If you’re planning to start a business, it’s crucial to understand the different Types of Markets. Identifying what type of “market” you’re about to enter will influence strategizing factors like adoption rate, market size, competitive barriers and your “time to profitability”.
So what are major market-types your business may be entering? We have:
1) New Markets
2) Existing Markets
3) Clone Markets
You enter a New Market when you build a product that isn’t in demand yet - but you envision customer demand. The product will allow its customers to do something that wasn’t possible before. Twitter entered a New Market when they built a product that allowed users to “micro-blog”. SpaceX is entering a New Market by allowing for “Space Tourism” - to boldly go where no business has gone before.
Entering a New Market can be exciting. If you establish product-market-fit, you can be a market leader and grow exponentially. But attaining “Product-Market-Fit” is not to be taken lightly. At this stage, customer preferences are relatively unknown and facilitating mainstream adoption is a challenge. Early adopters may be quick to be customers. But as soon as they “run out”, you will see a drop in sales before the mainstream adoption. This leads to a “hockey-stick” like revenue growth, and the drop is known as the “Chasm”.
An Existing Market is when you enter into competition with a product that is already serving a customer base. Unlike New Markets, over here customer preferences are relatively “known”. The idea is to steal market share by outperforming your competition. For example, Facebook entered an existing market when it entered into competition with MySpace.
When you enter an existing market you don’t have to wait for mainstream adoption. The diffusion of innovation has already taken place. Because of this the chasm between your early-adopters and mainstream adopters is pretty much non-existent. So as long as you continue to outperform your competitors, you should see a straight-line revenue growth.
You enter a Clone Market when you take a successful business model in one location and “copy” it to another location. Proven business models have been cloned between the United States, Europe, India & China time and time again. For example, Baidu successfully entered a Clone Market when they created the Chinese version of Google’s Search Engine.
While Clone Markets have obvious advantages, they face tough challenges as well. Simply copying a product identically in another market will most likely lead to failure. When entering a Clone Market, you have to account for local factors like different culture, government regulations etc.
FlipKart - an online shopping portal like Amazon entered a “Clone Market” in India. But they recognized that Indian consumers were not heavy credit/debit card users and launched a Cash On Delivery model. This allowed consumers to buy products and pay for it via cash at the door. This increased sales and helped them gain much needed traction.
As you can see, your market-type heavily influences your strategy during the execution of your business. Understanding your market type avoids wasted expenditure and time. The Dot Com Bubble is a perfect example of entrepreneurs treating a New Market as though it were an Existing Market and they paid the price heavily.
For more valuable knowledge on this topic we recommend reading:
The Four Steps to Epiphany - Steve Blank
Running Lean - Ash Maurya
Crossing the Chasm - Geoffrey Moore