customer development 2: three types of markets

1/27/09 1

Customer Development in High Tech:Sales, Marketing & Business Development in a Startup

MBA & EMBA 295-F

Three Types of Markets

Steve [email protected]

2 Customer Development in the High-Tech Enterprise Spring 2009

Class 2: Agenda

Vertical Markets Case: In N Out Market Type

Definitions Examples Risks

Customer Development Definitions Market Type effects


Customer Development

ScaleCompany

Customer Development

CustomerDiscovery

CustomerValidation

CustomerCreation

This is what our class is about


New Product Conundrum

New Product Introduction methodologiessometimes work, yet sometimes fail Why? Is it the people that are different? Is it the product that are different?

Perhaps there are different “types” of startups?


A Plethora of Opportunities


Startup Checklist – 1What Vertical Market am I In?

Web 2.0 Enterprise Software Enterprise Hardware Communciaton Hdw Communication Sftw Consumer Electronics Game Software

Semicondutors Electronic Design

Automation Cleantech Med Dev / Health Care Life Science / Biotech Personalized Medicine


Market Risk vs. Invention Risk


Startup Checklist - 2

Market Risk? Technical Risk? Both?


Execution: Lots to Worry About


Startup Checklist - 3

Opportunity Where does the idea come from? Innovation Where is the innovation? Customer Who is the User/Payer? Competition Who is the competitor/complementor? Sales What is the Channel to reach the customer? Marketing: How do you create end user demand? What does Biz Dev do? Deals? Partnerships? Sales? Business/Revenue Model(s) How do we organize to make money? IP/PatentsRegulatory Issues? How and how long? Time to Market How long does it take to get to market? Product Development Model How to you engineer it? Manufacturing What does it take to build it? Seed Financing How much? When? Follow-on Financing How much? When? Liquidity How much? When?


Execution: Very Different by Vertical


Market Risk Reduction Strategy


So Why Are We Talking About This?

New MarketResegmentedMarket

Existing Market

14

In-N-Out Case


In-N-Out Secret Menu

X by Y X meat patties and Y slices of cheese

(for example, a 3 by 3 or a 2 by 4) Double Meat

Two meat patties without cheese. Triple Meat

Three meat patties without cheese. Animal Style

A mustard cooked beef patty served on abun with pickles, lettuce, tomatoes, extraspread and grilled onions. Any burger(including veggie and grilled cheeses) maybe made this way.

Flying Dutchman Two meat patties, two slices of melted

cheese and nothing else. Protein Style

Instead of a bun, the burger is wrapped inlettuce. Any burger (including veggie andgrilled cheeses) may be made this way.

Veggie Burger (Wish Burger) A burger without the meat and cheese.

Grilled Cheese Two slices of melted cheese, tomato,

lettuce and spread on a bun, with no meat. Extra Everything

Adds extra spread, tomato, lettuce, andonions (regular or grilled).

Fries "Light" Almost raw fries that are cooked for less

time. Fries "Well" (aka "Wellies")

Fries that are cooked longer to be extracrisp.

Cheese Fries Fries with two slices of melted cheese

placed on top. Animal Style Fries

Fries with cheese, spread, and grilledonions.

Neapolitan Shake All three shake flavors (strawberry, vanilla

and chocolate) combined in one shake.


In-N-Out Meat Factory

17

Market TypeWho Cares?


Type of MarketChanges Everything

Market Market Size Cost of Entry Launch Type Competitive

Barriers Positioning

Sales Sales Model Margins Sales Cycle Chasm Width


Existing Market

• Finance• Ongoing Capital• Time to Profitability

• Customers• Needs• Adoption


Definitions: Three Types of Markets

Existing Market Faster/Better = High end

Resegmented Market Niche = marketing/branding driven Cheaper = low end

New Market Cheaper/good enough can create a new

class of product/customer Innovative/never existed before


Existing Market


Existing Market Definition

Are there current customers who would: Need the most performance possible?

Is there a scalable business model at this point? Is there a defensible business model

Are there sufficient barriers to competition fromincumbents?


Existing Market

Perfo

rman

ce

ExistingCompanies

Our Company


Oops, forgot about Time

Perfo

rman

ceOur Company

Existing Company Performance Growth

Time

ExistingCompanies

Today


Existing Market Risks

“Better/Faster” is an engineering driven axiom Incumbents defend high-end, high-margin

businesses Factor in:

Network effect of incumbent Sustaining innovation of incumbent Industry (or you own) “standards”

“They’ll never catch up” is not a business strategy Established companies almost always win


Resegmented Market Definition (1)Low End

Are there customers at the low end of the marketwho would: buy less (but good enough) performance if they could get it at a lower price?

Is there a business profitable at this low-end? Are there sufficient barriers to competition from

incumbents?


Low-end Resegmentation“Good Enough” Performance

Perfo

rman

ce

Our CompanyAt the Low-end

Time

ExistingCompanies

Today

Existing Company Performance Growth


Resegmented Market Definition (2)Niche

Are there customers in the current market whowould: buy if it addressed their specific needs if it was the same price? If it cost more?

Is there a defensible business model at this point? Are there barriers to competition from incumbents?


Niche Resegmentation“Branding” has its place

Perfo

rman

ce

Time

Existing CompanyNiche for a New CompanyNiche for a New Company

Existing Customers New Niches


Resegmented Market Risks

“Cheaper” is a sales-driven axiom Incumbents abandon low-end, low-margin

businesses For sometimes the right reasons

Low-end must be coupled with a profitablebusiness model Up migration


New Market Definition

Is there a large customer base who couldn’t dothis before? Because of cost, availability, skill…?

Did they have to go to an inconvenient, centralizedlocation?

Are there barriers to competition fromincumbents?


New MarketCustomers That Don’t Yet Exist

Perfo

rman

ce

Time

Existing Company

Existing Customers New Niches

New Market

New CustomersNew Markets


New Market Risks

“New” is a marketing-driven axiom New has to be unique enough that:

There is a large customer base who couldn’t dothis before

They want/need/can be convinced Adoption occurs in your lifetime

Company manages adoption burn rate Investors are patient and have deep pockets


Hybrid Markets

Some products fall into Hybrid Markets Combine characteristics of both a new

market and low-end resegmentation SouthWest Airlines Dell Computers Cell Phones Apple IPhone?


Next Week Read

CASE: E.Ink and E.Ink 2005 Boyd – OODA Loop PowerPoint slides Fast Company : The Strategy of a Fighter pilot McGrath & MacMillan: Entrepreneurial Mindset

Chapter 10 pages 231-245 Blank – Four Steps to the E.piphany Chapter

Due: Application Exercise 1