Last night I had the pleasure of talking with the 2012 Jumpstart Foundry startups. I was invited to talk with them about identifying a good target market and incorporating early customer feedback.
That is a difficult topic. It is really at the core of the basic principle of entrepreneurship. If you find a good target market and build something they need, you will be more successful than most. The challenge is that those are two tall orders.
A wise and successful entrepreneur once told me that any meaningful business concept can be explained in a 2×2 chart. Here’s mine…
A scalable business has a large pool of customers and a well-defined product.
As with most 2×2 charts, the best is in the top right and the worst is in the bottom left. Here are the quadrants ranked from best to worst:
Top right: If you have a large and well-defined pool of customers (a market) and a complete and well-defined set of features (a product), you have a scalable business. You can optimize your processes and throw gas on the fire (investment capital) to grow.
Top left: If you have a large and well-defined pool of customers, but an incomplete and/or poorly-defined set of features, you have a consulting business. You likely have a skill or domain knowledge that is useful to the market If you have a product it will likely require extensive customization for each customer in order to meet their specific needs. This is labor intensive and difficult to scale.
Bottom right: If you have a small and/or poorly-defined pool of customers, but a well-defined and complete set of features, you likely have a solution looking for a problem. Another way that I have heard this described is that you have found a “neat”, not a “need”. These products are often clever, the entrepreneur may think it is a product ahead of it’s time. They feel that if they just find the right target market they will be able to scale.
Bottom left: If you have a small and/or poorly-defined pool of customers and an incomplete and/or poorly-defined set of features, then you have a side-project. It would be a shitty business. Don’t quit your day job.
When trying to move from left to right, find commonalities in the featured requested from multiple customers. This is hard to do and requires a product visionary, but it is the key to moving from a consulting business to a scalable business.
When trying to move from the bottom to the top, look for targetable market segments that have a need that is filled by your feature set. Personally I think this is much harder to do than moving from left to right.
My advice? Start with the market first. This is why domain knowledge is so important.
What is your advice? Am I spot-on or way off base on this one?
Good insights and certainly matches my experience. I’ve created a number of consulting businesses that hang on my own time commitments. Good for making cash now, not good for making cash while sleeping. I also tend to add a third dimension which is the availability and willingness of an awesome team of people to execute the scaled processes. A nice 2×2 almost always leaves this out but the current talent war for technical and business talent, I think, begs for that additional dimension.
Nice work!
Good point. There could be a whole series of posts on how to scale once you are in that top right quadrant (each one with it’s own 2×2).
Q: whats beneath the 2×2?
A: It’s 2x2s all the way down.