9 Steps to Capture a Large Share of a Small Market
On our way to product-market fit.
I reported on the Chinese Glove Market Fallacy in one of my previous newsletters.
Let’s quickly remind ourselves of it.
If you sell gloves in China, you can make a lot of money as the population is huge and many people would be looking for gloves.
Let’s say about half of Chinese people (half a billion) buy at least one pair of gloves a year. Your goal is to capture 2% of this market.
If we do the napkin math: 2% * 500M = 10M people.
Sounds reasonable, doesn't it?
But..
1 - How do you know that everyone can afford your special gloves?
2 - How do you know that people have the same taste in fashion?
3 - Why 2%?
The logic behind this fallacy is that you assume that any large market is homogeneous. It’s like saying "people who want to buy gloves have the same needs, the same buying behavior and even relate to each other when they buy a glove".
Well..
Let’s assume that this statement is correct.
Then you are doing a terrible job.
Why?
Because you can only satisfy a demand of 2%.
In other words, you can not offer the right solution to 98%.
But markets are not homogeneous. In large markets, there are submarkets. People have different needs, behaviors, characteristics, preferences, etc.
To start a solid business, you should first identify a small submarket so that you can take control of a large part of it. It should also be large enough to sustain your business.
So how can you capture a large share of a small market?
Well.
There could be many ways, but I prefer to think of the following;
1 - Talk to different customer profiles to understand their problems. In other words, do user-centred design research.
2 - Find a pattern in the "conversations".
3 - Go deeper into the problem you have found and believe is worth solving.
4 - Carry out a root cause analysis. What is the REAL problem?
5 - Idea generation. From the many solutions you can think of, simply choose the most plausible one.
6 - Then it’s time for outcome-based segmentation. The core of this segmentation method is to find an answer to the following question: What is the outcome that this group of people is trying to achieve so that they face an obstacle and cannot be solved with the existing products? Think about the context in which people are facing the problem you have identified. What are the commonalities between people? People from different backgrounds may suffer from the same problem. What are their preferences or lifestyles? How old are they? What is their profession? Do they all drive to work? Identify any relevant commonalities.
7 - Choose your entry segment. The problem you have found may belong to a specific group of people. However, your solution may also be useful for other types of submarkets.
Ask yourself:
Who would be more willing to buy my product than another? Who has the greatest need?
Can they afford it?
Which market is easier for you to enter?
Which market could be easier to reach (distribution channels, marketing, etc.)?
8 - Talk to experts about your idea. They can give you useful insights into the different customer profiles in the larger market. Maybe you can change your focus. I am not thinking of signing an NDA or anything like that. No idea is that great. I am not afraid that my original idea could be stolen. It's like a new recipe for a half-baked cake. Why would people go after a half-baked cake?
9 - Form your end user profile and develop customer personas to understand your potential customers intimately. I have put this point at the end, but you can start early. At its core, this is also about understanding: "What does my customer look like?”
Long story short: you need to understand who your customer is!!!
