Market Dynamic Heuristics

Heuristics refers to experience-based techniques for problem solving, learning, and discovery. When the exhaustive search is impractical, heuristic methods are used to speed up the process of finding a satisfactory solution via mental shortcuts to ease the cognitive load of making a decision.

So how can this be applied to your own startup? When you’re evaluating a new business venture, there are six dynamics you want to keep in mind before moving forward:

1. Customers: What do they want or need?

  • Think about unmet needs and desires in the marketplace. Is there a metaphorical pothole in the highway that you can fill?
  • Also consider having reliable access to customers. Ideally, you don’t want to have to rely on any single channel because if that should ever become compromised, your entire business will be at stake. For example, if you relied entirely on organic Google search results for something, that could present a problem when the algorithms change.
  • Finally, think about the right size segment for the capabilities you have to service them. In other words, if you’re a single, brand new startup, you might not want to immediately connect with the biggest opportunities in the marketplace. You simply won’t have the necessary resources at that point to connect with them effectively.

2. Product: Less is more.

  • Think about a simple solution to an unmet need or desire. You don’t want to complicate it with a lot of unnecessary features that might hide the value that you’re providing.
  • Next up are low barriers to adoption. Think about all the reasons why a customer might resist your product, such as a prolonged learning curve in order to use it. Think of ways in which you can simplify and shorten this learning curve so that your product will become more approachable.
  • Lastly, you need a clear value proposition. If customers don’t understand the intended functionality of your product, they’re not going to buy it. What need or desire will your product fulfill for them? Don’t overcomplicate it. Let them know as efficiently as possible.

3. Timing: Understand that every innovation has a natural life cycle.

  • If you come in too early as a recent innovation enabler, there’s a good chance that you will invest in something that never takes off.
  • If you come in too late, then the demand is already established and you will likely be up against competitors who already have established their own efficiencies of scale. The best way to find the right market timing is to find something that wasn’t possible three to five years ago. If you can figure that out, you might have discovered a sweet spot in terms of timing.

4. Competition: Understand where others have succeeded and failed within your intended market.

  • When evaluating your competitors, what you’re really looking for is clear market inefficiency. A fragmented market with steep price points is a good indication that there is room for improvement.
  • Once again, you want to have low barriers to entry such as network effects, feature sets or costs so that you can come in and hit the ground running.
  • Finally, figure out what your differentiable position will be in this marketplace. There are three basic strategic positions that you can take in a market: the cost leader is only possible if you’re the very first one to the market. If entering a slightly more mature market, you should look at segmentation (how can you have a more authentic voice or approach when dealing with customers) or do you have a differentiable product that has better features or more innovative functionality than the rest?

5. Finance: Having a realistic concept of your capital will make or break your startup.

  • Remember that your goal here is have low capital requirements going in with as big a financial return as possible. For example, you might be looking for efficiencies of scale at the end but without putting a whole lot of capital risk at the beginning. Capital can be risked either through sub-costs (having to build a product) or by keeping its development floating in the air too long (sourcing or labor costs).

6. Team: Surrounding yourself with the right people makes all the difference.

  • You need to make sure your team represents your subject matter expertise necessary to provide effective solutions to the customer’s problems.
  • The team also needs to have the functional competence in order to deliver the product or service. Last but not least, you want to make sure that any supplier partnerships that are required are in place so you don’t waste any time when you are ready to get started.

By reviewing the above six heuristics, you can evaluate your startup’s strengths and weaknesses and drill in on any areas that can be improved upon.