How to conduct market analysis - a roadmap for startups. Presented at Software Development Forum March 31, 2009. Steve Tennant, Tennant Consulting, www.tennantconsulting.com. Tip of the hat to Scott Schwertly from Ethos3 Communications for "Meet ____" presentation format.

1. Meet Susan

2. Also known as…

3. Ms. Entrepreneur

4. Susan lives in…

5. Flickr: http2007

6. and went to school at…

7. Flickr: matsuda.yukihiro

8. and has an idea for
a startup…

9. EasyERP
The Best Run Businesses Are Easy

10. She got a little
seed funding from…

12. But will her idea…

14. How would you
help Susan answer
that question?

15. Assessing Susan’s Market Opportunity
• Will customers
leap at the
Compelling
Unmet
chance to own
Need
your solution?
• Can you easily
explain how
Explainable
Uniqueness
you’re
different?
Revenue
Potential
• How large is
“the pie”, and
Market Size
and Growth
how fast is it
growing?
• With how
many others
Competition
must you
share the pie?

16. Why do new products fail?
Primary Causes of Product Failure
Inadequate Market Analysis
Product Problems or Defects
Lack of Effective Marketing Effort
Higher Costs Than Anticipated
Competitive Strength or Reaction
Poor Timing of Introduction
Technical or Production Problems
All Other Causes
0% 10% 20% 50%
30% 40%
Percentage of Companies Citing (n=233)
Source: Conference Board as cited by R.G. Cooper, Winning at New Products

17. How Susan Can Save Time and Money
Without
With Market Analysis
Market Analysis
(Best case)
Money Saved
Difference in
% of
Payback
cash Breakeven
flow 3
1 2
First Customer
First Customer
Failed Project
(50-80% probability)
Time (Years)
17

18. What
should Susan do?

19. Stuff Susan Might Do
Market Analysis
Market Research
Market Sizing Focus
Groups
Opportunity
Interviews
Assessment
Competitive Surveys
Analysis

20. Best Practice
When Should Susan Do It?
Today
Idea Screening
Product
“Quick & Dirty” Market Analysis Concept Review
Development
Preliminary Technical Assessment Process
Detailed Market Validation
Business Case Review
Business & Financial Plan
Post
Product/Service Development
Development
Review
In-House Tests
Customer Tests
Trial Sell
Trial/Pilot Production
Launch
Pre-Launch Business Analysis Decision
Production Startup
Launch
Source: Robert Cooper, Winning at New Products

21. Do It Multiple Times
Friends & Family First product
Version –
3 customers
Angel Round Second product
Version –
10 customers
Third product
Series A
Version –
50 customers

22. The roadmap:
A three stage, iterative process
Two days
1
Two weeks
2
Two months
3

23. 1 Idea Screening

24. Idea Screening:
1
1.1 Define Your Business Concept
- Who are your customers
- What are their important problems?
- How do you solve their problem
better than anyone else?

25. 1
Idea Screening:
1.2 Estimate the market size

26. Why is market size
important to
investors?

27. For less mature markets try “<industry> market billions”

31. “EasyERP will make its projected
revenues with just 1% of the
$48B ERP Software Market”…

32. Does this answer the
“will it fly”
question?

33. Idea Screening:
1
1.3 - Identify the key risks

34. What are the greatest
risks for Susan?
• Market Risk
• Competitive Risk
• Product Risk
• Financial Risk
• Technology Risk
• Team Risk
• Other?

35. Susan believes her
greatest risk is
competition. She
decides to emphasize
competitive analysis.

36. “Quick & Dirty”
2 Market Analysis

37. “Quick and Dirty” Market Analysis
2
What you can do
from your desk, a
trip to the library,
and the coffee shop

38. “Quick and Dirty” Market Analysis
2
Free article: Ten steps to increase your market success.
- Clarify your research objectives
- Define your ideal customer and possible market segments.
- Identify how customers solve the problem today.
- Size the market – demand and supply.
- Identify market, technical, industry, societal and regulatory trends that
affect spending on your category of solution.
- Identify what you imagine to be your customer’s selection criteria and
buying process.
- Talk to 3-5 “friendlies” to validate your customer’s goals, problems and
evaluation criteria, how they would buy, and alternative solutions.
- Identify your customers top three goals, challenges, and pain points and
their relationship to your solution.
- Write down the top three reasons you believe customers should buy your
solution instead of how they do it today or competing solutions.
- Define your sales model.

