Business Myth #1: The Universe is My Market

I continue to encounter businesses, generally start-up companies, that make the fundamental mistake of choosing too broad a target market. They talk of “casting as wide a net as possible” and “choosing not to limit” themselves. Business leaders who do this are naturally fearful fear of missing opportunities. They don’t want to lose any sales revenue from unanticipated sources. And they don’t want to lose investors interested in fast penetration of large markets.

Yet, no self-respecting venture capitalist will believe the inflated estimates of market size touted by such businesses. Judicious investors looking for big opportunities will require a business to demonstrate a smooth path from a single tiny customer base to a large market, with risk-mitigation plans along the way.

Many businesses started by engineers make this mistake. Engineers invest their effort and take pride in products that are generally useful, that solve problems known to be widespread. Their attitude is reinforced by their initial customers, who may come from diverse markets and yet enthusiastically adopt their products and services.

They fail to recognize the importance of credibility, proof, trust, and word-of-mouth, the critical gap that separates their leading customers from the followers who form the vast majority of the markets. And when they try to bridge this gap, they frequently find their revenues or profits dropping through the floor.

It is strange to continue encountering such businesses when these problems—and effective solutions—were articulated simply and clearly several years ago by Geoffrey Moore in his book, Crossing the Chasm, and even earlier by Moore’s mentor, Bill Davidow, in his book, Marketing High Technology.

Tags: Business, Reading

Created at: 23 December 2006 12:12 AM