Market Definition

Funding, Operations & Marketing Strategy

What makes a good idea a business opportunity?

The key difference between a good idea and a business opportunity is an identifiable group of people that are willing to pay for access to or use of that idea.

This makes the identification and definition of a market for an “idea” a foundational step in establishing its viability as a business. The clear definition of the market is

required to optimize all aspects of the business, including:

• Funding Strategy

• Marketing Strategy

• Operations Strategy

Quantifying and defining a market

A market is defined as the population of all people that would use a product or service and have the economic ability to pay for it. 

The market is usually divided into three categories:

● Total Available Market (“TAM”): This is defined as the total market demand for a good or service. It includes everyone that could possibly want and can afford your good or service.

● Serviceable Available Market (“SAM”): This is defined as the population of potential

users that can be served by the specific product “variant” provided by the company.

● Serviceable Obtainable Market (“SOM”): This is defined as the market share that the business can realistically be expected to win. 

Why does the market definition matter?

Market definition is the foundational process in a business. It influences every facet of the business, and a mismatch between the market and the strategies employed by the business will result in a suboptimal outcome. The funding structure of a startup must be appropriately aligned with the market it intends to tap into.

Funding Structure:

The amount and proportion of equity capital necessary in a startup business is

proportional to the risk of entry and success in the market

Market Characteristics Equity (Size/Proportion)Debt
Monopoly Very Large/100% N/A
Oligopoly Competition Large/100% Variable/Moderate to High N/AVenture debt possible

Why does market definition matter?

Operation Strategy: The structure of the market will define the appropriate operations strategy for a startup. Operational strategies include the following:

• Product Management & Development

• Supply chain

• Human Resources

• Quality

• Process

• Inventory

• Schedule

• Location & Layout

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