It is astounding the number of Venture Capital firms in the Bay Area who give countless sums of money to companies that have a cool product with no market understanding. The CEO’s of these cool technology companies conceptualized the idea, built the technology, and received funding thinking that the product will sell itself. These same CEO’s find that within a year, revenue is flat and that most of the money are burnt. CEO’s with a clear and focused market understanding will be much more successful with their funding than those who believe the technology will sell itself.
For a CEO to be successful, they need to understand the complexity of their markets that includes, at a minimum, the following elements: market size, value, competitive differentiation, sustainability, and their customer profiles. For the purposes of this article, the approach and importance of each element will not be discussed.
Market Size: The research into market size can be quite tricky. There is a difference between total available market and addressable market. The latter is the market in which the company can compete. For instance, does your product suit the enterprise or mid-market or is there geography or a segment of an industry that has a greater propensity to purchase. Once the addressable market is identified, it is rather easy to obtain data that shows quantities and types of customers within that market.
Value: The value that your product brings to the market needs to be addressed as a financial value proposition. For instance, servicing customers better is not a value proposition. The value proposition should have a direct impact on revenues or expenditures. In general, value propositions that increase revenues are typically easier to sell to a customer than a reduction in expenses. The value propositions should be built from speaking with your customers.
Competitive Differentiation: If you are a small company with the same features and functions as a large company, it will be very difficult to compete with the resources of the larger company. Likewise, a small company with the same features and functions of another small company will also create a “slugfest” lengthening the sales cycle. Most likely the deal is lost because the competitor established a relationship with the buyer earlier in the sales cycle.
Sustainability: Many CEO’s believe that their company is the only player in their market space. What they don’t realize is that a large company has the resources and bandwidth to build a similar product rapidly. CEO’s should investigate defensive postures like patents to ensure sustainability.
Customer Buyer Profiles: Building out a buyer profile requires engaging prospects for in-depth interviews. The conversations should at a minimum include: what problem are you trying to solve, how much is this pain costing your company, and what is your buying process.
There is a tremendous amount of effort that goes into understanding a market, often beyond the capacity, resources, and bandwidth of a CEO.
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