Know Your Market and Audience: Net Growth Rate
Launching and growing a project or startup requires not only a great idea, product and team. Knowing the dynamics of market and audience are more important than ever in this fast and exponentially changing world. In this blog series we are touching a few points about market and audience dynamics.
There is certainly no shortage of really interesting project opportunities both in the corporate and public sector as well as in the realm of startups. The question is often if, how and when a project can succeed?
- What is the net growth rate of the market and audience?
- What portion of the market is really addressable?
- How does the composition of the cohorts change over time?
- Is there enough time to accelerate and compete?
This blog series will explore these question. In this blog post we will look at the question:
What is the market or audience net growth rate?
In simple terms the net growth rate of the market or audience is
The number of customers joining the audience minus the number of customers leaving the audience.
Sounds simple? Indeed it is. And yet many if not most business proposals do not even consider this simple equation. And the dynamics of a change in net growth rate can have a significant effect on the project. For example a declining net growth rate means that there are more customers leaving than the number of customers joining. This is an important planning assumption because one needs to ask how it impacts the addressable market and if the business project has the velocity to compete and capture the desired share of the audience?
This simple simulation illustrates the implication. A project manager who assumes that there is a steady growth of the total population will see smooth sailing ahead. But if the net market growth rate is declining by a certain fraction year by year then the picture looks much different. And this revised picture raises the question of the project is worthwhile and if the business can launch the product on time and keep innovating it in order to compete an increasing share in this market. The market may become very crowded over time.
The prudent investor allocates resources according the performance and demand. That’s why there is such a high focus on
proof of concept (the product works) and
proof of market (one or more clients bought and used it).
Therefore it is important to probe the investment project candidates particularly on this topic. Some basics should be provided – but in reality they are often overlooked or neglected when investors and entrepreneurs get passionate about the project:
- The business plan should articulate the assumptions about market growth.
- A cohort analysis should be provided.
- Market share and competitive position of peer companies should be analyzed.
These basic considerations should be reflected in any business plan and investment project. Ideally you have the data points from market research or from your own analytics. Or, if the information is not available and has to be discovered, then articulate your assumptions and firm up them up step by step. These are good discussion points in a milestone reviews – especially when it is about a next resource allocation.
More about this and other concepts in the “Shape Growth” Series and the Service and Software-as-a-Service depth briefing in WITTIGONIA Online Academy (http://academy.wittigonia.com).