What makes one startup market type more challenging than another? How can entrepreneurs determine which market type best suits their product?
Understanding startup markets is crucial for business success. Four distinct types exist, each with unique advantages and obstacles. The approach you choose will shape your strategy, from customer acquisition to competitive positioning.
Read more to discover which market type aligns with your entrepreneurial vision.
The 4 Startup Market Types
Blank outlines four types of startup markets: 1) new market, 2) existing market with a new product, 3) resegmented market with a cheaper product, and 4) resegmented market with a more specialized product. Each market type requires different strategies to succeed, so your market type will determine many of the decisions you make throughout the customer development process.
Market Type #1: New Market
When your product provides an original function that no other current product provides, you’re creating a new market. Blank explains that the benefit of creating a new market is that you have no competitors. The challenge is educating potential customers about a product or service they’ve never encountered before. The market size is unknown, and there may be no direct competitors, but the startup must carefully manage its finances during the potentially lengthy adoption phase.
Market Type #2: Existing Market With a Better Product
Startups that are introducing a better product into an existing market are trying to supplant other companies from their control over the market. According to Blank, an advantage of entering an existing market is that you already know the market size and the competitors, which can simplify some aspects of the business strategy. However, the challenge lies in differentiating the product from competitors and capturing market share.
Market Type #3: Resegmented Market With a Cheaper Product
Startups that are introducing a cheaper product into an existing market are targeting a specific subset of customers in that market (or resegmenting it), explains Blank. They’re aiming to capture those customers who want a more affordable version of the product that will satisfy their needs—even if it’s not quite as high-quality as the more expensive alternative. This approach can be effective because established companies often ignore these more price-sensitive customers to focus on higher-end offerings. The challenge is convincing your customers that your product is good enough to serve their needs, and establishing a business plan that has a low buy-in and the potential for long-term sustainability.
Market Type #4: Resegmented Market With a Specialized Product
According to Blank, startups that are introducing a specialized product into an existing market are attempting to convince customers that their product is more specialized to those customers’ specific needs. If done well, this strategy can allow a startup to become a—or even the—leading player in that market. The challenge is that established businesses will aggressively oppose this threat to their lucrative place in the current market.
Blank explains that most startups fall into the latter two categories of resegmenting an existing market with either a cheaper or specialized product.
| Frameworks to Complement Blank’s Four Markets You can apply advice from other experts to more effectively make use of Blank’s four-market framework. In Competitive Strategy, Michael Porter offers a more comprehensive understanding of the competitive dynamics within each market type. Porter outlines five interdependent factors that influence the competitiveness and profit potential of a market: supplier influence, buyer influence, new competitors, alternative offers, and rivalry competitiveness. This model can help entrepreneurs assess the attractiveness of different market types and develop more nuanced strategies. For instance, in a new market, the threat of new entrants may be high due to low barriers to entry, while supplier and buyer power could be limited. In contrast, an existing market with a better product may face intense rivalry and strong buyer power, requiring a clear differentiation strategy. Porter’s framework also suggests that in resegmented markets, whether targeting price-sensitive customers or specialized needs, companies must carefully analyze substitute products and potential new entrants to maintain their competitive advantage. To address some of these challenges, in Blue Ocean Strategy, W. Chan Kim and Renée Mauborgne recommend creating uncontested market space through value innovation. The blue ocean strategy chart provides a way to visualize and validate your product’s unique value proposition by delineating its characteristics compared to your competition. By using this chart, entrepreneurs can map out how their product differs from existing alternatives—or, in the case of a new market, ensure there are no existing alternatives and they’re creating a new market space. This can help startups overcome the challenges Blank identifies, such as educating customers in new markets or differentiating from competitors in existing markets. Additionally, the concept of disruptive innovation can shed light on why certain market types pose unique challenges for established companies: In The Innovator’s Dilemma, Clayton Christensen explains that disruptive innovations are products that drastically change the current mainstream market. Disruptive innovations typically start in small, niche markets that are unappealing to established companies, but as the technology matures, it can grow to dominate both emerging and mainstream markets. This can help explain why existing market and resegmented market strategies can be particularly difficult for established firms to address effectively, as they’re dealing not only with a new competitor, but a new approach to the product itself. Christensen suggests that the lack of concrete market data for emerging innovations and the potential need for significant operational changes create additional hurdles for existing companies when confronting disruptive technologies. |
Exercise
Consider your product or business idea. Which of Blank’s four market types does it fall into: new market, existing market with a new product, resegmented market with a cheaper product, or resegmented market with a specialized product? Explain your reasoning.
