A Common Mistake
The key thing that start-ups need to understand is that they don’t have resources. Whether that’s human, physical or financial, they are all in short supply as a start-up, so they need to be focused to maximise their effectiveness. Most start-ups don’t get this. In the mistaken belief that it increases the chance of success, they try to hit too many markets at once and end up spreading themselves too thinly. Alternatively, they try to enter competitive markets where incumbents with more resources put them out of business. To have a chance of succeeding they need to have market focus.
Bringing Focus – “The Beach Head”
A start-up needs to identify a place where they can start, where they can get in under the radar, establish a foothold and expand. A “Breach Head”. This a military analogy, invasion by sea, you establish a point of access where the enemy’s defences are weak. So it is with a business. You need to find a market that is poorly served or where competition is weak, in other words, its weakly defended. However, such a Beach Head must be strategic too. In the military case, they don’t just pitch up on the beach and think “what next?”, there’s a plan. From here we’re going here and then here and so on. For a business then the Beach Head must allow for expansion into to other markets. The Beach Head market must create resources to do that, to produce revenue at least. So, how do you find a good Beach Head?
Identifying a Beach Head
Most start-ups have an idea about the markets they could address but a start-up can’t go after multiple markets or a market of millions from day one, so they must break it down into smaller pieces, a process called Segmenting. Segmenting defines a set of parameters or attributes of a sub-segment of the main market. They allow the market to be broken down into many potential targets for establishing a Beach Head. Segmenting can be vertical, by industry for example, or horizontal, by customer needs for example, but so long as it is uniquely identified is all that matters.
The criteria above must then be applied to choose the best fit as a Beach Head, but how big should it be? Well, big enough to build a business, but not so big that you can’t cope. The crucial thing here is volume, how many units of sale, trying to size a market by pounds or dollars is a big mistake, it’s volume that determines resources so, always start with that. The final consideration for Beach Head selection is it must be a segment that you can dominate, that is, your market share must be more than 50% in that segment over time. Once you achieve that you have defensibility as it’s not worth a competitor to enter.
Following this process will enable definition of a Beach Head market that is poorly served, where competition is weak, is of optimum size, is defensible and enables expansion. But this is not an easy job, it’s a lot of work, however this is no excuse, it’s critical for the success of any start-up.