Understanding the type of market an entrepreneur is entering is a crucial yet often overlooked aspect of building a successful startup. The concept of [[market type]] refers to the fundamental nature of the market a new venture aims to serve. Identifying the correct market type is not just an academic exercise; it has profound implications for virtually every aspect of a startup, from its initial market size and cost of entry to its competitive landscape, sales model, and even its path to profitability. Recognizing which of the four primary market types a startup falls into can be the difference between thriving and failing. The first type of market is the [[existing market]]. In this scenario, the customers are already known, their needs are generally understood (and can often be directly asked about), and by definition, there are established competitors. The primary risks in an existing market revolve around building a strong brand, establishing effective sales and distribution channels, and ensuring the product genuinely delivers on its promises. An example is trying to enter the search engine market currently dominated by Google. Incumbents in existing markets often possess significant advantages like brand recognition and established network effects, making it a challenging space for newcomers. Another market type is the [[resegmented market]]. Here, entrepreneurs hypothesize that they can better serve a specific segment of an existing market by offering either a lower-cost solution or a product with features more tailored to a particular niche. While there might be many competitors if the hypothesis is incorrect, the number could be very few if the segmentation is accurate. The main risk lies in misinterpreting the market and customer needs during the redefinition process. Southwest Airlines, which successfully targeted the airline industry with a low-cost, no-frills model, is a classic example of a company that effectively resegmented an existing market. The third market type is the [[new market]]. In this case, customers are largely unknown, and the startup's offering aims to provide a transformational improvement rather than just an incremental one. A defining characteristic of a new market is the absence of direct competitors on day one, which can feel isolating. Creating a new market requires significant effort in terms of evangelism and customer education. Groupon, which essentially created the daily deals market, serves as a compelling example of a company that successfully navigates the challenges of establishing a new market. Finally, there is the [[clone market]]. This involves taking a successful business model from one market (often the United States) and adapting it to the specific conditions of another country or region. While the customer base might be potentially known based on the original market, the key is localizing the product or service to address specific cultural, linguistic, or regulatory nuances. If a company is the first to successfully clone a model in a new territory, it may face no initial competitors. However, the primary risk is misjudging the local market needs and conditions. Baidu, which adapted the search engine model for the Chinese market, is a well-known example of a clone market success story. ## Activities - Watch the video [Market Types Introduction](https://youtu.be/EnnLvH4VYiA) ([[Udacity - How to Build a Startup]], Lesson 6.15) - Watch the video [Existing Market](https://youtu.be/EnnLvH4VYiA) ([[Udacity - How to Build a Startup]], Lesson 6.16) - Watch the video [Resegmented Market](https://youtu.be/F77wrDV11m0) ([[Udacity - How to Build a Startup]], Lesson 6.17) - Watch the video [New Market](https://youtu.be/c7Thq8yE7P0) ([[Udacity - How to Build a Startup]], Lesson 6.18) - Watch the video [Clone Market](https://youtu.be/K9x3Lyqc3Ys) ([[Udacity - How to Build a Startup]], Lesson 6.19) - Watch the video [Existing Market Extended](https://youtu.be/kR-mcPD6-SI) ([[Udacity - How to Build a Startup]], Lesson 6.21) - Watch the video [Resegmented Market Extended](https://youtu.be/XB1NYjGNFnA) ([[Udacity - How to Build a Startup]], Lesson 6.22) - Watch the video [New Market Extended](https://youtu.be/81AM76CQS6Q) ([[Udacity - How to Build a Startup]], Lesson 6.23) - Watch the video [Consequences of Not Understanding a New Market](https://youtu.be/PGBqKkPwWW4) ([[Udacity - How to Build a Startup]], Lesson 6.24) - Watch the video [Clone Market Extended](https://youtu.be/JQNnHPxadnE) ([[Udacity - How to Build a Startup]], Lesson 6.25) Back to: [[Who Will Be Your Target Market?]]