SmarterStartup.org
The 6 Market Dynamics
PROBLEM STATEMENT
The Great Mystery
8 in 10 Startups Fail in the First 5 yrs
WHY DO SOME SUCCEED?
We’ve all met people who worked very
hard to make a business succeed and yet it
failed. We’ve also met people who did
seemingly everything wrong and yet they
succeeded. Hard work is a necessary
component but it is not the entire story.
WHY DO SOME NOT?
Benjamin Franklin
PROBLEM STATEMENT
Conventional Wisdom
Diligence is the mother of good luck.
Popular maxim’s (wise quotes) taken in isolation, only give a one-dimensional
view of what you must do to succeed. But its not the entire story.
Diligent Negligent
Success
Failure
IS HARD WORK THE ANSWER?
Hard work alone is NOT a reliable
predictor of success however. Hard
working people sometimes fail and
negligent people sometimes
succeed.So what’s missing?
PROBLEM STATEMENT
Conventional Wisdom
NOT ENTIRELY
THE FUNDAMENTAL CRITERIA
START HERE
There are 6 different market dynamics acting upon the market
and affecting opportunity, that must
be considered in order to determine
a good opportunity or to identify
relative strengths and weaknesses.
6 MARKET DYNAMICS
The 6 Market Dynamics
Timing
Customer Product
CompetitionStartup Opportunity
Finance Team
x
Working hard is analogous to throwing a ball hard. The velocity is an important part of
reaching the target, but you cannot ignore other interactive forces like gravity and drag.
Gravity (;ming)
Direc;on (customer need)
There’s More to the Story? PROBLEM STATEMENT
Drag (compe;;on)
Velocity (hard work)
IS IT A GOOD OPPORTUNITY?
THE 3 APPLIED TOOLS
We’ve created 3 applied tools for implementing the 6 market dynamics: • Startup Heuristics
• Startup Scorecard
• Evaluation Matrix
6 MARKET DYNAMICS
Applied Tools
customer
product
compe;;on
;ming
financial
team The 6 Market Dynamics
6 MARKET DYNAMICS
The Startup Heuristics
Startup Heuristics
Finance
13. Low Sunk Costs
14. Working Capital Float
15. Economies of Scale
Timing
7. Recent Innovation Enabler
8. Demand Already Established
9. No Signs of Commoditization
Competition
10. Clear Market Inefficiency
11. Low Barriers to Entry
12. Differentiable Position
Team
16. Subject Matter Expertise
17. Functional Competence
18. Supplier Partnerships
Product
4. Customer Focused Solution
5. Low Barriers to Adoption
6. Clear Value Proposition
Customer
1. Unmet Need or Desire
2. Right Size Market or Segment
3. Reliable Access to Customers
© 2014 Cabage & Zhang
WHAT’S A GOOD CUSTOMER?
The ideal customer has an unmet need or
desire. The size of this market should
match your ability to compete and ability
to deliver justify solving the problem.
Validate you can control means of
customer acquisition along the way.
STARTUP HEURISTICS
Customer Criteria
UNMET NEED OR DESIRE Unsatisfied Customer Desire
RIGHT-SIZE MARKET OR SEGMENT Need to Segment? Too Niche?
RELIABLE ACCESS TO CUSTOMERS Diversified Channels? Gatekeepers?
WHAT’S A GOOD PRODUCT?
A good product will be a direct response to
a customer need or desire. If the value is
well articulated and the customer is
passionate about your new solution, the
reason to buy will be compelling. Consider
deterrents also – are their high switch
costs and is the solution easy to use and
understand?
STARTUP HEURISTICS
Product Criteria
CUSTOMER FOCUSED SOLUTION Solves Unmet Need or Desire?
LOW BARRIERS TO ADOPTION Low Switch Cost, Usability
CLEAR VALUE PROPOSITION Compelling Reason to Buy
WHAT IS GOOD TIMING?
Every market has a natural lifecycle
driven by innovation and circumstance.
Look for new demand or interest in
something that wasn’t possible just a
couple years ago. Be a “fast follower”
into a validated emerging market rather
than speculating on new opportunity.
STARTUP HEURISTICS
Timing Criteria
RECENT INNOVATION ENABLER Was it Possible 2-5 Years Ago?
