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1a three types-of_startup.2013.q2
- 1. “Three Types Of Startup” Iain Verigin 1
- 2. Agenda • Market Type – Definitions – Examples – Risks • Customer Development – Definitions – Market Type effects 2
- 4. People Underlying Drivers in Growth Markets “Technology Adoption Strategies” Pragmatists: Stick with the herd! Visionaries: Get ahead of the herd! Conservatives: Stick with what’s proven! Skeptics: Just say No! Techies: Just try it! 4 Copyright © Geoffrey A. Moore, 2005, from the book “DEALING WITH DARWIN”
- 5. Technology Adoption Life Cycle ! Pragmatist’s Don’t Trust Visionaries ! Main Street Tornado Early Market Chasm Bowling Alley Copyright © Geoffrey A. Moore, 2005, from the book “DEALING WITH DARWIN” 5
- 6. Update 2011 ? Instant Success ? In 4th year after launch. ( ie 6 years ) This is as fast as it gets. NB. Apple's fiscal year ends in September. This means that Q1 includes the holiday season, which accounts for jumps in the data. Fiscal Q1 is Oct - Dec of previous year. So Q1 of 2008 is Oct - Dec of 2007, Q2 of 2008 is Jan - Mar of 2008 and so on. 6
- 7. The Startup Curve The Startup Curve <<http://www.avc.com/a_vc/2012/03/the-startup-curve.html
- 8. Market Types Extension of New Product Adoption Curve, and “Crossing the Chasm” 8
- 9. Existing Market “Chasm” No Chasm Main Street Tornado Early Market Bowling Alley Copyright © Geoffrey A. Moore, 2005, from the book “DEALING WITH DARWIN” 9
- 10. Existing Market = Linear Sales Growth 10
- 11. Resegmented Market “Chasm” Main Street Tornado Early Market Chasm Bowling Alley Copyright © Geoffrey A. Moore, 2005, from the book “DEALING WITH DARWIN” 11
- 12. Resegmented Sales Year 7 Year 6 Year 5 Year 3 Year 4 Year 2 Year 1 12
- 13. New Market “Chasm” Main Street Tornado Early Market Chasm Bowling Alley Copyright © Geoffrey A. Moore, 2005, from the book “DEALING WITH DARWIN” 13
- 14. New Market Hockey Stick Sales Curve 14
- 15. :aside: Another Way The Knowledge Funnel Crossing the chasm is very close to moving through the knowledge funnel. Some people like the Mystery. Some people like the “Rule of Thumb” ( ie Heuristic) Some people like “no frills” Each of these groups are different and don’t trust each others product/service referrals. 15
- 16. Market Type Who Cares ?! Why are those chasm’s getting bigger? Can’t we just avoid them? 16
- 17. Type of Market Changes Everything Clone Market • Market – – – – – Existing Market Resegmented Market • Sales Market Size Cost of Entry Launch Type Competitive Barriers Positioning – – – – Sales Model Margins Sales Cycle Chasm Width New Market • Customers • Needs • Adoption •Finance • Ongoing Capital • Time to Profitability (landscape very different in type)
- 18. Definitions: Four Types of Markets Clone Market Existing Market Resegmented Market New Market • Clone Market – Copy of a U.S. business model • Existing Market – Faster/Better = High end • Resegmented Market – Niche = marketing/branding driven – Cheaper = low end • New Market – Cheaper/good enough, creates a new class of product/customer – Innovative/never existed before
- 19. Focus on 3 Types 19
- 20. Definitions Existing Market Resegmented Market New Market • Existing Market – Faster/Better = High end • Resegmented Market – Niche = marketing/branding driven – Cheaper = low end • New Market – Cheaper/good enough can create a new class of product/customer – Innovative/never existed before 20
- 21. Definition: Existing Market • Are there customers in the current market who would: – Need the most performance possible? • Is there a scalable business model at this point? • Is there a defensible business model? – Are there sufficient barriers to competition from incumbents? 21
- 23. Performance Oops, forgot about “Time” Our Company Current Companies Time 23
- 24. Existing Market Risks • “Better/Faster” is an engineering driven axiom • Incumbents will defend high-end, high-margin businesses • Factor in: – Network effect of incumbent – Sustaining innovation of incumbent – Industry (or your own) “standards” • “They’ll never catch up” is not a business strategy • Established companies almost always win 24
- 25. “Existing Market”– Knowledge Funnel Existing markets are “Algorithmic” and/or “Heuristic” Existing Market 25
- 26. Definition: Resegmented Market- Low End • Are there customers at the low end of the market who would: – buy less (but good enough) performance – if they could get it at a lower price? • Is there a profitable business model at this low-end? • Are there sufficient barriers to competition from incumbents? 26
- 27. Performance Low-End Resegmentation “Good Enough” Performance Future Companies Current Companies Our Company Time 27
- 28. Definition: Resegmented Market (2)Niche • Are there customers in the current market who would: – buy the same product if it addressed their specific needs – if they could get it at the same price? – If it cost more? • Is there a defensible business model at this point? • Are there sufficient barriers to competition from incumbents? 28
