Trying to Evaluate Market Fit? Here’s one Approach.

English: an incon to indicate that there is a ...

How does this product serve the marketplace?

Over the past few weeks, I’ve met with a bunch of very smart founders at early stage start-ups who need to evaluate market fit as part of a business plan for investors.  There are many approaches to assessing market fit, creating use cases and developing key product differentiators.  Here is approach that I developed over time, starting with a framework I used while leading a new product development team at American Express and then refined while evaluating brand extensions for The Economist and promoting digital subscriptions for other media clients.

For purposes of discussion, let’s imagine that we’re building an app designed to make people’s commute a little easier with live updates and seamless interaction from train to taxi.  We can call it ComUter.

Product: What it is and how does it add value?

ComUter helps people get around town easier with live updates across all transportation lines and provides easy access to taxis using Uber.

Marketplace: What is the size of this marketplace?

The MTA reports around 5.2m passengers per day during the workweek and 3.3m passengers on weekends. In London there are around 3.2 to 3.6m passengers.  A 1% penetration rate translates into 50,00o to 30,000 in NYC and 32,000 to 36,000 in London.
Note: In the beginning, it’s difficult to estimate penetration rates with any accuracy.   It’s fine to use 1% is a placeholder for market demand at a high level that you can revise once you’ve launched your product and seen the initial conversion rates.

Competition: Who else is doing this?

No one has created an application that combines both public transportation with taxi access.  There are apps on the marketplace that cover specific lines (Exit Strategy 1,000+ Google Play downloads @$2.50), or provide directions across lines of public transportation (Hop Stop with 500k+ downloads on Google Play) or that hail taxis (Uber 100,000+ Google Play downloads).

Use Cases: Who is the Customer?

Sample use cases include daily commuters in major cities, occasional commuters, people on vacationing in cities, transportation and train enthusiasts.  Facebook’s targeting capability is a great way to do market test your use cases by segmenting use cases and asking a few survey questions.

Product Differentiators: Why Would a Customer choose this Product?

This is where people usually get stuck.  The answer is must be based on how your product is better than anything else on the market, either because it’s available across mobile, tablet and web or has unique features or can provide a discount of some sort.  Ideally, this should be something that is difficult to replicate.   For the case of ComUter, let’s say that the GPS can sense when your train is rolling into the station and automatically orders an Uber car for example.  While this sounds great, it would likely be easy for a competitor to copy unless there is a patent.

Go to market plan: How will you launch the product and tell your Customers?

This is really a question about distribution and driving awareness using inbound marketing.  In the example of ComUter, it’s launching Google Play and Apple App store and negotiating with Apple and Google to promote your product.  That’s the distribution element.  In terms of driving awareness, the most effective approaches to drive inbound marketing are a combination of search, social and mobile.  It’s helpful to have a website as a destination point for search that can then point people to the App.

Resources Required: What do you need to build it?

How much money will it cost to build a bug-free app that customers can download and use immediately? It has to be flawless when you launch or it’s over before it even starts.  If you launch a buggy app in either of these stores, it will kill your business at that moment and forever in the future.  The reason is that dissatisfied customers can be vocal, which ends up as a negative product review that everyone sees.  So consider this scenario, you’ve done all the hard work creating the compelling inbound marketing required to get someone to come to an app store and they don’t purchase it because they see a negative review.  This is a crying shame from a marketing point of view.

Initial Forecast: How many Customers will you get in the First Three Months?

Based on the size of the market, we’re saying that the total universe of potential customers is around 30k to 50k in NYC and 32k to 36k in London.   You need to estimate the number of customers that you’ll get at launch (month 1) through the first three months.  In this case, estimate getting 1% (again) in the first month and likely .01% in the following month.  At the same time, realize that there will be some attrition and the volume of customers will be smaller in month 2 and 3 compared to the launch month.  Once you have customers in the door, the next marketing challenge is retention, which you can start in month 3. The retention element could be in the form of badges or discounts.

In Conclusion

This is a bare-bones outline for assessing market fit and identifying product differentiators.  The macro elements are understanding of the market size, competition and customer.   After the landscape becomes clear, the most important question to answer is why…why would a customer select this product over all the other ones on the market today?  Once you have a steady customer base and a really flawless app, the next question is figuring out the revenue model.  In the case of ComUter, the revenue model could come in a few forms as a paid app like Exit Strategy, support ads or take a referral fee when customers go to Uber.

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