DEMAND ALREADY ESTABLISHED Build It & They Might Not Come!
NO SIGNS OF COMMODITZATION Shrinking Margins. More Products.
GOOD COMPETITIVE LANDSCAPE?
Avoid being marginalized by excessive
undifferentiated competition. That
drives margin compression, commodi-
tization and market consolidation. Look
for inefficient markets where there’s
still ‘play’ and find ways to develop a
sustainable competitive advantage.
STARTUP HEURISTICS
Competition Criteria
CLEAR MARKET INEFFICIENCY Stagnant or Fragmented Market
LOW BARRIERS TO ENTRY Easy & Cheap to Compete?
DIFFERENTIABLE POSITION Something Special or Different?
GOOD FINANCIAL PROFILE?
Look for opportunities to maximize
returns without excess capital risk.
Look for opportunities to start cheap
and to realize higher margins through
focused efforts and economies of scale.
Avoid locking up too much capital.
STARTUP HEURISTICS
Financial Criteria
LOW SUNK COSTS Up Front Capital at Risk?
WORKING CAPITAL FLOAT Gap Between Payable/Receivables
ECONOMIES OF SCALE Margins Increase With Volume?
WHAT’S GOOD TEAM FIT?
Just because an opportunity exists, doesn’t
mean your team is likely to succeed. Are
you fit to compete? Does your team have a
competitive advantage? Do you possess
deep knowledge, technical skills to deliver,
& access to key partners and resources?
STARTUP HEURISTICS
Team Fit & Fitness Criteria
SUBJECT MATTER EXPERTISE Deep Knowledge of Market?
FUNCTIONAL COMPETENCE Technical Skills to Deliver
SUPPLIER PARTNERSHIPS Access to Materials at Good Cost
We’ve also developed an easy-to-use worksheet called
the Startup Scorecard for scoring your opportunity (A-
F). Consider the 3 heuristics for each market dynamic
and give a letter grade for each. This exercise will walk
you through considering all aspects of the opportunity
ad surface any weaknesses that need to be considered
or resolved before proceeding.
The Startup Scorecard
Startup Scorecard
Finance
• Low Capital Requirement
• Clear Profit Model
• Economies of Scale
Finance Score ______
Timing
• Recent Innovation Enabler
• Demand Already Established
• No Signs of Commoditization
Timing Score ______
Competition
• Clear Market Inefficiency
• Low Barriers to Entry
• Differentiable Position
Competition Score ______
Team
• Subject Matter Expertise
• Functional Competence
• Supplier Partnerships
Team Score ______
Product
• Customer Focused Solution
• Low Barriers to Adoption
• Clear Value Proposition
Product Score ______
Customer
• Unmet Need or Desire
• Right Size Market or Segment
• Reliable Customer Channels
Customer Score ______
Overall Score _______SmarterStartup.org
Title _____________________________________________________________________
A A
B- B+
D A-B
Real Estate IDX Integrated CRM
6 MARKET DYNAMICS
The Evaluation Matrix
Customer Product Timing Compe33on Finance Team Overall
IDX WordPress Theme C B B B A A
Virtual Assistant
Marke3ng CRM
Property Search Site
Lead Genera3on
Alternatively, we can apply this same grading technique to multiple startup ideas by applying the
market dynamics to a matrix t see how different opportunities compare (strengths & weaknesses).
EVALUATION MATRIX
Score Your Ideas
Customer Product Timing Compe33on Finance Team Overall
IDX WordPress Theme C B B B A A B+
Virtual Assistant
Marke3ng CRM
Property Search Site
Lead Genera3on
Alternatively, we can apply this same grading technique to multiple startup ideas by applying the
market dynamics to a matrix t see how different opportunities compare (strengths & weaknesses).
THE SMARTER STARTUP
STRATEGY FOR STARTUPS
The Smarter Startup looks at why some
startups succeed while others fail. By taking a
more strategic approach to entrepreneurship,
founders can improve their own outcomes.
Written by Neal Cabage and Sonya Zhang,
PhD, and published by Pearsons/NewRiders.
SMARTER STARTUP
The Book
SMARTER STARTUP
SmarterStartup.org
The framework, including the part
described here, are posted on the website,
along with downloadable worksheets and
reference material. Everything is free to
use, so enjoy!.
www.SmarterStartup.org