The ‘10 Ways that can help in Evaluating a Market’?

Josh Kaufman Explains The ‘10 Ways to Evaluate a Market’

Before you run, it pays to do some homework if you're thinking of starting a new company or growing an established business into a new market.

A back-of-the-napkin approach you can use to identify the attractiveness of any future market is presented by the 10 Ways to Evaluate a Market. On a scale of 0 to 10, measure each of the 10 factors below where zero is extremely unattractive and 10 is extremely attractiveness. Be conservative in your estimation when in doubt:

1. Urgency: How badly do people want this right now or do they need it? (Renting an old movie is typically low urgency; seeing a new picture on opening night is high urgency since it only happens once.)

2. Market Size: How many individuals are actively buying stuff like this? (The market for underwater basket weaving courses is very small; the market for cancer cures is massive.)

3. Pricing Potential: What is the highest average cost that a customer will be prepared to pay on a solution? (Lollipops sell for $0.05; carriers of aircraft sell for billions.)

4. Cost of Customer Acquisition: How simple is the acquisition of a new customer? On average, how much, both in money and effort, would it cost to produce a sale? (Built on interstate highways, restaurants spend less on getting in new clients. Millions of landing contracts may be invested by government contractors).

5. Cost of Value-Delivery: How much, both in money and effort, does it cost to produce and deliver the value offered? (It's almost free to deliver files through the Internet; it costs millions to invent a product and build a factory).

6. The uniqueness of Offer: How special is your bid relative to competitive deals on the market, and how easy is it for prospective rivals to copy you? (There are several hair salons, but there are very few firms providing private space travel).

7. Speed to Market: How fast can you build something to sell? (You can offer to mow a neighbour’s lawn in minutes; opening a bank can take years).

8. Up-Front Investment: how much would you have to invest before you’re able to sell? (To be a housekeeper, all you need is a range of affordable cleaning items. To mine for gold, you need millions to purchase land and excavating equipment).

9. Up-Sell Potential: Are there similar secondary deals that you might also give customers to buy? (Customers buying razors also need shaving cream and extra blades; buy a Frisbee, and unless you drop it, you won't need another one).

10. Evergreen Potential: once the initial offer has been created, how much additional work will you have to put into it in order to continue selling? (In order to get paid, business consulting requires constant work; a book can be created once and sold over and over as-is).

When you’re done with your assessment, add up the score. If the score is 50 or below, move onto another idea—there are better places to invest your energy and resources. If the score is 75 or above, you have a very promising idea—full speed ahead.

Anything between 50 and 75 has the potential to pay the bills, but won’t be a home run without a huge investment of energy and resources, so plan accordingly.