- 31. Resegmented Market Risks • “Cheaper” is a sales-driven axiom • Incumbents will abandon low-end, low-margin businesses – Often -- For the right reasons :-( • Low-end must be coupled with a profitable business model – Up migration 31
- 32. “Segmented Market”– Knowledge Funnel Creating a new “SEGMENT” introduces “MYSTERY” Segmenting a Market 32
- 33. Definition: New Market • Is there a large customer base who couldn’t do this before? – Because of cost, availability, skill...? • Did they have to go to an inconvenient, centralized location? • Are there sufficient barriers to competition from incumbents? 33
- 34. New Market Performance ( Customers That Don’t Exist Yet) Time 34
- 35. New Market Risks • “New” is a marketing-driven axiom • New has to be unique enough that: – There is a large customer base who couldn’t do this before – They want/need/can be convinced – Adoption occurs in your lifetime • Company manages adoption burn rate – Investors are patient and have deep pockets 35
- 36. “New Market”– Knowledge Funnel New Market 36
- 37. Hybrid Markets • Some products fall into Hybrid Markets • Combine characteristics of both a new market and lowend resegmentation – SouthWest Airlines – Dell Computers – Cell Phones 37
- 38. Three Types of Markets Existing Market Customers Existing Customer Needs Performance Performance Better/Faster Competition Existing Incumbents Risks Existing Incumbents 38
- 39. Three Types of Markets Existing Market Resegmented Market Customers Existing Existing Customer Needs Performance 1. Cost 2. Perceived Need Performance Better/Faster 1. Good enough at the low end 2. Good enough for new niche Competition Existing Incumbents Existing Incumbents Risks Existing Incumbents 1. Existing Incumbents 2. Niche strategy fails 39
- 40. Three Types of Markets Existing Market Resegmented Market New Market Customers Existing Existing New & New Usage Customer Needs Performance 1. Cost 2. Perceived Need Simplicity & Convenience Performance Better/Faster 1. Good enough at the low end 2. Good enough for new niche Low in “traditional attributes”, improved by “new” metrics Competition Existing Incumbents Existing Incumbents Non-consumption & other startups Risks Existing Incumbents 1. Existing Incumbents 2. Niche strategy fails Market Adoption 40
- 41. Why Bother With Anything But Existing Market Model? The others appear risky 41
- 42. Aaargh:-( • The existing market model is a dream – It sucks people in like a drug – It works for market leaders like: “Windows”, Intel Processors, etc • Incumbents “Will Protect an Existing Mkt”. – If you are not in the market then you have to expect that it will take “time” to get to know and win customers!!!!! – If someone tells you different, it’s time to move on. 42
- 43. Market Entry: Cost Summary Market Share Cost of Entry (vs Leaders Sales/Mktg Budget) Entry Strategy Monopoly > 75 % 3x Resegment Duopoly > 75 % 3x Resegment Market Leader > 41 % 3x Resegment Unstable Market > 26 % 1.7x Existing/ Resegment Open Market < 26 % 1.7x Existing/ Resegment New Lanchester Strategy Table 5.2 - page 127 “Four Steps” 43
- 44. Interesting Reading • Paul Graham – “Startup = Growth” – http://www.paulgraham.com/growth.html • Andrew Chen – “Is your market actually big? Or is it a fake market?” – http://andrewchen.co/2012/10/08/is-yourmarket-actually-big-or-is-it-a-fake-market/ 44
- 45. First Mover (dis?) Advantage • GBF (Get Big Fast) Strategies – VC Mania • Results are in from the Trillion $ science experiment Internet bubble of the 90’s. – New Market adoption can not be accelerated – Possibly useful for resegmentation – Heuristics for when to invest in GBF • Examples – Google was not first in search. 45
- 46. “First Mover”– Knowledge Funnel The first mover is “solidly” in the MYSTERY ZONE There is no money in the mystery zone. 46
- 47. Model – Reliability Bias Roger Martin “Design of Business” During Exploration stage the ratio needs to be skewed towards Intuition. “High Risk, Low Data Decisions” Page 90 “Crossing the Chasm”, G Moore You can’t analyze Low Data. You’ve got to go get some “real data yourself” 47
- 48. Model – Radical Change of Meanings Roberto Verganti’s “Radical Change of Meanings” ! Very Useful for our class ! • Existing Market •User Centered Market Pull • New Markets • Technology Push • Design Driven • Adoption not guaranteed • Requires Customer Insight & Training for “Meaning” to become accepted or adopted • Segmentation Opportunities are in between 48
- 49. Customer Development Market Type issues in context of the Full Customer Development Model 49
- 50. Interactions • Choice of market type impacts each step of the customer development process – – – – Discovery Validation Creation Scale Customer Discovery Customer Validation Customer Creation Scale Company 50
- 51. Market Types Affects Customer Discovery Customer Discovery Customer Validation Customer Creation Scale Company 51
