I sat in on a strategy session this week with a company I am working with that is looking at entering a new vertical market. A VC moderated the session and shared his methodology for looking at potential new vertical markets and I thought I would share it because I LOVED it.
The Bowling Alley
The only real framework I have ever worked with when it comes to looking at choosing a new target market is the “bowling alley” approach from Crossing the Chasm. At a high level the theory goes that you pick a niche market to dominate which constitutes your lead “pin”. Once you’ve conquered that one you move to adjacent related markets and knock those pins over until you’ve knocked out a sufficient number of pins to move into the broader general horizontal market.
The exercise we went through this week was grounded in a lot of the same principals but took a lot more of the solution and the company’s unique value into account. Here’s how it worked.
The Unique Characteristics of Your Existing Market
First we took a look at the unique characteristics of the market the company was currently in. We broke it up into categories and brainstormed a list of things we thought were unique for each. We used the following categories:
- Customers (meaning the enterprises we sell to)
- The Customer’s Customers (meaning the end customers that the enterprises sell to)
- Products that our Customers sell
- Distribution/Go to Market (how do our customers take their products to market)
- Existing product/solution landscape (how are companies currently solving their problems and what products are currently implemented)
- Decision makers and influencers (who in the company holds the budget to buy a solution, who makes the decision, who influences the decision)
The Unique Characteristics of Your Company
Next we went through the same exercise only this time looking at what were the unique characteristics of the company itself. The categories we looked at were:
- Domain Expertise
- Distribution/Go to Market
- Track Record
Choosing the Key Characteristics Short List
After we did that we went back to the first list and picked out which characteristics we subjectively judged were the key characteristics of the market that made it a good fit for our company. Surprisingly enough this was very easy to do once we had captured what we thought was unique about our company. We ended up with a short list of about 10 things out of the dozens we had originally captured.
The Target Market Long List
Next we brainstormed a list of potential target markets. We did not limit ourselves to the markets adjacent to the one we were already in. Again, the work that we had done had an influence on the markets that ended up on the long list. For example, we identified that one of the things that made our existing market a good fit for us was that in that market products were sold through an independent dealer channel. We ended up adding a lot of markets to the long list because they also had an independent channel.
The Target Market Short List
The last step was to look at the list of markets and score them against our 10 attributes giving them a point for each attribute. We ended up with a short list of 2 markets that scored better than all of the others. One of the markets chosen is adjacent to the market the company is in today, the other is not.
The next stage of the process is to do a deep dive on the short list markets to figure out what the real potential is in the market which will include doing a market sizing, competitive analysis, talking to folks with deep domain expertise, etc.
We are a long way yet from being able to tell if we chose wisely but I liked the clarity and simplicity of the approach. Have any of you out there used something similar? Does this sound like a logical approach to you?