Not all startups are alike. One of the key ways they differ is in the relationship between a startup's new product and its market. These product/market relationships generally fit one of these descriptions:

  • Bringing a new product into an existing market
  • Bringing a new product into a new market
  • Bringing a new product into an existing market and trying to
    o Re-segment the market as a low-cost entrant or
    o Re-segment that marketing as a niche entrant
  • Cloning a business model that's successful in another country

The traditional product introduction model works when introducing a product into an existing market with a known business model (i.e. known customers, channels and markets). However, since most startups are not pursuing known markets (those in new or re-segmented categories) they don't really know who their customers will be. That distinction has confused entrepreneurs for decades.

Market type influences everything a company does. Strategy and tactics for one market type seldom work for another. Market type determines the startup's customer feedback and acquisition activities and spending. It changes customer needs, adoption rates, product features and positioning as well as its launch strategies, channels and activities.

Startups generally enter one of the above market types and ultimately must commit to one. The consequences of a wrong market-type choice will prove to be severe in the customer creation stage (prematurely burning cash on marketing and sales before it's needed).

While a final decision can be deferred until customer creation, it's wise to develop and test an initial market-type hypothesis while moving through the customer discovery phase.