This is a three part series on how to win your startup market. Part 1 is delivery (tactics to win), Part 2 is this post, and Part 3 is finding your tidal wave

There are two startup theories about winning a market. One theory is you need a product that is 10x better than anything else. The other theory is to identify a hole in the market where you can be the segment leader from the beginning.

Making a 10x better product is really hard. It requires a technical or production advantage to create something that is significantly better. Peter talks about this in Zero to One.

The latter requires you to understand how the market competes today to then identify a new segment you can begin leading immediately. This doesn’t mean you can have a crappy product or service. But it does mean that you can identify a new space, enter it quickly, and then improve over time. Rule #1 in 22 Immutable Laws of Marketing calls this The Law of Leadership.

I’m not a technical founder, therefore I live by figuring out open spots in markets. Those open spots enable me to start, find customers, learn from them, and make the offering better over time. I call this method…the fastest path to cash.

Learning to identify a quadrant is an exercise I use before entering a market and then constantly revisit to make sure the world hasn’t changed on us. I will do this at both a product and market level to ensure our fist offering can win, which lets us then figure out how we can stay #1 over the long term.

This is bigger than identifying a problem to solve. This quadrant exercise is about saying…if I solve that problem how am I going to compete at a business level?

This is my process.

1. How Do People Compete Today?

Look at your market and ask yourself, how do the existing companies compete today?

Remember, this isn’t a product feature question. It’s a business question to ask what strategies are the existing companies using to win?

It goes something like this…

• List all the companies in the market who serve your customer’s needs either directly or indirectly.

• Look at each company you list and note what their core differentiators are. What are they trying to win on? Is it product, price, distribution, service, etc.

You want to look below the tactics of the existing players to understand the DNA of the company. This list will be their core super powers.

2. What Is Your DNA?

Now you do the same exercise for yourself and the founding team.

What is your personal DNA? What is the DNA of the founding team? What is our superpower and therefore what can we be the best in the world at?

Be honest with yourself. You are amazing at one, maybe two things and that’s it.

For example I’m not a technical founder, therefore building a company that wins on technical prowess would be difficult for me without finding a technical savant. Even then it’s not in my DNA and therefore my instincts for how to build this culture would be an uphill climb for me.

By the end of this exercise you should have one, maybe two super powers you will build your company around.

3. Start Drawing Quadrants

Now go back to your list of companies that exist in the market and start drawing two by two quadrants to look at how the market competes today. On each axis should be a single paradigm.

Let’s look at shoes and Allbirds. I don’t personally know the company so this is me looking in from the outside. But if I were originally making a shoe company I’d be looking at how the market competes today….

• distribution vs none
• niche customers vs broad
• expensive vs cheap
• general vs activity based
• community vs none
• service vs none
• single brand vs multiple brands
• celebrities vs non

I would keep redrawing these quadrants until I understood how each of the companies were competing. Through this exercise, you will start to notice that the winners of each market have a large, clear quadrant they are winning on.

Nike – distribution and athletes. They have more distribution than anyone else in the world and more athletes using their gear. This ties back to the founding DNA of the company with Phill Knight and Bill Bowerman. Allbirds can never win here.

Adidas – distribution and expression. Adidas has struggled to differentiate from Nike. Yes they have the stripes but until recently didn’t have a clear quadrant to win. They have nearly the same distribution scale but have pivoted to focus on creatives, ie a new tribe of people. So instead of shoes being about performance they are about expression. This requires them to have distribution and community at their core to understand the fashion, street, and lifestyle markets.

I would continue this process until I understood the top competitors I listed. I might even do this for the initial product I plan to enter the market with, to make sure it was differentiated from existing solutions.

4. Create Your Quadrant

Once you draw a few of these quadrants you want to go back to your DNA and ask…ok how can we rotate these quadrants to compete on a paradigm that I can win?

Competing straight up on product features is going to be very difficult. You may start with a differentiated product but you’re going to have to figure out how you win at a business level.

Going back to the Allbirds reference, they started by competing on comfort and material. It gave them a clear product space to own with wool shoes that were more comfortable than anything else. It let them compete on comfort versus performance.

Post a successful initial product it appears that Allbirds is now trying to win the market on comfort and direct distribution.

On the comfort side they are going deeper with materials, fit, and activities. It’s enabling them to expand their offering to men, women, and kids as well as their styles with runners, loungers, and skippers.

On the direct distribution they are going one geographic market at a time, building the know-how around selling, marketing, and supporting customers. They get faster with each new market, building a DNA that the legacy shoe brands can’t compete against.

By having legacy, the existing companies can’t easily change their DNA. In the case of Nike, once you build your entire culture around distribution you can’t just change it. Therefore Allbirds can compete on a new paradigm until someone else comes after comfort and direct distribution. But by then Allbirds will be too advanced in both areas to easily knock them off.

It takes time to figure out your quadrant. The more you do this exercise the easier it gets. You can do it both at a product level and a market level.

Word Of Caution

If you enter a market with another startup and compete for the same quadrant it’s going to be a winner take all scenario unless your market is gigantic AND you can raise enough capital to compete.

Uber and Lyft is a great example. This market was so significant they were able to raise massive amounts of capital in order to compete. They are still well behind Uber but were able to succeed into a public company.

This is very rare. In the case of GoPro vs Contour the market was not big enough and therefore no one wanted to fund number two. Once they raised $80M we had to either raise more money or find a new paradigm to compete on. We weren’t smart enough to do this. We just kept doing the same thing, self justifying that every market was big enough for Coke and Pepsi. This was wrong.

You can read more here about what happens when you are losing.

The reason I say winning a quadrant against a fellow startup is harder is because they are going to be just as aggressive and scrappy as you are. They are not going to be too big or too complacent to let you gain market share. You can compete head to head, just know what you are up against.

Email me or dm me @marcbarros if you have questions.