5 Questions to Ask When Evaluating a Market

Looking back on the recent posts, including Bessemer’s 2017 State of the Cloud Report and 12 Key Levers of SaaS Success, it’s clear that the core market is critically important for any of the metrics and ideas to matter. Without a great market, worrying about things like how much cash to burn won’t even be relevant. Here are five questions to ask when evaluating a market:

  1. Where is the market in the adoption lifecycle? Ideally, you want to be 2-3 years early so that there’s a great foundation in place when the market really heats up.
  2. How big can the market become? Most entrepreneurs talk about a market being X big (say $2 billion/year), when in reality that’s all the spend in the market and not the spend on software in the market (which might only be $100 million/year). Potential market size is crucial.
  3. Why now? Besides the size and adoption component, ask the core why question. There should be a compelling reason why now is the time to enter the market (market shift taking place, new innovation, new trend, etc.).
  4. Where does the budget come from? Customers have to figure out how to pay for the solution. Existing budget vs new budget makes for a different dynamic. Departments that are used to buying solutions vs ones that rarely do makes for a different dynamic. Figure out the budget question.
  5. How bad does the market need the solution? The must-have vs nice-to-have dynamic never goes away. Pain killers demand a premium over vitamins.

Picking a great market and timing it perfectly are two of the most important things an entrepreneur can do. Never underestimate the importance of these when evaluating the potential for success.

What else? What are some more questions to ask when evaluating a market?

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