ENTREPRENEURSHIP 1

Recognize a Potential Market

Module 004 | Recognize a Potential Market

Market potential is the entire size of the market for a product at a specific
time. It represents the upper limits of the market for a product. Market
potential is usually measured by either sales value or sales volume.

Objectives:

1. Recognize the characteristics of a potential market.

2. Identify market problems.
3. Build products to meet customers’ needs.

Determine Market Potential

Once you have established that an opportunity matches your business’s

vision, goals, and financial indicators, you are ready to assess its market
potential by examining specific key factors. Market research will enable you
to more accurately assess the following points:
Ability to compete – Which opportunity offers the potential for you to
compete most effectively in the marketplace based on a price/cost advantage
or market differentiator? If you will not be able to compete effectively, be
wary of such an endeavor. Build on your strengths to increase the chances of
future successes.
Duration of the opportunity – Will the opportunity last long enough for you
to seize it and reap its rewards? Duration is critical to determining
attractiveness. For example, a new product or service based on a long-term
trend, such as a changing demographic, has an enduring window of
opportunity. One based on a fad, such as the latest fashion trend, has a
limited life. Another consideration is how long you have before competition
might flood the marketplace.
Growth potential – In many cases, long-term growth rather than immediate
rewards make one opportunity more attractive than another does. An
entrepreneur may decide to offer a new product in a growth area rather than
pursuing sales of existing products that have minimum growth potential. Is
the sales potential sufficient to make it worthwhile? Even if you can
dominate a small market, it may not be worth your while.
Risks and rewards – A certain amount of risk is involved in all
entrepreneurial ventures, and growth is no different. How much will the
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opportunity cost to pursue in terms of time, money, and physical resources?

What is your potential return on your investment? Are the risks acceptable to
you and your business? Do the rewards compensate for the risks?
Keep in mind that typically the risks associated with growth opportunities
increase as you move away from products and markets you know into
products and markets that are new to you. Costs for researching and
developing new products and researching and penetrating new markets will
also increase.

Identifying Market Problems

To deliver products that solve your target customers’ problems, you must
first identify market problems. These problems may be stated directly as
customer needs or implied indirectly.

Your market consists of:

Existing customers: People who have already purchased your product

Prospects: People who have not yet purchased your product but are
considering it
Target market users: People in your target market who are not currently
looking for a solution

Traps to Avoid When Listening to Your Market

Ensure that you listen to all of the people that comprise your market to avoid
falling into the following traps. Each trap is not entirely bad, but can become
problematic when it becomes your only focus. The key is to balance your
focus to ensure that you are really listening to your entire market at the same
time.
1. Focusing only on innovation and the competition.
As an entrepreneur, it is easy to focus on building innovative solutions
that do not connect directly to market problems; just because you can
innovate, does not always mean that you should.
It is also easy to pay too much attention to what competitors are doing
and expend resources on trying to beat them to market. In many cases,
the customer does not care about extra features.
Instead, ask the following questions to ensure that you are solving a
problem for your target market:

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● What problem does this solution solve?

● Is this a problem experienced by my target market?
● What would my target market do if I did not solve this problem?
While it is always a good idea to keep abreast of what your competitors are
doing, ensure that the market wants the problem solved.
2. Focusing only on customers.
Henry Ford said, “If I had asked people what they wanted, they would
have said faster horses.” Customers understand problems, but they
cannot help you to move your product forward. They know what you
provide, and tend to stay inside that mindset.
Customers are a source of input, but not the only source of input. This is
why talking to prospects and target market users (who have not
purchased your products) is key to rounding out the picture. They often
see things beyond your current product.
3. Focusing only on revenue.
By listening only to prospects, and delivering only what the next
customer wants, you will gain revenue but miss market opportunities. It
is critical to find a balance between prospects and customers to ensure
that your future revenue is protected, while still keeping existing
customers happy.

