Are you getting your share?
If you are a fan of the television show Shark Tank, where wanna-be and true entrepreneurs make pitches for funding, you know the trap that some of the presenters fall into. Here’s how it might go.
“What makes you think this will be easy?”
Question from one of the Sharks, tech bro Robert Herjavec: “What market are you addressing? What’s your market share?”
Answer from the entrepreneur (nervous from being on television and hyped up by the prospect of winning a big investment from some of the world’s most notable investors): “We are in the household cleaners market. It’s huge, worth more than $38 billion dollars in the U.S. alone. We’re just getting started. If we can just get two or three percent of the market, that’s almost a billion dollars in sales. We see our product doing that, for sure!”
Rejoinder from another Shark, cool guy Mark Cuban: “That’s ridiculous. What’s your plan for breaking into a market that’s dominated by a few big players? How are you different in a better way? What makes you think this will be easy? Who are you, anyway?”
The entrepreneur (flustered from being challenged): “Uh, well, we know that our cleaning product works better.”
Killer response from another Shark, real estate agent extraordinaire Barbara Corcoran: “I don’t see it. Without something really different and special and without everything it takes for an unknown to break into the market in a big way, I am going to have to sit this one out.”
Immediate follow-up from Shark home shopping genius Lori Greiner: “Yeah, we could probably sell a few units on the Home Shopping Network, but with all the time and investment this will take I am going to pass.”
The entrepreneur: “Well, before you decide, let me tell you about our ideas for other home cleaning products. The play involves more than our initial product.”
Shaking his head, streetwise Shark Damon John pipes up: “You seem like a guy with a good product idea but with no idea how to get it to market. This is just not what I want to invest in.”
Herjavec adds: “I’m out.”
The presenter opens his mouth to try to save the deal: “Wait, we…”
But with an evil smile, Shark “Mr. Wonderful,” Canadian investor Kevin O’Leary, jumps in and puts the pitch to rest: “We are here for M-O-N-E-Y, money! What you are asking us to back has no chance of giving us that. Let’s not waste any more time. Thank you for sharing your idea with us. Good bye!”
Can you niche down, capture the growth, or disrupt?
Market share is an easy concept to grasp…or maybe it isn’t.
You determine how many consumers or users or potential clients and customers are out there and compute the percentage who are your customers, correct?
That’s the first trap, right there. Do you see it? It’s how you define “how many consumers or users or potential clients and customers are out there.” Let’s say I am a bicycle manufacturer who sells bikes in the United States. So is my market all the people in the U.S. who:
Ride bikes?
Own bikes?
Buy bikes?
Buy the kind of bikes I make?
Buy bikes at my price point?
Buy their bikes from the channels where I sell them (bike shops, mass retailers, on-line, or other)?
Buy bikes more than once in five years?
Buy bikes for their children?
Have other characteristics?
Niching down, having one or more target markets, is the way out of this dilemma. A car manufacturer that defines its market as everyone who owns a car is on a fool’s errand. How do you reach, appeal to, and attract “everyone who owns a car”? Better to market SUVs aimed at middle-income female buyers in their 30s with families who value reliability and safety.
What the Sharks are looking for is a well-defined target market with a clear need for the product/service. They want to see a highly focused business with a well-conceived plan to reach its target customers. They don’t want to hear about a massive undifferentiated market that may be “huge, worth more than $38 billion dollars in the U.S. alone” but that is not addressable in any meaningful way by the company.
Another way to look at market share is to try to determine in what ways the market is growing and how your business might capture a share of the growth rather than of the overall market. That’s a case for being in a growing market. After all, it typically is a lot easier to interest consumers new to the market in your offering than to convince people already in the market to switch from another provider to you.
If you truly have a differentiated offering and it offers clear advantages over what is on the market, then you have the potential of being a market disrupter. But thinking you are a disrupter and that’s the way you will capture market share can be a big trap. In my work with new entrepreneurs, I often find myself asking these questions:
Is your solution truly new? Have you done the research to understand the market, the incumbents in it, and who the past and current upstarts are? Are you trying something that has already been tried or that others are already offering?
Why aren’t existing players already offering what you will bring to the market? Might it be that it’s not the solution that you see it to be or that it’s something that the market really won’t value?
What problem are you solving? Is it a significant pain point for market participants? Or are you magnifying or hallucinating a problem or pain that most don’t view as an issue?
Then there is what you need to do beyond having a great product or service to capture “your share” of the market. Do you actually know how to reach and can you reach the customers most likely to want what you are offering? How will you actually build brand awareness, connect with and acquire customers, and put in place the people, systems, processes. and everything else that it takes to create and deliver your offering when and where it is needed on a repeatable, high-quality basis?
The right way to look at market share
My client, let’s call him Sam, has a contracting company. He is competing in a highly competitive local market with many other contractors, some part of national organizations and some local, large and small. In Sam’s case, for the biggest segment of his business he is part of a national cooperative, giving him branding, some marketing support and systems, and preferred access to great products.
Sam is targeting a broader area but he is especially interested in making headway in an affluent community where homeowners are mostly likely to be attracted to his higher-end offerings. Our research shows that in the three Zip Codes he is targeting there are 26,000 or so homes.
Let’s stop for a moment. Sam could say that in the community in question his market is 26,000 homes, since every home has and potentially needs what he sells and installs. Thus, the question might be, what share of these homeowners can Sam capture as customers? We say that’s not the question, because viewing the market as 26,000 homeowners is over-stating the true market size, for sure.
Digging deeper, based on industry statistics, we estimate that last year a little over 1,000 of the owners of these homes engaged firms in his line of business to do the kind of home improvement that Sam does.
Notice how we are niching down: By a few Zip Codes and then within these Zip Codes by the likely number of buyers in a 12-month period. Sam has the capacity to offer his home improvement services to hundreds of thousands of homeowners in a multi-county urbanized area. But by targeting, he is paring down his challenge to a much more addressable market, one that’s easier to gain visibility in and make connections in.
OK, so is Sam’s market in the community in question the 1,000 or so homeowners who are likely in the next 12-months to engage firms in his line of business to do the kind of home improvement that he does? Let’s say that last year the 1,000 buyers spent $12 million on these home improvements. Is that the size of the pie that Sam is trying to get a meaningful share of?
I won’t give away any more details about how Sam is niching down - after all, he is a real client and I am duty bound to maintain confidentiality. But, no, he is not off on a wild goose chase to be the next mass market dominator, the next Renewals by Anderson, Home Depot, or Amazon Home Services. Instead, his approach is to let all the bigger participants as well as the bottom feeders who sell on price, whomever they are, get their share. All he wants is a meaningful slice of the market as he defines it, homeowners not put off by his higher price point who want his excellent level of quality and customer service. This market is significantly less than 1,000 homeowners.
I encourage you to think like Sam. Niche down, hyper target, focus your resources on the marketplace represented by those most likely to want and need and have the ability to purchase what you offer. Let everyone else fight over the rest of the pie.
