2.5.1 Market issues

The Entrepreneurial Toolkit (2005) and Rwigema and Venter (2004) suggest that the entrepreneur (you) ask the following questions.

How will the business benefit customers?

How many people stand to benefit? In other words, what is the size of the market?

What is the target?

What demand do you expect for your product or service and for how long?

Is the market stable or growing? If it is growing, at what annual rate?

Is another product or service from competitors available to fill part of this demand?

Are potential customers aware of their need for this product or service, or is the need latent – that is, an undiscovered need?

Will the product or service serve a large, durable (long-term) consumer need?

Who exactly are the potential customers? Can you name them? Can you describe them? If you cannot, perhaps your business opportunity is theoretical (that is, not based on the practical or on reality).

How can you reach the potential customers and make a sale?

What entry barriers are there?

Here are more market issues to consider. Nieman et al (2009) say that an attractive market to enter into is one where the life of the product or service extends far beyond the time period required to recover the investment in the venture, as well as make a profit. More often than not, customers are loyal to a brand, making it rather difficult to tempt them to try new and/or different products. The attractiveness of a market is determined by the following factors:

Market structure

When speaking about market structure, reference is made to the following:

The number of sellers present in the market
The size distribution of sellers
Product differentiation (distinguishing a product or service from others, to make it more attractive to a particular target market)
Entry and exit conditions
The number of buyers present
Demand sensitivity to price changes

Market conditions that make it possible for high-potential ventures to thrive are the ones where there are not very many sellers in the market and differentiate products and services are available. Ideal exit conditions, on the other hand, are ones where it is easy for the entrepreneur to leave the market should the desire or need to do so arise. An unattractive market or one which promotes low-growth potential for entrepreneurial ventures, is one in which there are many buyers and sellers.

Market size

A large and growing market is one in which competitors do not see that capturing a portion of the market to be a threat to them and where a small portion of the market share can still yield increasing sales volumes. A small and stagnant market is not an attractive one to enter.

Market capacity

A market at full capacity (where demand outweighs possible supply) is a very attractive one to enter. This encourages ventures to reach their higher potential. According to Timmons (1999) timing is of vital concern. An entrepreneur should be asking himself or herself, “Can a new entrant fill that demand before the other players can decide to and then actually increase capacity?”

Market share

The potential and ability of a venture to become a market leader and capture a big portion of the overall market are significant contributing factors to the business becoming a high-growth venture.

Cost structure

Generally, a firm that can provide low-cost goods and services while providing value for money is attractive.

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2.5.1 Market issues