Understanding your market is key to knowing how well your product will sell. It requires you to have an understanding of how many potential buyers and sellers of your innovation exist.
If your innovation is an improvement to a known problem, then it is easier to understand the dynamics that interplay here. It is more difficult to make a financial success of an innovation that nobody has previously needed, the classic market makers problem. Being a market maker generally requires much more funding as a bigger need for market education (convincing people they need your new product or service) is required.
Components of Market:
Size and Trends
You should know how large is the market for the product you are trying to innovate with. It is normally split down into:
- Total addressable market, or total available market
- The total market demand for a product or service, expressed as annual revenue or unit sales.
- Available market
- The portion of total addressable market targeted and served by a your proposed products or services, based on your sales capability, as well as product.
- Obtainable market, or share of market
- The percentage of Available market which you could realistically reach.
Barriers to Entry
These are the hurdles or difficulties that you must overcome to enter a new market. It includes, tax barrier, IP barriers, market knowledge, relationships, and the cost of customers moving their custom to a new supplier.
Who else has an an approach to meeting your users' needs? What makes your offer superior? Think about direct competition, i.e. offers that are roughly comparable, as well as indirect competition that solves the problem in another way.