Lesson: Customer Understanding with Steve Blank

Step #7 Existing Market: Customers are known in an existing market

Existing market. The customers. They’re known. We know who they are, they exist. The customer needs. Well, we could ask them what they really care about for gains and pains. They could tell us. Competitors; by definition, there are many. Your risk. Well, your risk is lack of branding, lack of sales, lack of distribution, and unfortunately sometimes your product doesn't really live up to the claims. Example, Google, it's an existing market. Go ahead and try to enter the search business today. There is a dominant player in search.

Again a little further definition, an existing market incumbents exist, customer can name the market, customers want or need better performance and it’s usually a technology driven play. Positioning is driven by the product and how much value customers place on its features. The risks in an existing market are thinking that the incumbents are dumb. Typically, incumbents unless they are large corporations that are falling asleep, will defend their turf. Remember the network effects of an incumbent. It might mean that it's not only about their product but it might be all the ancillary services and third party offerings they have in their catalog. And remember, just as you're focused on innovation, most incumbents are focused on innovation. So before you jump into an existing market, you need to take a look at the innovation rate of the incumbents.

Now, one of the interesting things is trying to figure out what sales looks like and what's the adoption rate in a new market. It turns out one of the interesting curves for startup companies is a technology life cycle adoption curve popularized by Jeff Moore in a book called Crossing The Chasm. And more postulated that there was a gap, a chasm between visionaries and the mainstream and pragmatic and conservative market. It turns out though in an existing market, that chasm between these early adopters and the mainstream is very small or non-existent because if you are right entering in an existing market, your sales curve, the spreadsheet you're putting together for your revenue if you get it correctly should look just like this. You're taking market share from incumbents from day one. In an existing market, if customers react to your hypotheses that what they needed was higher performance and you were correct, this is your revenue curve. Congratulations.