📂 Great markets are forgiving of subpar products (and bad markets starve great products)

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📖 The following is an excerpt from my work-in-progress book, Founding Marketing. It's a (very) rough draft of thoughts, notes, and research... so feel free to reply with your feedback on what I should expand more on and what needs to be clarified. Enjoy!

Demonstrated demand

Are a considerable amount of people paying money for a product like yours?

Your end goal should be to be able to specifically target a market with a dollar amount tied to it, even if it’s an estimate.

This way, you’ll have concrete evidence of “demonstrated demand’ — proof that there is a market for a product like yours and that it can sustain a business like yours and the growth you want to see.

A market is a group of people who will not only use your product, but will also pay. And how much will they pay?

It’s key to look for buying behaviors. Things that stand out and tell you if there is a group of people who will buy your product and spend money on it.

A couple of the key questions we’ll ask in customer research is “What have you been doing about this?” and “What happens if you don’t find a solution?”

If no one is doing anything about their problem. If there are no complaints. No consequences. No pain. Then there likely isn’t a market.

In the example of Gumroad, people were coding up their own digital e-commerce solutions or paying people to develop them for them. They were hacking together different tools. They were finding a way to make it work, though not optimal or perfect.

In the early 2000s, people were downloading music onto their phones and finding ways to access the internet. Then there was the palm pilot. And then the iPhone — the iPod/phone/internet browser.

As Justin Jackson, founder of Transistor, likes to say, “It’s a lot easier selling ice cream on a hot day at the beach.”

When Derrick Reimer built Level, an alternative to Slack, he started asking new users what they were doing to reduce the noise in Slack and found that Slack customers just weren’t dying for a new solution. Were they googling for Slack alternatives? Did they look in the Slack settings? Did they try to find extensions or bots to help? Did they try to build their own? Nope. Red flags.

New categories vs old categories

Let’s not forget the age-old market dynamics of supply and demand and talk about how it applies to startups.

In this case supply is the number of companies offering a product customers want and demand is the number customers who want that type of product.

Companies in new categories are competing for the flow of new customers buying for the first time. Companies in old categories are competing for the flow of customers switching.

Capturing new demand versus old demand requires completely different strategies.

Being the “first mover” in an emerging product category is often talked about in the startup world as a massive advantage. However, it’s like having a head start in marathon. Run too fast in the beginning and you might burn out by the end and get passed up by competitors. Run too slow in the beginning and you risk competitors catching up.

There are just as many examples of first movers winning as there are losing the market.

• Coca-Cola
• Apple
• Kindle — Amazon beat Barnes & Noble to the punch again with their 2007 e-reader, the Kindle. Barnes & Noble answered with the Nook in 2007, but it was too late. Nook peaked as a $933 million per year business, but, in 2016, they reported earnings of just $146 million.

There are no guarantees.

• ​Google — Yahoo, Ask Jeeves, and AltaVista are a few of the many search engines that preceded Google.
• ​Facebook — Myspace, Friendster, and Google Plus, among others, were once-famous social media platforms before Facebook took over.
• ​Instagram — Vine and Snapchat may have been popular in their heyday, but Instagram eventually dominated the space despite launching after.
• Uber — Beating out Sidecar.
• Zoom — beating out Skype, Google Meet, and countless other video conferencing tools.

Think about it this way: To get to the top, you win with distribution. The best product doesn’t always win when customers aren’t aware of alternatives. But to compete against the incumbents, customers have to have a strong reason to switch against the “safe” choice, which puts a stronger emphasis on the product itself.

Trends

Technology breakthroughs, changes in regulation and legislation, and the ebbs and flows of what’s mainstream can have a massive impact on market dynamics.

—Corey

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