- 52. Customer Discovery • Goal is become a “domain expert” • :idea: This may be hard for some/all of the team to accept – : think : “I’m already an expert” • Time Varies depending on market type – Existing market issues are known – New market is a science project – Resegmenting a niche is an art form 52
- 53. Market Type Affects Customer Validation Customer Discovery Customer Validation Customer Creation Scale Company 53
- 54. Customer Validation • Goal is to find a repeatable and scalable sales process • Time Varies depending on market type – Existing market sales issues are known – New market goal is to find a tipping point 54
- 55. Where Market Type Really Matters • After Customer Validation • The “Rate” of Scaling that is possible 55
- 56. Market Type Affects Customer Creation Customer Discovery Customer Validation Customer Creation Scale Company 56
- 57. Customer Creation (1) Year 1 Objectives Existing Market Market Share Resegmenting an Existing Market Market reframing & new market share New Market Market Adoption 57
- 58. Customer Creation (2) Year 1 Objectives Positioning Existing Market Market Share •Differentiation & Credibility •Product Differentiation Resegmenting an Existing Market Market reframing & new market share •Segmentation & Innovation •Redefining existing market & product differentiation New Market Market Adoption •Vision & innovation in new market • Defining the new market, the need & the solution • Early adopters 58
- 59. Customer Creation (3) Year 1 Objectives Positioning Demand Creation Existing Market Market Share •Differentiation & Credibility •Product Differentiation * Create/drive demand into the sales channel Resegmenting an Existing Market Market reframing & new market share •Segmentation & Innovation •Redefining existing market & product differentiation •Educate market on the change •Drive demand into channel New Market Market Adoption •Vision & innovation in new market • Defining the new market, the need & the solution • Early adopters •Customer Education •Drive early adopters into sales channel •Tipping Point (diffusion of innovation ) 59
- 60. Customer Creation (4) Year 1 Objectives Positioning Demand Creation Launch Existing Market Market Share •Differentiation & Credibility •Product Differentiation * Create/drive demand into the sales channel •Credibility / delivery •Existing basis of competition Resegmenting an Existing Market Market reframing & new market share •Segmentation & Innovation •Redefining existing market & product differentiation •Educate market on the change •Drive demand into channel *Segmentation, delivery and innovation * New basis of competition New Market Market Adoption •Vision & innovation in new market • Defining the new market, the need & the solution • Early adopters •Customer Education •Drive early adopters into sales channel •Tipping Point (diffusion of innovation ) *Credibility & Innovation * Market education, standards setting, 60 early adopters
- 61. Summary: Type of Market Changes Everything Existing Market Resegmented Market New Market • Everything = – – – – Market Sales Customers Finance • Customer Development Process 61
- 62. :Aside: ReCap Mkt Type Existing Market Resegmented Market New Market • Don’t Get Swept Up By “The Dream” – Quick Time-to-Revenue of Existing Market – With “Open Fields” Opportunity of New Market – !!! These are mutually exclusive !!! • ! Stop Dreaming! Get Real! 62
- 63. :Aside: Mkt Type: Why You Care • Locating “Market Entry Points” • Each Market Type has different points of entry. • Setting investor expectation – Each Mkt Type has different trajectories for time & money – Investors are: sweat equity (you & the team), your customers, and your funders • Success Points… –Setting Expectations & Delivering on time –! This is “Old School” and will always be relevant ! •Mkt Type provides a means of setting “realistic” expectations. –For market entry and delivery. •Work to “Know” your Mkt Type and act accordingly. 63
- 64. What Are We Gonna Do? 64
- 65. Storyline “Depth” & Targets Customer Discovery Customer Validation Customer Creation Year One Objectives •Type Of Startup Distribution Model •Revenue Model •Channel Model •Launch Model •Sales Model Positioning •Articulate Problem & Product concept •Understand customers view of the competitors •Initial company & Product Positioning •Test w/ Early Adopters •Company/Product Positioning by PR Agency with audit Launch •Day in the life •Attend Shows/Confs •Estimate Mkt Size •Company & product launch strategy •Test w/ early adopters •Launch/Introduce •Launch type depends on “mkt type” of startup Demand Creation •Press, Analysts, Influencers List •How do customers make buying decisions? • How do customers purchase? •Understand analysts/influencers view •Implement demand creation •Type depends on “mkt type” 65
Notas del editor
- Roberto Verganti’s“Radical Change of Meanings”Radical ChangeTechnologyMeaning! Very Useful for our class !User Centered Market PullIncremental changeMainly for Incumbents