Macro- and micro- markets

All else being equal, most entrepreneurs and investors would prefer to serve attractive rather than unattractive markets. How might such market assessments be made? Research shows that assessments must be made at both the macro- (broad, market-wide) and micro- (particular to a specific segment) levels. The macro/micro distinction is important, for the assessment questions differ.

Macro-level

It is actually quite straightforward to conduct a macro-level market assessment, as this market analysis worksheet shows. One first assesses – usually by gathering secondary data from trade publications, the business press and so on – how large the market is.

Market size can be measured in many ways – the more the better. Measures include:

• number of customers in the market, say for workplace snacks;
• the aggregate money spent by these customers on the relevant class of goods or services, in this case workplace snacks;
• the number of units of relevant products or usage occasions, such as workplace snacks, bought annually.

One also collects recent historical data to ascertain how fast the market has been growing together with any available forecasts about how fast it is likely to grow in the future.

One then assesses broad macro-environmental (macro for short) trends – demographic, sociocultural, economic, technological, regulatory and natural – to determine whether things are likely to get better or worse in the future. Do the trends favour the opportunity, or will the entrepreneur be swimming against a powerful tide?

The broad, macro-level market assessment is important to the entrepreneur, for he or she risks investing years committed to an idea that, in the end, may not be large enough to be worth all the time and effort. It’s important for the entrepreneur to know whether the opportunity is a substantial one serving a large and attractive market, or a niche opportunity with limited potential. Either may be acceptable. It depends on the entrepreneur’s aspirations. It is also important to know which way the tides are flowing. Thus, reaching a clear conclusion about market attractiveness is critical. But this macro-level assessment – done at the 30,000-foot level, so to speak – is only half the market domain story. It is essential aerial reconnaissance and a good look at the road ahead, but for the full picture you need observers on the ground.

Micro-level

No matter how large and fast-growing a market may be, entering it in the face of other competition is likely to be difficult, since customers are probably already satisfying their needs – though perhaps not optimally – in some way. In this sense, there’s no such thing as a new market in customer terms. Aspiring entrepreneurs who say ‘We have no competition’ are simply naïve. Thus, most successful entrepreneurs, rather than targeting the entire market, identify a much smaller segment of customers within the overall market.

The micro-level market assessment involves asking four key questions relevant to such a segment:

• Is there a target market segment where we might enter the market in which we offer the customer clear and compelling benefits at a price they are willing to pay?
• Are these benefits, in the customers’ minds, different from and superior in some way – better, faster, cheaper or whatever – to what’s currently offered by other solutions? Differentiation is crucial. With the possible exception of niche markets in which small entrants can safely fly ‘below the radar’ of competitors, the vast majority of me-too products fail.
• How large is this segment, and how fast is it growing?
• Is it likely that our entry into this segment will provide us entry to other segments we may wish to target in the future?

How can these questions be answered? Most commonly, a combination of first-hand primary data (gleaned from talking to or surveying prospective customers) and secondary data (data collected previously and available on the Internet or in libraries or from other sources, to determine segment size and growth rate) can deliver the understanding that the entrepreneur needs.

Many aspiring entrepreneurs make the mistake of examining only the macro-level. This behaviour appears to be especially common in technologically driven firms. Through failing to identify the first customers who will buy – almost by name – and why they would benefit, and in ignoring how entry into this segment might create one or more options for growth into other market segments, they risk pursuing a dead-end path on two counts:

1. Without differentiated benefits, most customers won’t buy.
2. Without a pathway to growth, most investors won’t invest.

Most market segments are simply too small to sustain a high-growth business for very long, although such segments may be quite attractive to entrepreneurs seeking to establish niche-market or lifestyle businesses that fly ‘below the radar’ of larger competitors and grow more slowly. The story of Nike’s entry and subsequent growth in the athletic footwear market demonstrates the importance of the micro-level assessment of market attractiveness.