Ten Ways to Evaluate a Market

So often people are working hard on the wrong thing. Working on the right thing is probably more important than working hard. – Caterina Fake, founder of flickr.com and hunch.com

If you are thinking of starting a new business or expanding an existing business into a new market, it pays to do some research before you leap.

The Ten Ways to Evaluate a Market provide a back-of-the-napkin method you can use to identify the attractiveness of any potential market. Rate each of the ten factors below on a scale of 0 to 10, where 0 is extremely unattractive and 10 is extremely attractive. When in doubt, be conservative in your estimate:

  1. Urgency – How badly do people want or need this right now? Renting an old movie is typically low urgency; seeing the first screening of a new movie on opening night is high urgency since it only happens once.
  2. Market Size – How many people are actively purchasing things like this? The market for underwater basket weaving courses is very small; the market for cancer cures is massive.
  3. Pricing Potential – What is the highest price a typical purchaser would be willing to spend on a solution? Lollipops sell for $0.05; aircraft carriers sell for billions.
  4. Cost of Customer Aquisition – How easy is it to acquire a new customer? On average, how much will it cost to generate a sale, in both money and effort? Restaurants built on high-traffic interstate highways spent little to bring new customers. Government contractors can spend millions landing major procurement deals.
  5. Cost of Value Delivery – How much would it cost to create and deliver the value offered, both in money and effort? Delivering files via the Internet is almost free; inventing a product and building a factory costs millions.
  6. The Uniqueness of Offer – How unique is your offer versus competing offerings in the market, and how easy is it for potential competitors to copy you? There are many hair salons, but very few companies that offer private space travel.
  7. Speed to Market – How quickly can you create something to sell? You can offer to mow a neighbour’s lawn in minutes, opening a bank can take years.
  8. Up-Front Investment – How much you will have to invest before you are ready to sell? To be a housekeeper, all you need is a set of inexpensive cleaning products. To mine for gold, you need millions to purchase land and excavating equipment.
  9. Upsell Potential – Are there related secondary offers that you could also present to purchasing customers? Customers who purchase razors need shaving cream and extra blades as well; buy a Frisbee, and you would not need another unless you lose it.
  10. Evergreen Potential – Once the initial offer has been created, how much additional work will you have to put into it in order to continue selling? Business consulting requires ongoing work to get paid; a book can be produced once, then sold over and over as is.

When you are done with your assessment, add up the score. If the score is 50 or below, move on to another idea – there are better places to invest your energy and resources. If the score is 75 or above, you have a very promising idea – full speed ahead. Anything between 50 and 75 has the potential to pay the bills, but won’t be a home run without a huge investment of energy and resources, so plan accordingly.

This concept by the author: http://book.personalmba.com/ten-ways-to-evaluate-a-market/