article will help you make some kind of start Find One person Who Gives a Sh!t. 

Why do startups fall into these traps?

If you have never tried to write a business plan you probably feel quite smug at this point. You are a smart person. You would never do any of these daft things. On the other hand, everyone who has written a pitch knows the truth. Me included. It is so easy to slip into what I call Gartner mode. Find a report or a news item with a nice big number. One that is vaguely relevant to your business idea. And seize on it to build your market arguments.
 
Why does this happen?

• The startup investment model pays homage to market size. VCs are looking for high returns and they need to believe your company is pursuing a big opportunity. This recent article from Christoph Janz makes the point eloquently  
• Everyone in the ecosystem gets the message. Advisors, mentors, accelerators and bloggers all tell you the same thing. Aim at large markets. This tempts people to look for big numbers ahead of credibility.
• Huge markets are also a temptation for many founders. Who wouldn’t want to build a billion dollar business and aim at a multi billion dollar global market?
• Once this mindset takes hold, teams reach for the comfort of false credibility. Names like Gartner, Forrester, McKinsey and many more offer great reassurance. And it is true these are great organisations. Yet the “data” they provide is rarely relevant. It is built on wide generalisations. Biased toward established players in well known markets. And designed to support marketing and budgeting rather than real insights. So market analysis based on the latest doorstopper report is not the way to go.
  
• Yet it is an easy option. And sizing markets is much harder than the other stuff in your pitch. You know who is in your team. Numbers and projections are easy to produce once you know the tricks of the trade. There is no problem describing how great your product will be. What is your market? How big is it? How much will they pay? These are the great unknowns. The uncertainties that are the lifeblood of business risk and opportunity.

How to avoid the Gartner trap?

​No startup has all the answers. Maybe that is another reason why founders lean on Gartner and their competitors. Investors understand this. Honesty and openness are the best policy. I would much rather hear where you are. Give me incomplete data and clear sense of purpose. Rather than rely on clever presentation and glossy names.
 
Do the hard stuff. Dig as deep as you can and invest some time. Show me a great plan to build up a clear analysis of the market. That is much better than a superficial and generalised chart from a press release.
 
And remember that every potential customer you speak to is a market indicator. Even (sometimes especially) those who don’t want to buy your product. Draw some inferences from your customer conversations. And include them when calculating your market. There will not be much science behind estimates like this. But the message will be stronger and more credible.
 
Above all be passionate about your market potential. It is not a cold calculation. Or the product of a business formula. Tell your audience why you believe in your product. In its potential to change lives or businesses for the better.  That is your real market.
 
Once you have captured this, rehearse through with someone ruthless. Send it to me if you like. Just make sure it is less than 10 lines of text.