39. 2
Bottoms Up
A * B * C = Market Size
Where
A = # of customers
B = average transaction size
C = # of transactions/customer/year

40. How big does the
market size
need to be?

41. 2
Terminology
• Total Available Market (TAM) = entire universe
that could ever buy your product – for your
niche, anywhere
• Addressable Market = revenue represented by
the market segments that you intend to sell
and service in the time covered by your
business plan, or initial investment

42. Estimate EasyERP TAM – Bottoms Up
Segment 1 – Enterprise
Segment 2 – Medium Business
CAGR = Compound Annual Growth Rate

43. Is that big enough?

44. “Our competitors include”…

45. Competitive Matrix
SAP Oracle NetSuite EasyERP
Market share rank 1 2 ? N/A
Easy of Use 3 3 4 5
On-Demand 1 1 5 5
Multi-currency 5 4 4 5
Easy Install 2 2 4 5
Easy Changes 2 2 3 5
Customer Base 5 5 3 1

46. “EasyERP is the first
system specifically
designed to be easy to
install, easy to change
and easy to use…”

47. Find a Proven Sales Model
Unprofitable:
Enterprise
You lose
Selling
Investment in each
transaction by Your
Company
Consultative
Selling
Poor service:
Transactional
You lose
Selling
Investment in each transaction
by Customer
Recommended reading: Neil Rackham, Rethinking the Sales Force

48. “With an average
transaction size of
$80,000, EasyERP will
use an inside telesales
and online sales
model…”

49. Before we build a better mousetrap,
we need to find out if there are any
mice out there.”
- Yogi Berra

50. Detailed Market Analysis
3

51. Detailed Market Validation
3
Conduct 20-30 interviews with representative customers.
What are their needs? Will they buy?
Our new
What’s frustrating
employees run
about your ERP
screaming they
system?
hate it so much.

52. Sample Interview Questions
• What are your top 3 goals? Challenges?
• Typical day in your life?
• How do you solve this problem today?
• Who would you trust for advice?
• How would you want to buy it?
• What would you expect to pay?
• What services would come with it?
• If you had three choices in front of you, what criteria
would you use to evaluate them?
• What did you expect to talk about that we haven’t?

53. Case Study – SaaS B2B Software
Target Account List Contacted Interviewed Results
500 75 26
• Prioritized features
• Feedback on
prototypes of next
five products
• Development
partners & contacts
• Company
exposure/visibility
• Management team
alignment
• Customer-centric,
problem-driven
messaging
• White papers
summarizing key
business issues &
how to address
• & more

54. Can Susan Generate Traffic Online?

57. Now Susan
knows…

58. …what her customers need

59. …how
is different

60. …and how to
make her idea
fly

61. Thanks to…

62. Grow your software company. Faster.

63. Tennant Consulting Services
Strategy Capital Products Marketing Alliances
Executive Team Financing Product Mgmt Marketing Alliance
Facilitation Assessment Assessment Assessment Assessment
Market Needs Positioning &
Vision & Mission Business Plan Alliance Strategy
Interviews Messaging
Market Trends & Investor Win/Loss Website Strategy
Alliance Programs
Analysis Presentation Analysis & Content
Competitive Product Business Marketing Plan &
Investor Meetings Alliance Marketing
Analysis Plan Budget
Opportunity Due Diligence Product PR & Thought Alliance Partner
Assessment Support Messaging Leadership Recruiting
Strategy Term Sheet Trade Shows & Relationship
Beta Customers
Development Support Events Rescue/Facilitation
Strategy Execution Board Sales & Customer Alliance Scorecard
Launch
& Metrics Communications Conferences & Metrics
Project Management
Leadership Feedback & Coaching
Organization Design, Staff Recruiting & Development
Collaborative Operating System

64. Tennant Consulting Services
Strategy Capital Products Marketing Alliances
Executive Team Financing Product Mgmt Marketing Alliance
Facilitation Assessment Assessment Assessment Assessment
Market Needs Positioning &
Vision & Mission Business Plan Alliance Strategy
Interviews Messaging
Market Trends & Investor Win/Loss Website Strategy
Alliance Programs
Analysis Presentation Analysis & Content
Competitive Product Business Marketing Plan &
Investor Meetings Alliance Marketing
Analysis Plan Budget
Opportunity Due Diligence Product PR & Thought Alliance Partner
Assessment Support Messaging Leadership Recruiting
Strategy Term Sheet Trade Shows & Relationship
Beta Customers
Development Support Events Rescue/Facilitation
Strategy Execution Board Sales & Customer Alliance Scorecard
Launch
& Metrics Communications Conferences & Metrics
Project Management
Leadership Feedback & Coaching
Organization Design, Staff Recruiting & Development
Collaborative Operating System

65. Drop me a business card for
freebies and to
learn more
 Copy of slides
 Business Concept Questionnaire
 22-Page Article – How to Conduct “Quick & Dirty”
Market Analysis
 Email newsletter
Follow me on Twitter: steve811
Email me at steve@tennantconsulting.com
Call me at (925) 258-9100