2.3 Competition and Market analysis
Market analysis is a first fundamental step to understand where our idea is placed in the panorama of what already exists. It happens very often to feel that you have something unique, an amazing business idea. Unfortunately, a quick internet search often reveals that there is someone who has already thought about the same thing. In this case you need to understand if this competitor, for example, has a patent-protected and non-replicable idea. This may not be the case and the next step is to ask what market this competitor is operating on. You may not have been aware of it because it operates from a distant market. Or because it has just taken the first steps to expand on your target market.
Finding out that an established competitor already exists is not a good news but you need to evaluate and contextualize it. First of all, it can give you immediate feedback on the validity of your business idea. If the company is having success in its market, you may decide to investigate the opportunity to offer your product or service on a different market. If you immediately imagine a global launch of the product, you cannot underestimate the presence of the competitor who has the advantage on this market.
You too may have to place yourself in a market that already has direct or comparable competitors. If this is the case, you should focus on analyzing your differences from the competitor in order to understand the probability of winning a market niche.
Each medal has two sides, and if you discover that there is no competitor, you should also ask yourself why? There are no competitors because is your business idea really so innovative? Or because others have already thought about it and decided it is not worth it.
Understanding what the demand for your product / service might be is not an easy task, especially if it is something new. But you cannot skip this step due to lack of information. You must first define what your target market is, described as many segmentations as possible. Age, gender, profession, social status, interests and other metrics depending on the product or service. This should lead you to define the size of your market.
A common mistake is to think that size also describes customer’s pool size you will have.
It doesn’t work like that, it’s not that trivial, otherwise everyone would be successful entrepreneurs. Once you have defined the size of your target market you should ask yourself what proportion you could reach. This with costs and promotion methods compatible with your resources. Of these, only a portion will be interested in your product, so of a hundred you could get to estimate that only one person becomes a customer.
This is where the biggest optimistic over-estimates are seen. The new entrepreneur always draws graphs with very optimistic linear growths that quickly conquer a huge market share. You need to make sure that the estimates you make are based on data for similar markets or products and not just your “sixth sense”.
Usually the more a market is established and populated with competitors, the more difficult it will be to enter this market. Indeed, there will be a high barrier to entry dictated by the know-how and investments that your competitors have already made before you.
Entering and gaining market share with a whole new brand could take a lot of effort. For this reason it is usually more interesting to identify a “discovered” niche that is not yet manned by competitors. Within this niche, you could initially enjoy the “first mover advantage”, and eventually be chased and not chased.
If within this niche you can establish yourself as a point of reference, you will be able to grow your brand. From that new strength, the opportunity to gain market share outside your niche could also arise. That is to start providing other solutions that perhaps by nature are in direct competition with other players on the market.
A short video for further knowledge on the topic how to do market research (duration 7 min 46 sec):