@andrewchen

Every entrepreneur wants to believe their product is taking on a big market. Sometimes they’re kidding themselves.

If they are making something fun, they’ll say- “we’re competing against TV! The market is huge!” If they are making something utilitarian and functional, they’ll say, “everyone wants to save time- there’s millions of people who want that!” Or worse, they’ll combine two products that have big markets – Facebook and eBay, let’s say – and think “FB is huge, and eBay is huge, so a social network for auctioneers would also be huge!”

This is lazy, fuzzy thinking.

The reason why it’s useful to target big markets is that there’s pre-built demand for your product category. This makes growth and customer acquisition much, much easier. When customers understand your product category, and then your job can be to define why it wins versus the competition, rather than educating your customers on why need it in the first place. The negative is that you have a bunch of direct competition and an already established axis for how people will evaluate your product’s desirability. But that’s OK, entrepreneurs love to compete with big, slow companies right?

The “What kind of X do you use?” test
IMHO, here’s the best test of a big market- you’d ideally be able to go to 10 customers in your market segment and ask, “what kind of X do you use?” and the majority of them would be able to answer the question directly, showing a clear grasp of what X is. If you ask people, “What kind of car do you use?” they will know. Ask a sales professional “What kind of CRM do you use?” and they will also know, even if they say “we use an excel spreadsheet.”

If they say, “huh? What’s that?” then you’re in an imaginary market. Or the kinder way to say it- you’re in a “new market,” which sounds better than to say that there’s no market for your product.

An even stronger signal is when they know the label for a product category, like “car” “CRM” “browser” “phone” rather than the functional description “get you from A to B” “track your customers” etc. This is an even stronger signal that there’s a real, established market and customers know what they want to buy. If you have to explain what the category is as part of your question, then it means they still may not get it. A further improvement is then if they know the name of the product category, can tell you about the different products, and how they compare to each other. For example, if you asked me about “fast food restaurants” I could name you a whole bunch and tell you about McDonald’s versus Taco Bell versus something else. And that opens up the opportunity to also introduce a new “healthy fast food restaurant” which could be an entrant to the market.

The electronic version to do this “What kind of X do you use test” is to use Google Keywords Tool and see if a bunch of people are searching for your category. This isn’t to help generate SEO, it’s to help validate that people even know how to talk about what you’re doing. You’ll see that, for instance, a product like “blog” has 10s of millions of searches, which means millions of people understand what a blog is.

I also wrote a more detailed post a year ago about using the Google Keywords Tool for market research, for anyone interested in additional reading.

Want to tap into something people already know they need?
Remember that the first telephones were called “speaking telegraphs” and the first cars were called “horseless carriages.” No matter how important those inventions ultimately came to be, initially they had to conform to what customers expected. Only until a few years could they establish their own product category and competitive dimensions.

The other datapoint that has to be mentioned here is Apple. They helped convince me that reinventing a category is just as important as inventing a new one- while it can be a great feeling to bring something completely new to the world, Apple showed that you can be extremely innovative by taking products like laptops, MP3 players, smartphones, music software, etc., and upgrade them so much that it unlocks a whole new category for people. So for those who think that taking on an existing product category is tantamount to cloning, just try to improve an existing product as much as Apple does, and you’ll get somewhere.

The whole point of this post is: Start sizing a market based on what your target customer understands. If they don’t understand what your product is, and how it stacks up against substitute products, be honest with yourself: You’re in a new market. This means a whole different set of strategies and tactics for how to introduce your product. Start by figuring out where you are, and the rest will be a lot easier.