Monday, 22 September 2008

Choosing an Entry Market Sector

A common issue I see with early-stage companies is over their selection of entry market sector. Obviously, all investors love their portfolio companies to have a huge vision to change large markets in a big way, and on occasion the best way to plan to reach that is to go straight to the big opportunity head-on. However, often that's going to be slow and hard, perhaps credibility is crucial, in which case it's really helpful to find a launch "beach-head" in the lines advocated by "Crossing The Chasm".
So where companies have chosen to use a beach-head, the next question is which one? If you just pick the "largest sector", or the one you're "most familiar with, you face a danger- the best entry sector is not always the obvious one. I think there's a different set of thinking about launch markets, where you highlight a slightly different set of factors as important.

CriterionUltimate marketLaunch market
ScaleIdeally as large as possibleManageable, but low priority in selection process
Differentiation of offering against competitionImportantCritical
Focus on customer problemsCan be more general- boxed product is easier to scaleMay be helpful to have solution type sales initially
Unit saleVery large or small is good- scalability is crucialIdeally ~1 months burn- large enough to be useful, but small enough to avoid lengthy approvals
Mission criticalityMission critical to the customer provides extra valueIdeally not too critical- hard to buy from a startup
Length of buy cycleMay be longShort is incredibly helpful
Easy customer identificationUsefulVital

I bet there are some great suggestions for improvements to this table- please let me know!