Market Research

Understanding your market size, competition, and positioning before you build.

Why Market Research Matters

Problem validation tells you the problem is real. Market research tells you:

• Is the market big enough?
• Who else is solving this?
• What are they doing wrong?
• How will you differentiate?
• Can you actually win?

The trap: Assuming "no competition" is good. Usually it means no market.

The reality: Competition validates demand. Your job is to find a wedge.

Market Size Analysis

TAM, SAM, SOM

TAM (Total Addressable Market)

• Everyone who could theoretically use your product
• Usually billions
• Mostly irrelevant

SAM (Serviceable Addressable Market)

• People you can actually reach with your business model
• More realistic
• Still optimistic

SOM (Serviceable Obtainable Market)

• What you can realistically capture in 3 years
• This is what matters
• Be brutally honest

Example: Project Management Software

TAM: All businesses that need project management = $10B

• Every company needs PM
• Global market
• Sounds impressive to investors

SAM: Small remote software teams in US = $500M

• Your actual target customer
• Limited by your go-to-market
• More realistic

SOM: 1,000 customers at $1,000/year = $1M

• What you can realistically get
• Given your resources
• In first 3 years

The rule: Focus on SOM, not TAM. Can you build a $1M+ business with realistic customer acquisition?

Bottom-Up Market Sizing

Formula: SOM = (# Target Customers) × (Conversion Rate) × (Price) × (Retention)

Example:

• Target customers: 50,000 small software teams
• Conversion rate: 2% (realistic for B2B SaaS)
• Price: $100/month ($1,200/year)
• Retention: 80% annual

Calculation:

• Year 1: 50,000 × 2% × $1,200 × 100% = $1.2M
• Year 2: Add 1,000 + retain 800 = 1,800 × $1,200 = $2.16M
• Year 3: Add 1,000 + retain 1,440 = 2,440 × $1,200 = $2.93M

Is this enough? Depends on your goals and costs.

Market Sizing Questions

Competitive Analysis

Finding Your Competition

Don't just Google competitors. Look for:

1. Direct competitors (same solution)
2. Indirect competitors (different solution, same problem)
3. Substitute behaviors (how people solve it today)

Example: Meal Planning App

• Direct: Other meal planning apps
• Indirect: Recipe websites, food blogs
• Substitutes: Pinterest, cookbooks, winging it

Where to research:

• Google "[problem] solution"
• Product Hunt
• G2/Capterra reviews
• Reddit recommendations
• LinkedIn groups
• Industry reports
• VC portfolio pages

Competitive Analysis Framework

Analyze:

• What do customers love? (Read 5-star reviews)
• What do customers hate? (Read 1-star reviews)
• What's missing? (Feature requests)
• What's the price range?
• Who serves what segment?

The Jobs-To-Be-Done Competitive Map

People don't buy products. They "hire" them to do a job.

Example: Getting to work

• Cars
• Public transit
• Bikes
• Uber/Lyft
• Walking
• Scooters
• Remote work

These are all "competitors" for the job of commuting.

For your idea:

1. Define the job clearly
2. List all ways people currently do this job
3. Understand why they choose each option
4. Find the underserved segment

Competitive Positioning Map

Plot competitors on two axes:

Example axes:

• Price (low to high)
• Features (simple to complex)
• Target customer (SMB to Enterprise)
• Technical skill required (beginner to expert)

Find the gap:

• Where are no competitors?
• Why is that space empty?
• Is it a real opportunity or a trap?

Common gaps:

• High price + simple features (might not exist = not viable)
• Low price + complex features (might be hard to sustain)
• Medium price + perfect features (the sweet spot)

Differentiation Strategy

Why "Better" Isn't Enough

❌ "We're like X but better"

• Customers already use X
• Switching costs are high
• "Better" is subjective
• Incumbents will copy you

✅ "We're for Y who need Z"

• Clear target customer
• Specific use case
• Meaningful difference
• Defensible position

The 10x Rule

To get customers to switch, you need to be 10x better on at least one dimension:

10x better could mean:

• 10x cheaper
• 10x faster
• 10x simpler
• 10x more powerful (for specific use case)
• 10x better experience

Example:

• Dropbox vs FTP: 10x simpler
• Slack vs email: 10x better for team chat
• Zoom vs Skype: 10x more reliable
• Notion vs Word: 10x more flexible

Ask yourself: What is your 10x?

Differentiation Dimensions

Pick 1-2 dimensions to dominate. Can't be best at everything.

The Positioning Statement

Template: "For [target customer] who [customer need], [product name] is a [product category] that [key benefit]. Unlike [competition], [product name] [primary differentiation]."

Examples:

Slack: "For teams who need to communicate, Slack is a messaging platform that centralizes all conversations. Unlike email, Slack organizes communication by channel and integrates with your tools."

Superhuman: "For busy professionals who need to manage email efficiently, Superhuman is an email client that helps you get through inbox twice as fast. Unlike Gmail, Superhuman is keyboard-first and optimized for speed."

Your turn: Write your positioning statement.

Customer Segmentation

Why Segment?

Can't serve everyone. Need to focus.

Segments differ by:

• Problem intensity
• Willingness to pay
• Reachability
• Competition
• Size

Start with one segment, dominate it, then expand.

B2B Segmentation

Pick one. Don't try to serve all.

B2C Segmentation

Demographic:

• Age, income, location, education
• Useful but not sufficient

Psychographic:

• Values, attitudes, interests, lifestyle
• More predictive of behavior

Behavioral:

• Usage patterns, brand loyalty, benefits sought
• Most actionable

Example: Fitness App

• Segment 1: Busy professionals who want quick workouts
• Segment 2: Enthusiasts who want detailed tracking
• Segment 3: Beginners who need guidance

Different segments = different products

Choosing Your Segment

Evaluate each segment:

Pick the highest scoring segment.

