# Market Type Framework

## Purpose
Identify which type of market you're entering to choose the right strategy, set realistic expectations, and avoid common mistakes.

## When to Use
- Starting a new venture and need to set strategy
- Confused about why tactics that work for others don't work for you
- Setting expectations for time-to-revenue and burn rate
- Deciding between competing strategic approaches
- Validating that your strategy matches your market reality

## Process

### 1. Identify Your Market Type

There are four distinct market types, each requiring different strategies:

**Existing Market**
- Definition: Defined competitors, known customers, established category
- Customers know what they want and how to evaluate options
- Example: New CRM competing with Salesforce

**New Market**
- Definition: No direct competitors, customers need education
- Creating a category that doesn't exist yet
- Example: First smartphone (iPhone in 2007)

**Resegmented Market (Low-Cost)**
- Definition: Attack incumbent with "good enough" at lower price
- Target customers who are over-served by existing solutions
- Example: Southwest Airlines vs. legacy carriers

**Resegmented Market (Niche)**
- Definition: Serve an underserved segment better than incumbents
- Target customers poorly served by one-size-fits-all solutions
- Example: Mailchimp for small businesses vs. enterprise email

### 2. Understand the Implications

| Aspect | Existing | New | Reseg (Low-Cost) | Reseg (Niche) |
|--------|----------|-----|------------------|---------------|
| **Customers** | Known, can be found | Must be discovered | Underserved by incumbents | Specific, identifiable |
| **Competition** | Direct, well-funded | None (but also no demand) | Incumbents with bloat | Incumbents ignoring segment |
| **Risk** | Losing to established players | Market never materializes | Incumbents respond with price cuts | Niche too small |
| **Time to Break-Even** | 2-3 years | 5-7 years | 2-4 years | 2-4 years |
| **Capital Required** | High (competing on features) | Very high (creating demand) | Moderate (efficiency focus) | Moderate (focus wins) |
| **Key Success Factor** | Better product on valued axis | Creating category demand | Operational efficiency | Deep segment understanding |

### 3. Assess Your Reality

Answer these diagnostic questions:

**For Existing Market:**
- Who are the established players?
- What axis do customers use to evaluate? (speed, features, price, etc.)
- Can you be demonstrably better on that axis?
- Do you have resources to out-market incumbents?

**For New Market:**
- Why hasn't this existed before?
- What changed to make this possible now?
- How will you educate customers?
- Do you have runway for 5+ years of market development?

**For Resegmented (Low-Cost):**
- Which features can you strip without losing core value?
- Can you deliver at significantly lower cost structure?
- What's your sustainable cost advantage?
- How will incumbents respond?

**For Resegmented (Niche):**
- What specific segment is underserved?
- Why do incumbents ignore this segment?
- What unique value can you provide?
- Is the niche big enough to sustain a business?

### 4. Validate Your Market Type

Test your assumptions about market type:

**Existing Market Tests:**
- Can you find 10 customers using incumbent solutions this week?
- Do they wish their current solution did X better?
- Will they switch for a better X?

**New Market Tests:**
- When you describe the problem, do people recognize it?
- Are there workarounds people use? (Signals latent demand)
- Are there adjacent categories that suggest this could exist?

**Resegmented Market Tests:**
- Is there a clear segment poorly served today?
- Will they accept trade-offs for lower price/better fit?
- Can you reach this segment cost-effectively?

### 5. Align Strategy to Market Type

**Existing Market Strategy:**
- Position on performance axis customers already value
- Invest in marketing and sales to compete
- Move fast—you're racing against funded competitors
- Focus: Better, faster, stronger

**New Market Strategy:**
- Focus on educating early adopters
- Build community and evangelists
- Patient capital—long runway required
- Focus: Vision, education, category creation

**Resegmented Strategy:**
- Clearly communicate what you're NOT (managing expectations)
- Target customers who know they're over-served
- Defend against incumbent retaliation
- Focus: Specificity, fit, efficiency

### 6. Synthesis

- Which market type are you actually in? (Be honest)
- Does your current strategy match that market type?
- Are your expectations realistic for that market type?
- What would change if you're in a different market type than you thought?

## Example

**Idea**: "AI-powered legal document review for small law firms"

### Market Type Analysis

**Initial Assumption:** New market (AI for legal is innovative!)

**Reality Check:**
- Large law firms already use document review software
- Solutions like Relativity, Logikcull, Luminance exist
- Small firms use manual review or outsource

**Actual Market Type:** Resegmented (Niche)

**Why?**
- Existing market: Legal tech exists, customers understand the category
- Target segment: Small law firms (5-50 attorneys) underserved by enterprise solutions
- Incumbents focus on large firms (higher revenue per customer)
- Small firms can't afford enterprise pricing or IT overhead

### Strategic Implications

**Wrong Strategy (New Market):**
- Educate lawyers about AI (they already know about AI)
- Long education cycle (unnecessary)
- High burn rate (unsustainable)

**Right Strategy (Resegmented Niche):**
- Position against enterprise solutions: "Built for small firms"
- Emphasize: No IT department needed, pay-per-use pricing
- Target lawyers at conferences for small/solo practitioners
- Case studies showing small firm success

**Time to Break-Even:** 2-3 years (not 5-7)

**Capital Required:** Moderate (not extreme)

**Key Metrics:**
- Small firm conversion rate
- Time to value (must be fast—no IT support)
- Price sensitivity testing

**Insight:** By correctly identifying as Resegmented (Niche), the strategy shifts from "create a category" to "win a specific segment." This dramatically changes resource allocation, timeline expectations, and go-to-market approach.
