Finding The Right Market

Author Gravatar Image MARC BARROS
Investors love to talk about market size. It’s the part in your presentation where their ears perk up and they start doing the math in their head about what it takes to be a billion dollar company. Conversely entrepreneurs waste countless hours trying to find market numbers that justify why they have a billion dollar idea.

In reality it doesn’t work like that.

A lot of the best hardware brands start by solving a single, niche problem and over time become billion dollar opportunities. Skullcandy started because the founder wanted to listen to music while he snowboarded and he got tired of taking his gloves off to answer his phone. Jawbone began with technology to help soldiers better communicate in noisy environments. GoPro was a cheap camera you wore on your wrist to capture photos while you surfed.

One of the things that makes hardware startups so expensive to build, is the cost to acquire a new customer. The use of online and offline marketing tactics means you spend a lot of money trying a variety of ideas that are difficult to measure, hoping they result in positive sales.

In the end, you come to realize that the more niche and passionate your initial market is, the easier it is to grow your customer base. If you can profitably gain more customers, you can build a really successful hardware company. If you can't, you never get past your Kickstarter backers.

In finding a the right niche, you first want to identify the right market trends and second find a set of customers who are passionate about the problem you are solving.

Identifying A Positive Market Narrative

I’m a big believer that finding the right market is about understanding the narrative behind it. The numbers are helpful in estimating total size, but the trends within and around the market are more important.

Take the elderly population in the US. By running a few google searches you can see that the elderly population is expected to nearly double in size over the next 15 years. That’s a staggering result, which means this increased market segment will be looking for products that make their life easier.

Lively is a startup that is hoping to ride this positive market momentum to success. Their use of sensors and a mobile app gives the entire family confidence that the matrons of the family are safely going about their day.

Smart locks on the other hand, don’t have the same market momentum. Yes people are continuing to buy products that are connected to their phones, but there isn’t a strong narrative that says people are buying more locks. Because the housing market isn’t growing, these new companies will be hoping that the growth in home rental sites, like AirBnB, will be enough to drive the need for keyless locks. Otherwise these new startups will be competing on features, trying to convince all of us why a smart lock is better than a dumb lock.

Keep in mind, the size of your market doesn’t have to be increasing to have a positive narrative. Digital cameras are being replaced by mobile phones, but it doesn’t mean people are taking less pictures today. In fact the opposite is happening, which means there is increasing momentum for photography, even though the tools we use are changing.

Finding Passionate Customers

Within a positive market narrative you want to identify customers who are excited about the problem you are solving. Not only will it drive valuable word of mouth, but it will also result in a customer base that is willing to spend money to buy your product.
To identify passionate customers I use a simple matrix. On one axis is how frequently consumers use your product, the higher the frequency the better. The second axis is the reason behind their purchase. Products that bring joy (i.e. make your life better) are a marketing sell, while products that solve pain (i.e. a chronic problem) are an information sell.

At Contour we were successful because outdoor enthusiasts frequently participated in their sport and received an incredible amount of personal satisfaction from recording their adventures. The competitive nature of sport combined with the desire to remember were powerful drivers in people needing an action camera.

The maker movement is another great example. It’s a niche segment of Do-It-Yourself (DIY) builders that spend their weekends hacking together new product ideas. Makerbot realized this and focused intently on building 3D printers that were convenient, high quality, and affordable for them to use.

SoundFocus on the other hand is a new startup focused on hearing loss. Starting with a mobile app that makes music on your phone sound better, they will soon introduce hardware that challenges existing hearing aides. The founder’s experience with hearing loss is a problem he deeply understands, which gives them an important advantage in solving a problem that is high in frequency and pain.

Going back to smart locks it’s hard to see where they fit on this matrix. Losing your keys sucks, but does the problem happen enough to warrant replacing your locks? People who rent their homes on a regular basis, frequently need to provide access, but are there enough home renters to justify a market with three startup competitors? Time will tell.

Conclusion
Identifying the right market narrative and finding a passionate consumer with in it, is critical to finding hardware startup success.

Image Credit: The Rocketeer via Creative Commons
Last updated on 2014-04-05 at 05.12.50 PM Published on 2013-10-15 at 01.31.48 AM