Investor Perspective: 3 Ways to Effectively Define Your Market

This is a guest post by Marc Weill, Two Sigma Private Investments.


During Ynext™ Incubator boot camp in San Francisco, I gave a presentation on how to define your market. One of the biggest challenges new startups face is defining target audiences. The initial temptation is to say "everyone," but unless you're Wal-Mart or Target, "everyone" is not an option. Even when it comes to banking, "everyone" doesn't use banks. Teenagers, people with bad credit, and people in extreme poverty (and yes, they still use smartphones) often don't have access to banks. So "everyone" is the wrong market to pursue. Below are 3 key considerations to effectively define your market.

1. Identify Pain Points One of the questions new companies should ask is "what problem are we trying to solve?" It usually starts with a pain point that affects a group of people. The startup should try to make something easier, more efficient, or solve a pain point. Different places have different pain points. Think locally and figure out the local pain points. For instance, in the U.K., it takes hours to set up a bank account. But in the U.S., you can set one up in a few minutes. If someone could find a way to streamline the process, they could solve pain points in the U.K., but it wouldn't be needed in the U.S.

2. Leverage Distribution Channels Also think about your distribution channels. Where do you have a competitive advantage? In financial services, most products are not very different. You can make tweaks, but it's the company with the best distribution channels within its area of expertise that has the advantage. Decide where your distribution expertise is. How do you deliver on, say, low cost distribution? If you can distribute cheaply, you can reduce the product's selling price, which will give you a competitive advantage.

3. Understand Your Target Demographic The third question to answer is what do the demographics look like? Who are you selling to and what do they want? For example, I'm a Baby Boomer, so that requires a whole different approach than selling to Generation X or Millennials. You have to tailor how you sell and distribute to your exact demographic group. And that applies even if you have more than one demographic you're targeting. Figure out how this works for each demographic. Once a startup can define its chosen market, they can focus strictly on that group and how to solve their problems.

Do you have a prototype in need of financial data? Click here to learn more about Ynext Incubator and how to apply for the next class. If you are looking for investment, feel free to contact Two Sigma Private Investments.