The China Syndrome in Entrepreneurs: Fun with Spreadsheets, Anyone?
Market segmentation is a tricky thing that can keep entrepreneurs on their toes all the time. The assumptions are backed by an endless number of spreadsheets that keep emerging from our desire of counting in every detail that seems apt to us.
China syndrome is a state- very common to early-stage entrepreneurs where everyone under the sun falls under the entrepreneur’s target market.
For instance, the assumptions run something like this. What if I start making toothbrushes and target China’s population of over 1.3 billion. Even if I get 0.1 percent market share in the first year, that’s a whopping 1.3 million toothbrushes sold.
If each buyer buys an average of 3 toothbrushes every year, I get to sell 3.9 million toothbrushes. If the price tag for each unit is $1, it’ll result in the revenue of $3.9 million in the first year alone and skyrocketing growth.
These high-level estimations are both good and bad. Good because when you start with the initial thoughts of starting up, you’ve to make assumptions for your market opportunity. Bad because it doesn’t involve you to think over why someone would be interested in making a buying decision of your product and why would your market share grow over time.
You probably don’t even understand your customer’s demographics well- never been to China.
If things were this easy, why won’t every entrepreneur under the sun sell toothbrushes in China?
The bottomline is- unless you narrow down on your approach to finding your beachhead market, never chase unrealistic spreadsheets.
If possible, create a new market to ensure you don’t become a “me too” in an already too crowded market.
Zero down on that Market Opportunity
A rather scientific approach to narrowing down to the market opportunity you want to be after is an elaborate process. It’s more applicable when you’re just starting out.
Here’re the key questions you need to ask yourselves:
Does your target customer have paying capabilities?
If not, what you’ll end up chasing may be demotivating in the long run. You don’t want to chase unsustainable customer segments which don’t lead to cash flows.
A startup that I was in touch with built a SaaS product for managing the gym members efficiently. Their approach was to target gyms in tier 3 cities and villages for easy adoption and facing no competition. Guess what- after putting in 12 months of hard work to sell, they could only convince 60 gym owners to adopt the solution and most of them wanted it for free or very low cost. With a lack of scope to survive, this startup had to shut the shop.
Will you have a direct connection with the target customer?
Some of the recent interactions with a few early-stage FMCG startups makes me emphasize on this point more. Since distributor networks exist everywhere, founders were relying on them to make their product reach the target customer.
It’s a bad approach especially when you’re starting out coz you don’t know your customer well yet, you don’t have their direct feedback and of course, you can’t say how passionately the third parties will work to create demand for your product.
Do they have a no brainer reason to buy?
What clear differentiators would you bring on the table which will lead to your customer’s no-brainer decision to join hands with you? Are you creating something convincing enough that’ll solve the pain points of hundreds of customers? What if they’re satisfied and you’re creating another “me too” product? The biggest killer of startups is low/ no market adoption i.e. customers not caring about you.
Do you solve the whole puzzle or just a part of it?
I met a very interesting entrepreneur who created a spreadsheet solution to solve a pain point of insurance agents. The macros in the spreadsheet did only one thing- populate some data which would save hours of work for the agents every month. Exciting right? But the target customers refused to pay for it. What he realised later after speaking to many agents was that they didn’t see enough value in it.
So our entrepreneur friend worked hard to create a comprehensive solution after speaking to many agents. And guess what, today his solution serves more than 5000 paying customers. There’s a popular saying- people dream about buying a brand new car not a part of it.
Is there a blocking competition?
It’s funny sometimes how some pitch decks we get from founders are full of claims that there’s no competition for whatever they’ve created. That’s a mistake- there’s rarely anything under the sun for which competitors aren’t convincing the customers for what they are solving for them.
It’s more important how strong your customers feel about those competitors (not you). Can you become that alternate that your customers need?
How will you win similar market segments?
If you get successful at what you’re starting out, are there any parallel segments/ industries that you can cater to with minor tweaks to the product and strategy? Or will it take you to move mountains to leverage any parallel opportunities? These questions are very important to answer from the scalability perspective. For example, a CRM app can cater to multiple different markets/ industries with minor tweaks.
Are your goals aligned as founders?
I keep hearing from entrepreneur friends how they’re stuck in what they’re doing. I’d say I’ve been in that situation myself many times, everyone does. For those who’re about to begin their startup journey, it’s important that you do not chase anything that may look very attractive on excel sheets but doesn’t excite you in your day to day life. It burns you if you don’t enjoy doing it. Entrepreneurship is no war, it’s a beautiful journey- the happier you are doing it, the more you’ll cherish it and the longer you’ll go with it.