Market Trends

Growth vs Decline

Growing markets:

• Rising tide lifts all boats
• Easier to acquire customers
• More funding available
• Competition is good

Declining markets:

• Fighting for shrinking pie
• Hard to grow
• Less investment
• Avoid unless you're disrupting

How to assess:

• Google Trends (search volume)
• Industry reports (Gartner, Forrester)
• VC funding data (Crunchbase)
• Job postings (LinkedIn)
• Conference attendance
• Community size growth

Technology Shifts

Platform shifts create opportunities:

• Mobile (2007-2015): All desktop apps rebuilt for mobile
• Cloud (2010-2020): All installed software moved to SaaS
• AI (2023+): All products getting AI features

The pattern: When new platform emerges, existing solutions need to be rebuilt.

Current shifts:

• AI/ML going mainstream
• No-code/low-code
• Remote/async work
• Privacy-first tools
• Web3/blockchain (maybe)

Ask: Does your idea ride a wave or fight a tide?

Regulatory Changes

New regulations = new opportunities:

• GDPR → Privacy tools
• SOX → Compliance software
• Cannabis legalization → Dispensary tech
• Gig worker classification → HR tools

Research:

• Pending legislation
• Industry compliance requirements
• International expansion needs

Competitive Advantage

Types of Moats

What makes you defensible?

1. Network Effects

• Product gets better with more users
• Examples: Slack, Uber, Marketplace platforms
• Hardest to build, strongest moat

2. Switching Costs

• Painful to leave once adopted
• Examples: CRMs, ERPs, workflow tools
• Strong for B2B

3. Brand

• Trusted name in the space
• Examples: Apple, Nike
• Takes years to build

4. Economies of Scale

• Unit costs decrease with volume
• Examples: AWS, manufacturing
• Needs capital

5. Data/Learning

• Product improves from usage data
• Examples: Recommendation engines, AI
• Compounds over time

6. Regulatory

• License/compliance barriers
• Examples: Healthcare, finance
• Limited applicability

Early stage: Focus on #2 (switching costs) and #5 (data).

Building Your Moat

Year 1: Customer lock-in

• Make product sticky
• High switching costs
• Deep integration

Year 2-3: Network effects

• Add multiplayer features
• User-generated content
• Community building

Year 4+: Scale and brand

• Lower unit costs
• Market leadership
• Brand recognition

Don't worry about moats until you have product-market fit.

Pricing Research

What Can You Charge?

Methods:

1. Ask in interviews: "What would this be worth to you?"
2. Look at competitors: What's the range?
3. Calculate value: How much do you save them?
4. Test willingness to pay: Landing page with prices

General rules:

• B2B: $100-10,000+/month
• Prosumer: $10-100/month
• Consumer: $5-20/month or free + ads

Value-based pricing:

• If you save $10,000, charge $2,000 (20%)
• If you generate $100,000, charge $10,000 (10%)
• If you save 10 hours/week, charge $500/month

Pricing Strategies

Good:

• Multiple tiers (good, better, best)
• Annual discount (improves cash flow + retention)
• Free trial (low friction)
• Starts low, grows with usage

Bad:

• Too cheap (signals low value)
• Too many tiers (confusing)
• Features gated by arbitrary limits
• Pricing tied to vanity metrics

Example: B2B SaaS

• Starter: $49/month (small teams)
• Professional: $199/month (growing teams)
• Enterprise: Custom (large orgs)

Market Research Checklist

• [ ] Calculated realistic SOM (not just TAM)
• [ ] Identified all direct competitors
• [ ] Identified indirect competitors and substitutes
• [ ] Read 50+ reviews of competitors (5-star and 1-star)
• [ ] Created competitive positioning map
• [ ] Identified underserved segment
• [ ] Defined 10x differentiation
• [ ] Wrote positioning statement
• [ ] Assessed market trend (growing/declining)
• [ ] Researched pricing of competitors
• [ ] Calculated value-based price
• [ ] Chosen target segment to focus on
• [ ] Identified potential moat
• [ ] Confirmed market is large enough
• [ ] Confirmed you can reach customers

Red Flags

Stop if:

🚩 Market is too small

• Less than 10,000 potential customers
• Can't reach $1M revenue realistically
• Niche within a niche

🚩 Market is declining

• Google Trends showing downward trend
• Industry reports pessimistic
• Funding drying up

🚩 Competition is too strong

• Incumbents have strong moats
• Recent well-funded entrants
• No clear differentiation possible

🚩 Can't reach customers affordably

• CAC > LTV
• No clear acquisition channel
• Customer buying process too long

🚩 Price point doesn't work

• Can't charge enough to be viable
• Value delivered is too low
• Customers have no budget

Moving to Solution Validation

You now know:

• Market is large enough
• Competition exists but has gaps
• Your differentiation strategy
• Target segment to focus on
• Realistic pricing
• How to position yourself

Next step: Solution Validation (Chapter 4)

• Test if YOUR solution solves the problem
• Build prototype
• Get feedback
• Iterate

Resources

Market research tools:

• Google Trends (search interest)
• SimilarWeb (traffic estimates)
• BuiltWith (technology stacks)
• Crunchbase (funding data)
• G2/Capterra (reviews)

Competitive intelligence:

• Owler (company info)
• Product Hunt (new launches)
• AngelList (startup data)
• Reddit/forums (user sentiment)

Industry reports:

• Gartner, Forrester (enterprise)
• CB Insights (venture/startups)
• Statista (statistics)
• Trade associations