Six Dimensions for Assessing a Market Opportunity

Software providers that rely on large clients for much of their revenue often struggle to gain market traction when they productize custom solutions built for key customers. They discover that the problems the solution solves are either unique to a specific client, or not a priority for customers and prospects at large.

Likewise, software vendors sometimes move forward with solutions that receive positive feedback from customer advisory panels, or generate interest at industry events, but find the solution fails to convert that excitement into sales.

Both dynamics reflect a truth about market opportunities — buyers only invest in solutions that address significant pain points.

To more accurately estimate the total addressable market for new solutions, and to help avoid the situations described above, Isurus recommends systematically profiling the market on the following six dimensions:

  1. Current State of the Market
  2. Buying Criteria
  3. Competitive Landscape
  4. Reactions to Offer
  5. Pricing Tolerance
  6. Barriers

1. Current State of the Market

The first step is to profile the current state of the market. This includes identifying the solutions in place, the job to be done, level of spend, and satisfaction with existing approaches. This helps determine if the new solution represents a greenfield opportunity or if prospects will need to be convinced to switch providers. Each situation presents unique go-to-market challenges.

The next step is to identify and measure the market’s current pain points and frustrations. Where are current solutions or approaches falling short of the market’s needs? What have organizations done to address these pain points? Are their frustrations acute and urgent enough to become a priority in terms of resources? Or are prospects willing to live with a good-enough solution? At times, workarounds become so ingrained that organizations lose sight of how poorly their current approach is working.

Isurus believes understanding the current state of the market is the most important of the six dimensions included in this assessment approach. Everything cascades from where buyers are today — their buying criteria only matters if they are motivated enough to make a change.

2. Buying Criteria

When prospects evaluate new solutions, they typically have two categories of buying criteria: Product attributes and vendor characteristics.

Prospects have specific features and functionality requirements: Does the solution have the ability to…? Can it handle…? Buyers usually care more that a solution works for them than how it works — they care about optimizing their supply chain, not the algorithm or machine learning the software uses. Another trend we’ve seen over the years is that even with complex, robust, solutions, the final decisions are often driven by a handful of key features. This reflects a market reality — most purchase decisions tend to be tactical rather than strategic. Prospects may buy into the long-term vision of the what the solution makes possible, but they purchase the solution to address concrete, timely, tactical needs.  

The other set of buying criteria in the decision process relates to the vendor providing the product or service. This includes brand reputation, size, financial stability, account management structure, local presence, support levels, etc. These vendor attributes are often based on perceptions as much as market realities. As a result, buyers may be more willing to purchase a new technology solution from a vendor with a strong brand than they are to purchase an almost identical product from a vendor with little brand equity. This leads us to the next dimension: competitive landscape.  

3. Competitive Landscape

Whether entering a new market or introducing a new product, vendors tend to focus on their direct competitors. However, many vendors are surprised to find the biggest competitors for sophisticated solutions are often simple approaches and applications. A remarkable amount of work at organizations of all sizes, including enterprises, is conducted using Excel. Therefore, when developing your list of competitors, think beyond those whose tools are similar to yours. Who else solves the same business challenges you do, but perhaps in a different way?  

Once you have the list of your most important competitors, the next step is to profile each one on their strengths and weaknesses relative to your offering, and how well they align with the criteria the market uses to evaluate vendors.

4. Reactions to Offer

Understanding what the market does today, its pain points, and the competitive landscape provides a broad picture of where market opportunities exist for new products or vendors. But most business plans require a more granular estimate of the opportunity. This requires collecting high-level market feedback on the product. This includes overall positive and negative reactions to the concept, whether the market sees an alignment between the offer and their pain points, and a prospect’s perception of how much of an improvement the offer would be over their existing solution. Would it be an incremental gain or a leap forward? What is that improvement worth?

5. Pricing Tolerance

As important as it is to sell the value of a solution, cost remains a significant factor in many decisions. Even if a new solution has a strong five-year ROI, prospects need to be able to afford it today. And on top of justifying its own cost, the solution may be competing against other priorities in the prospect’s budget.

Therefore, if there appears to be an opportunity based on the previous four dimensions, the next step is to determine if the market will invest at the price points you need to build a viable business. It’s not unusual for vendors to find they must either scale back their solution to align with the market’s willingness to invest, or create a good/better/best packaging structure to gain market traction.

After exploring pricing, there remains one last dimension to consider.

6. Barriers

Even if a solution meets all the criteria above, barriers can keep interested and enthusiastic prospects from investing. For example, a functional team’s preferences may be overridden by the organization’s use of a suite solution. Customization of legacy systems or integration with them may make switching too arduous. Prospects may not have the business processes or infrastructure in place to take advantage of a new solution. Vendors often overlook such barriers when estimating their market opportunity. Make sure you don’t make this mistake.

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Profiling the market on these six dimensions will provide a more complete picture of the market and help you avoid overestimating a market size or its appetite for a new solution. The data sources available for this type of assessment include internal knowledge and expertise, secondary research, analyst firms, and primary research. While your firm may not have the budget to invest in external assistance such as primary research with Isurus, systematically thinking through these six dimensions will help you better understand the scope and nature of your opportunities and reduce your blind spots.