A few years ago, I worked on an acquisition.
The team was trying to decide whether to acquire a small company that had built a great application.
The target looked like they were hot stuff. And the folks on my team were excited.
Cool functionality. Productivity. What more could you want?
The software had some amazing functionality. So much so that the physician who was the brains behind the operation had increased his personal productivity like you wouldn’t believe. He was THE most productive physician in his specialty across his entire region.
He was a physician in a small Canadian market, building for a single province-wide market with a population of 8 million.
How about a bigger addressable market?
The problem was the real target market was not Canada; it was the US.
In the US market, the product was part of a mature market segment.
In other words, what they had built was essentially a tuck-in capability. An app for the app store, not the app store itself.
No market intelligence – that’s a problem
Most of the major US HIT vendors had already built out or acquired this functionality. It’s just that no one on his team had looked at the market outside their own small Canadian geography. All of their points of reference were in an internal market – which has multiple barriers to entry in healthcare. They completely ignored the US (and global) landscape.
Do I need to mention that the acquisition didn’t go through?
A different approach: suss out the market
I’m telling you this story because I want to contrast that situation with a client team that is doing the exact opposite.
First of all, you should know that they aren’t traditional marketers. They are academic researchers who are commercializing imaging technology.
Look beyond the product to the market
Like many startup founders with an engineering, medical, or academic background, their focus has been the product – not the market.
But that’s shifting.
Recently, they put together a comparative competitive grid. The grid lists all the players in their market, not just the competitors.
That’s a smart move.
Why? Because the purpose of doing competitive intelligence or market intelligence when you’re a startup is grasping the market. Not building the product.
When you build the product, you validate with users and buyers.
When you build a business, you need to know the market.
The flip from product to business
Their initial competitive grid focused on features and functionality.
But a smart founder won’t build out her roadmap based on a feature gap. Instead, she looks for her firm’s strategic strengths relative to the market landscape, and she captures the shifting market dynamics.
So this is how you do that.
7 things to track for market intelligence
1. Start by making a list.
Fire up Excel. In the first column, put down the name of your company. Then list all competitors, both direct and indirect.
List potential partners. Technology partners. Distribution partners.
Then create the following following columns:
- Business model
- Target market segments
- Product capabilities, features, functionality.
Fill them in using the step-by-step instructions below.
2. Business model: capture how they make money.
What are their business model components? In other words, what do their customers buy from them? Hardware, software, services, licensing, implementation?
Just by understanding how they’ve packaged their intellectual property, you’ll get a handle on their business model…
- is manufacturing involved?
- do they have a clinical affairs function to handle regulatory approval?
- do they have a major service or implementation component to their software?
A great example is the business model breakdown that HIT vendor Cerner used to do in their annual report. Click here for the Cerner 2010 Annual Report (PDF) . Scroll to page 18 to see what I’m talking about.
3. Target market segments. Who are they selling to?
Are your competitors addressing exactly the same customer segments as your firm? If so, how exactly are you competing? What is your competitive advantage, and how can you defend it?
If you’re in an early-stage market, are your competitors all other startups? If so, do they have revenue? Look for deals in press releases to find out. If they’re bigger companies, look for the financial reports.
Revenue will tell you if the market is heating up. And for your marketing strategy, you’ll get a handle on how much education your market segments are going to need from you.
Do your direct competitors have IP protection?
If your exit strategy is to become acquired, you need your own IP strategy in place.
If you’re developing a regulated healthcare technology, look at the approval status of competitors. Do they have clearance? Which programs – CE Mark, FDA 510k? Other jurisdictions?
And what are their target geographies? (Don’t say they’re all global – no early-stage regulated medical device or software platform is going to sell in every market.)
7. Product features and functionality
The first 6 items on this list tell you if this is a viable market. Product functionality helps you understand how to differentiate and win. Now add several columns with the most significant features and capabilities. Not just where you win, but where they win too.
It seems like a lot of information, but you don’t have to research every category all at once. Build it out over several weeks, and update as you go along. Don’t forget to add other categories if the need arises.
How to make use of market intelligence
Don’t let the information just sit in the grid. And never share it, even if you’re under NDA. It’s raw data, and it’s up to you spot patterns and tease out strategies. Share your conclusions, and incorporate them into your strategies – not the raw data.
Once you’ve gathered the research and compiled it in your grid, that’s when you start looking for patterns. If you are in an innovative product category – as most healthcare startups are – you’re looking at the shifting dynamics of the landscape.
Growth and decline
- Is the market growing with new direct competitors?
- Is it shrinking, or the key capability moving?
- Is a new category emerging?
- Is your target segment stable or shifting? For instance, are radiologists going to be a better target market than hospitals and health systems?
Create a value chain
One great exercise is to use this information to build a value chain. So you will better grasp who feeds whom.
- Who are the tiniest players?
- Are these acquisition targets down the road for your company?
These are the kinds of questions your work will answer.
This is your pattern-matching gold
I live in the land of hockey cliches. So to quote the Great One, you want to use this intelligence so you can skate to where the puck is going, not where it is.
And you’ll do a lot of talking to yourself. It looks something like this: “OK, so this group over here is looking to build out turnkey services rather than software. And that one there is targeting this one outlying customer segment… I wonder what that’s about….”
Your aim is to get the lay of the land to spot patterns, so you can decide how to play to your strengths.
So how do you do this?
Here’s an example.
Back in 2009-10, if you were developing an EHR in the US, you would have seen how incredibly crowded the space was. Now the Meaningful Use land grab is over. It’s a mature market, and if you don’t have an installed base, you’re going to be competing for the laggards or the tiny replacement market.
Do the work upfront
Want to be one of the 10% of startups that survive? Then start doing your market intelligence homework. Collect the data. Enter the right market and make the smart calls. Get on the path that takes you beyond me-too moves.
Need a template?
I created an Excel template to help you get started.