I cannot tell you how many times I’ve been asked one question and received off-target responses. The question: Can you tell me about your market?
The question and the answers lie in a lack of understanding of what a market is. On a high level, a market is the sum total of interactions of sellers and buyers. Markets and market structures shift in terms of overall share, product share, product positioning and other aspects based on the interaction of what sellers do (i.e., promote products, position products, price products) and how customers react (i.e., choose one alternative over another, or choose neither or a substitute).
The reason that this question is answered unsatisfactorily, so often, is multi-fold:
- Middle-market companies tend to define their markets in terms of their offerings and not the overall market. Substitute products are most certainly part of the market landscape, yet they are rarely considered. A well-known example is a company that produced oats. It defined the market as the “oats market,” not as the transportation fuel (for horses) market. Had the company fully understood that it was in the transportation fuel market, it might have taken a different tack and either developed other products (oil) to satisfy its market or relented on the market as it shrank.
- Assuming that a company has a starting point from which to understand a market, which is not really a good assumption at all, it would need to have the ability to detect whatever it can in the market. Then, based on what it learns, and on what it knows that it doesn’t know, it develops a sense of how the market has changed and is likely to change. Middle-market companies rarely invest in updating their intelligence; even if they do, they might not have the skill to interpret what combinations of market factors’ movements are relevant in forecasting how a market structure might change. Ignoring market shifts is usually the default position.
A sophisticated, comprehensive approach to understanding markets can be approached through reading Michael Porter’s classic book, Competitive Strategy. However, it might not be practical for most busy executives to read it. A much simpler version of the same notion rolled off the tongue of Michael Corleone in The Godfather II: “Keep your friends close and your enemies closer.”
Many potential clients approach me too late, long after detectable market changes were either unnoticed or ignored. They react much later, after the changes have had substantive negative effects on the bottom line. Many times, it is too late, and companies simply “run out of runway” to turn things around.