Startup founders often say to me, “We’re going ahead with this new startup … we’ve identified a gap in the market!” It’s a common refrain explaining why someone is starting a business, and how the startup is positioned against competition. There’s a gap in the market.
The question to ask at that point is simple: “Is there really a gap?”
Too often, startup founders haven’t done enough homework and really don’t understand the industry they’re going into. They use incomplete evidence and analysis to come to the fairly significant conclusion that there’s a gap in the market. Here are some examples I’ve seen in the past:
- Anecdotal evidence: “A friend of mine who works in the industry says this is a huge problem.” That’s anecdotal evidence and it’s not enough to really understand a market. The anecdotes may be right, but like most “stories” they’re embellished or altered away from pure fact.
- Backyard evidence: “Companies in this area are way behind the times and need a new, more innovative and less expensive solution.” Backyard evidence -if gathered correctly- can be a compelling first place to start, but be careful that there aren’t any regional specifics as to why there may be a better local market vs. everywhere else. Serving a local market (at least with a software/web startup) is extremely difficult and narrow minded. Don’t make the assumption that a local gap in the market will be reflected everywhere else as well.
- Me too evidence: “I see a bunch of startups jumping into the space (reading it on Techcrunch), I knew there was an opportunity there!” You can identify trends and certainly identify competition from the press, but I wouldn’t base my assessment of a market on what I see published online. Plus, there’s no way of knowing if all the other startups did their homework either.
- Past experience evidence: “I’ve been in this industry for 10 years, I know what’s going on.” This kind of domain knowledge can be extremely valuable. I’ve often counselled people to stay out of industries they haven’t participated in because they really won’t appreciate the intricacies of it. But past experience is powered by the bias of one person, so be careful about how you interpret it, especially when it’s someone else’s experience and not yours.
Knowing your market isn’t something you should take lightly. It can make or break you, simple as that.
Using super-biased, incomplete, casual, close-minded or anecdotal evidence as a determinant about whether or not you should start a company, and then how to position it in the market, your value proposition, and what you should build, is incredibly risky. Instead, take a rigorous, scientific approach to identifying market gaps. Talk to more people. Talk to people outside of your local area and comfort zone. Do more research on competition. Try and disprove yourself instead of seeking “evidence” that only proves your point. Hack something together, show it to prospects and get them to pay for it.
Even after you’ve identified a gap, you have to then understand why the gap exists. A gap alone doesn’t provide enough validation to jump into it. There could be lots of reasons why a gap isn’t being filled.
Don’t jump blindly into a startup and industry that you don’t understand, using a haphazard “gaps in the market” analysis … it’ll hurt.