Lesson: Customer Understanding with Steve Blank

Step #6 Market Type: There are four types of startups

We've been avoiding bringing this up until now but it's something you as an entrepreneur should know. It's a secret. And it's a secret that we didn't even understand for a long time. And that secret is there are four types of startups and not knowing which type you are can really sink your company. So we call this market type. It turns out that there really are four types of markets for startups. One is existing market, another is where you take a segment or re-segment an existing market, another is a new market and another is a clone market. So let’s take a look at why this is important and then we'll give you the definition of each one.

It turns out that the type of market changes everything. It changes your initial market size, how much it costs to enter the market, what kind of launch you do of your product. It affects the type of competitive barriers you have and how you position or describe your product. It affects your sales model. Are you going to hire direct sales? When do you hire them? What kind of margins you should have or the profit. How long it takes. That is the sale cycle. Something called a chasm width, which we'll take a look at in a second. It also affects how much money you're going to need to raise and how long it takes to get to profitability. And then finally it affects the types of customers and what their needs are and how long it takes to adopt. So one of the things this looks like it's just a check list of market type seems to affect everything. What the heck can it be? So let's go a little further and define it.