Stated Versus Silent Market Needs

Stated needs are explicit statements from your market that declare, “I want a
product to do X.” While stated needs are important, they are not as powerful
as silent needs, which are problems with yet undefined solutions.
When interviewing potential users, your goal is to understand your target
market’s everyday problems; whether or not you believe that, you can
initially solve those problems.
Example:
While doing market research, a major TV manufacturer uncovered the
problem that people regularly misplace their TV remote control. Customers
did not identify this as a problem that needed solving, but it was a common
issue.
By listening to the customers’ silent need, the company was able to develop a
feature that resonated with its target market (a “remote-control finder”
button on the TV itself).

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Using this outside-in approach enables you to concentrate on and solve your
target market’s problems. It removes the guesswork from product
development and reduces concerns related what your competitors are
developing. Listening to the market is the best research you can do to ensure
that you build the right solutions.

The Three Pieces of Entrepreneurship

In today’s world, especially living in the San Francisco Bay area, everyone has
his or her stereotype of what an entrepreneur is. Are they someone who
wears a hoodie? Someone who eats pizza and plays video games at work at 3
am? On the other hand, someone else who neglects all for her garage
laboratory? They might be entrepreneurs, but at the real heart of
entrepreneurship are three things: the ability to identify or recognize
opportunity, the ability to review or assess opportunity, and last but not
least, the ability to successfully execute and realize opportunity. While these
tasks seem straightforward on paper, the skills you need for each one are
very different, and it is difficult to be good at all of them. To be a successful
entrepreneur, you need to excel at all three, all at the same time.
Opportunity Recognition
The people who typically excel at opportunity recognition are the right-brain
creative type people. These people are clever and look at the same situations
that everyone else does, but envision something different. They see new
angles, new possibilities, and new ways to do things. Scientists, especially
those in the heavily analytical fields, often struggle with this phase. Being a
scientist, we strive for reproducibility and have the mindset that if A + B = C
today, then A + B = C tomorrow. People who excel at opportunity recognition
often look at a situation and say, what if tomorrow, A + B = D? Then what?
Opportunity recognizers truly think outside the box, stretch the limits, and
are combinatorial in non-traditional ways.
While the opportunity recognition phase is crucial when beginning a new
enterprise, it is important to seek new opportunities throughout the entire
lifetime of any enterprise. To stay ahead and on top of the market, companies
must constantly recognize opportunity as they continue to grow and evolve.
Steve Jobs is the quintessential opportunity recognizer of our era; his
iterations of Apple have successfully capitalized on opportunity after
opportunity. Facebook also excels in opportunity recognition. As Facebook
usage increased, advertisers wanted a piece of the action, thus the ability to
“Like” “Pages” was born.

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Opportunity Assessment
The opportunity review phase is where scientists generally stand out in the
entrepreneurship process. The opportunity review is when the analytical
assessment of the opportunity that was recognized occurs. During this stage,
an entrepreneur must assess potential strategies and business models as
well as conduct market and economic analyses in order to establish an
answer to the question: Can I bring this idea to market in an economically
successful way?
Next, it is time to construct a business plan, a concept any MBA student
knows all too well! A good business plan will answer several key questions:
What is the market for my good or service? What does the market need
and/or want? Who are my competitors? How will I create and sustain a
competitive advantage? Is my product or service distinct and unique? If you
are a “me too” enterprise, meaning that you are simply imitating another
business’s product or service, then you will only be able to do as well as the
firm your imitating, never better. To be better, you must differentiate
yourself in some way such as differentiation by price, value, features and
benefits, guarantee, location, retail availability, or specialization.
Other questions to consider during the assessment phase: What are the
intellectual property implications of your core idea? Do you plan to
trademark, copyright, or have proprietary information? Are you going to be
able to get the start-up capital to trademark or copyright without divulging
the uniqueness of the company?
What is the model that builds in sufficient revenue compared to cost? How
will you pay back investors, on top of all ongoing costs, supporting
employees, maintaining raw materials and all of your other expenses? How
impressive do your income statements and balance sheets look? How would
you price this technology, idea, or product?
The 2007 book by Heath and Heath titled Made to Stick: Why Some Ideas
Survive and Others Die talks about the difference between things you hear
once and never forget and things you hear over and over, but fail to
remember. For example, we all remember hearing “you can see the Great
Wall of China from outer space,” but the best part is – it’s not true! No matter
how many times this has been put to rest, it has never left the public
consciousness (the Great Wall of China is about as wide as a highway; you
cannot see highways from outer space). So how do you make your company
that memorable? According to Made to Stick, you need to have a “sticky”
tagline that is simple, unexpected, concrete, credible, emotional, and told as a
story.

