You might have an idea, but what if someone already had it and was doing it? What if worse, someone has been doing it so well that they dominated the market? Can you really take market share away from the competitions?
Steve Blank lays out the reference to the New Lanchester Strategy in his book The Four Steps to the Epiphany. These are of course I think by no means, a 100% strict and accurate formula for choosing markets to enter, but I think it’s very valuable in terms of a reference:
- If a single company has 74% of the market, the market has become an effective monopoly. For a startup, that’s an unnassailable position for a head-on assault. (think Microsoft).
- If the combined market share for the market leader and second-ranking company is greater than 74% and the first company is within 1.7 times the share of the second, it means the market is held by a duopoly. This is also an unassailable position for a startup to attack.
- If a company has 41% market shar and at least 1.7 times the market share of the next largest company, it is the market leader. For a startup, this too is a very difficult market to enter. Markets with a clear market leader are, for a startup an opportunity for resegmentation.
- If the biggest player in a market has at least a 26% market share, the market is unstable, with a strong possibility of abrupt shifts in the company rankings. Here there may be some entry opportunities.
- If the biggest player has less than 26% market share, it has no real impact in influencing the market. Startups who want to enter an existing market find these the easiest to penetrate.
So at the stage of choosing your idea, do some research about market leader, market size, before even validating with customers, since if the market leader has over 74%, just don’t bother.