What makes a market truly worth pursuing? How can you tell if your chosen market will support sustainable business growth?
Finding the right market is crucial for business success. In $100M Offers, Alex Hormozi uses the example of a “starving crowd,” emphasizing the importance of targeting customers with urgent needs and the means to pay for solutions.
Continue reading to explore how to identify and commit to a market that will help your business flourish.
A Starving Crowd
If you have a hotdog stand and want to beat your competition, what you need most is a starving crowd. Hormozi uses this example in his book. He says that, to successfully create a lucrative offer, you must choose the right market—one where your ability to meet your customers’ needs, your customers’ ability to afford your product, and growing demand for your product intersect. We’ll explore Hormozi’s recommendations for finding an ideal target market. We’ll also explain why it’s better to commit to one market and stick with it, rather than shifting your focus.
Tap Into Existing & Growing Needs
The first recommendation is to search for customers who already have a pressing need for your product. Hormozi explains that this kind of customer will be more inclined to pay higher prices to address their deep desires.
To find customers with an existing need, you might direct your marketing efforts toward those who have already shown an interest similar to what your product offers. For example, you could target individuals who have subscriptions for other services related to your product or memberships in relevant trade groups.
Hormozi also recommends that you opt for a market that’s currently expanding, meaning more and more people have a need for your product. An expanding market suggests a sustainable and increasing demand for your product, ensuring that your business has room to grow. Choosing a shrinking market, like selling new film cameras, will make sales more challenging as the market trends toward digital photography.
| Tip: Beware of “Growing Pains” in Business In The Voltage Effect, economist John List provides several warning signs that a particular market will not scale well, and therefore is not a good choice for your new business: 1. A niche market lacking broad appeal: Even if a product is popular with its original audience, that doesn’t mean it will appeal to the general public—in such a case, your business won’t be able to grow effectively. For example, Google Glass (Google’s attempt at “smart” glasses) may have been exciting to tech enthusiasts and some businesses, but most people were turned off by the high price tag and privacy concerns. 2. Consequences of scale: Ideas and products that are successful on a small scale often encounter problems on a larger scale. For example, adding a small amount of lead to gasoline improves engine performance. However, when used on a large scale, the toxic emissions caused physical and mental health problems for people all over the world—this eventually led to a worldwide ban on leaded gasoline. 3. Costs increase faster than profits: Generally speaking, as you manufacture more of a product, the cost per unit decreases or remains the same. However, that’s not always the case, which can create enormous budget problems as your business grows. For instance, this problem is especially common with companies that try to move to cloud computing—the more cloud storage and processing your company uses, the more your costs will increase, often far in excess of what you predicted. |
Commit Long-Term
Hormozi points out that understanding your market takes time. Therefore, rather than frequently shifting focus and wasting time getting to know new markets over and over again, commit to just one market and strive to understand it deeply. Mastery of your chosen market can lay a strong foundation for sustained success by steadily building a base of loyal, paying customers.
(Shortform note: While devoting your energy to learning and mastering one particular market is a reasonable approach, not everyone agrees with it. For instance, in How to Get Rich, self-made millionaire Felix Dennis argues that you should not focus too much on any one particular market or industry, and instead be ready to seize any new opportunity that arises. In fact, many companies that are highly successful today have followed Dennis’s approach. For example, Nintendo—now famous for its massive video game franchises like Super Mario Bros.—started out manufacturing playing cards.)
Exercise
- What’s one customer need that you could design a product to address? For instance, perhaps there’s a skill you could teach, a disability challenge you could help with, or a part of daily life you could make easier.
- What will your product do to fulfill that need?