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Just like opportunity recognition, the opportunity assessment process never

actually ends in a business. A plan is necessary, for sure, but an entrepreneur
must be nimble in the face of market changes and forces. Perhaps the most
difficult challenge of a start-up company or a budding scientist is to make the
correct decision between staying the course with the plan and determining
when it is most beneficial to detour from the plan based on reactionary
forces. As an entrepreneur, this is the largest struggle I personally face.
Opportunity Realization
The opportunity realization is what I call the “Get it Done” phase. During this
phase, it is time to take advantage of the situation and execute all of the great
ideas and projections ascertained from the two prior phases. In my
experience, many scientists struggle with this phase. This phase is tough and
unpredictable. It is a combination of doing things by the book and dealing
with inimitable people and unique situations. Now it is time to build a team,
raise money, develop a marketing strategy and a sales approach, implement
your sticky idea. From a scientist’s point of view, this can feel a lot like
publishing a peer-reviewed manuscript.
Implementing the plan is often not as simple as it seems. You are suddenly
faced with a completely new set of questions: is your business scalable? Does
your team work well together?
A great book published in 2010 that explores the realization side of the
business is Stuart Diamond’s Getting More: How to Negotiate to Achieve Your
Goals in the Real World. Getting More takes the premise that there are pretty
standard ways of dealing with common life and business issues. If you change
how you approach these common situations by changing your behavior, can
you change the behavior of the people around you? Can you train yourself to
be a tougher negotiator, to get more out of every situation? When is it more
efficacious to be nice? To be tough? How tough is too tough? This book is a
definite must-read for any aspiring entrepreneur.
In theory, everything that makes a good scientist should make a good
entrepreneur. However, as a current graduate student, I feel that we are not
often taught how to become applied scientists or even made aware of
different aspects of our professional lives that could be used toward
entrepreneurship. Just like delivering any paper, patent or scientific
discovery, being an entrepreneur means having several ideas, exploring the
most “sticky” ones, and finally implementing the winning initiative with full
force.

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Glossary
Entrepreneur: A person who organizes and operates a business or
businesses, taking on greater than normal financial risks in order to do so.
Investor: Allocates capital with the expectation of a future financial return.
Market Potential: The entire size of the market for a product at a specific
time
Opportunity: A set of circumstances that makes it possible to do something.
Revenue: The income that a business has from its normal business activities,
usually from the sale of goods and services to customers.

References
1. Determine Market Potential;
https://www.entrepreneurship.org/articles/2006/09/determine-
market-potential; June 6, 2017
2. Identifying market problems: Building products to meet customers’
needs; https://www.marsdd.com/mars-library/identifying-market-
problems/; April 29, 2017
3. The Three Pieces of Entrepreneurship: Opportunity Recognition,
Opportunity Assessment, and Opportunity Realization;
http://berkeleysciencereview.com/3pieces_of_entrepreneurship/;
April 29, 2017
4. Eduardo A. Morato, Jr.; 2016; Entrepreneurship 2016 Edition; Manila;
Rex Bookstore

Online Instructional Videos:

1. Tools for Entrepreneurs: Finding Product Market Fit;

https://www.youtube.com/watch?v=c-ruOFVG078; April 29, 2017
2. Bill Drayton: Collaborative Entrepreneurship Overcomes Market
Failures; https://www.youtube.com/watch?v=IyRbEbggetE; April 29,
2017

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