Tuesday, January 24, 2012

Understanding "Markets" in Economics

What's a Market?

The writer's of Wikipedia state in the first line of their discussion on Markets: "A market is one of many varieties of systems, institutions, procedures, social relations and infrastructures whereby parties engage in exchange. "

Markets are necessary for my line of business (software development).  If I was a thief, I wouldn't need a market.  If I was a government I wouldn't need a market.  But I'm a capitalist, so I need a market.  And my hypothesis is I need a FAIR market for sustained business activities.

I will re-define market for my own purposes here, but I think it's a useful definition (if more specific).

A market is a system of procedures where a buyer transfers stored value to a seller who concurrently (or as concurrently as possible) transfers goods or services to the buyer.  For the market to function well, and all parties to be recurring members, a mutually agreed upon, fair and sustainable exchange rate needs to exist at transaction time.

So what?

When you start a company; known in the lingua franca as a "start-up" (go figure!), you need to find a market.  From my definition, as the seller you need to:

  • find a buyer
  • find a service or good
  • find a fair price
  • find the system of procedures for exchange
These four things make up your Go-To-Market strategy.

There doesn't have to be a lot of buyers.  For example last year Boeing had a handful of buyers, but their price of service and product was fair enough to keep Boeing going and bring more buyers to the table later.  Sometimes the system of procedures for exchange is not well defined.  For example how do you sell home-grown pot to people on the street?

Having this system is a very important go-to-market strategy component.  Can you name some places for desktop/laptop software sales?  How about - Best Buy, Download.com, Amazon.  What about Mobile applications? iTunes, Android, Ovi.

Knowing where the market is the responsibility of the seller and the buyer - but most work to get the word out  is being done these days by sellers.


Let's now apply this to business plans that come across my desk.

  • How many buyers do they have?  How do they define a buyer?
  • How do they offer their service or product?  What benefits are there to the buyer and seller?
  • What's the price of the product?  Is it a market sustaining price?
  • What existing market or procedures are they using?  Are they giving their buyers directions of getting to their market?
I find this the weakest in most of the plans I see.  I can only suggest making friends with a good marketing person here.  This part of the plan becomes the "gray-area", where there is no black or white, plus you need to use the "gray-matter" between your ears to see if this is reasonable. 

Maybe it's weak because engineers can't think in fuzzy grays.

No comments:

Post a Comment

Thanks for leaving a comment - please include a link back to your blog.