Why you should ditch the concept of ‘the market’
You can’t have more than 100% of a pie. Unless you’re the one baking it.
In this issue:
· Where Apple’s top leaders missed the mark
· Don’t play on someone else’s ground
· Total Addressable Need
· CEO uncomfortable questions
But before we start: this newsletter has recently passed the 5,000-subscriber mark. Quite an achievement for a niche strategy newsletter for those who refuse to take traditional strategy dogmas at face value. Thank you for reading and supporting my work!
Where Apple’s Top Leaders Missed the Mark
In 2016, Tim Cook declared the end of the PC and said that tablets would squeeze it out of the market. He questioned: “Why would you buy a PC anymore?”
In 2014, Jony Ive, then Apple’s design chief, proclaimed that ‘Switzerland is in trouble.’ He assumed that Apple Watch was so great that it would leave no market space for Swiss watchmakers.
Both were wrong.
In 2024, tablet sales dropped to lowest level since 2011, and users still prefer PCs for most tasks.
Swiss watchmakers’ profits soared, hitting $30 billion in 2023 — thanks to the Apple Watch. Jony Ive’s brainchild brought back the habit of wearing a watch, and the Swiss stopped chasing the low-end market and doubled down on $5,000+ luxury products.
Pride is a deadly sin for a reason, after all.
This isn’t just about failed predictions. Both executives applied the logic of an ‘exchange’ to what they mislabeled as a ‘market.’
Playing on someone else’s home ground
My strategy clients often ask why I don’t include market analysis in my Customer-Axis Framework: Designing for Inherent Growth.
My answer is simple: market analysis is a waste of time. Even worse, fixating on metrics like market volume or market share inevitably leads a CEO and their team astray.
Estimating market size by units sold is like judging a carrot by its leaves.
When you use the word ‘market,’ you:
1. Start playing on someone else’s home ground. By fighting for market share, you are trying to win over someone else’s customers instead of creating your own Patrons.
2. Underestimate the scale of the need.
3. Make flawed strategic decisions.
When something is already named a ‘market,’ when it is measured and described by Statista or The WSJ — it is already an ‘exchange,’ where all the laws you read about in economics textbooks apply.
- Supply equals demand
- The balance between supply and demand dictates the price
- It’s a bloodbath for market share, and they take no prisoners
It is where discount kings, high-pressure sales gurus, and the gods of shady marketing reign supreme.
But what’s good for statistics is useless for opportunity evaluation. And no, so-called ‘market growth forecasts’ will not help you here.
Imagine you’re a shoemaker. You come to an island where no one wears shoes. The market is a flat zero. Is that a great business opportunity for you or are you just wasting your time here?
To find the answer you must assess the Total Addressable Need.
Total Addressable Need — Need Pyramid
In the culture I grew up in, a man had to take the initiative if he wanted to date a woman. And of course, the answer was rarely ‘yes’ right away. You had to prove you were worth their time.
If you evaluate the ‘market’ by looking only at customers ready to buy, you are like a man in my youth who only noticed the women already showing him interest.
From a strategic standpoint, the market is always far larger than that.
1. Active Demand — people who recognize their need and are already buying a solution.
2. Inhibited Demand — people who have a conscious need but don’t buy existing solutions due to various barriers (price, access, etc.).
3. Unrecognized Relevance — people who have an underlying need and know the product exists, but haven’t made the connection. They think: “It’s not for me.”
4. Latent Potential — people who have an underlying need but are completely unaware of it, and don’t even know a solution exists.
Take AI chatbots for example.
- Active Demand — people who are actively using them and buy paid subscription.
- Inhibited Demand — people who know that the chatbots can help them but don’t buy paid subscription (for instance, they believe it’s too expensive).
- Unrecognized Relevance — people who would benefit immensely from AI chatbots and have even heard of ChatGPT, yet still prefer to ask mom when things get complicated. Just kidding — they stick to traditional sources simply because they don’t grasp the full potential of what these tools can do.
- Latent Potential — people who would benefit immensely from AI chatbots but have spent last three years on Mars. They don’t know ChatGPT exists.
Consider this: ChatGPT has only 35 million paid subscribers. So, layers 2 to 4 of the pyramid are always much larger than they appear.
Combined, all four levels of the pyramid represent your Total Addressable Need.
It is TAN that defines the market, not actual sales statistics.
(TAN has a lot in common with TAM, Total Addressable Market, but they are different things. We’ll save that for another time).
A market analyst sees only the first layer. A savvy marketer knows a thing or two about the second. But few entrepreneurs ever truly grasp layers three and four.
Market analysts often overlook underlying needs because they only trust what they can quantify and are overly obsessed with ‘data-driven decisions.’ Fortunately, it’s entrepreneurs who drive the world, not analysts. Otherwise, we’d still be out hunting mammoths.
You can’t measure TAN, but you can evaluate it precisely enough to make well-informed strategic decisions.
You can have more than 100% of a pie — if you’re the one baking it.
Assessing the Scale of the Total Addressable Need
When working with a client on their Inherent Growth strategy to pinpoint the specific customer value that will serve as the axis for their Growth Metabolism, we follow this process (in brief):
- Hypothesis Formation: We start with a hypothesis that a specific group of people has a specific set of needs.
- Customer Personas: We conduct a series of in-depth interviews to develop several distinct customer personas.
- Cloud of Meanings: We map out a “cloud of meanings” — the specific vocabulary and expressions they use to describe their challenges.
- Artifact Analysis: We compile a list of “artifacts” — the tangible tools and intangible systems they currently use to address their problems.
- Subjective Value Assessment: We estimate the perceived value of a potential solution — the amount they would be subjectively willing to pay.
- Sizing the TAN: Using quantitative methods, we assess the overall Scale of the Total Addressable Need — calculating exactly how many such people exist in the market.
I have provided two more detailed tips on assessing the Total Addressable Need for paid subscribers and founding members of my newsletter.
CEO Uncomfortable Questions
1. When you define your “market,” do you consider the total scale of the need or only the volume of actual sales?
2. Do you know how many people or businesses in your market could buy your product (or a competitor’s) but currently choose not to?
3. What specific data on both customers and non-customers forms the bedrock of your strategy?
4. Does your team possess the necessary skills to uncover and analyze Underlying Needs?
This post was originally written for my newsletter. Here I will post some of the articles with a delay. To read all the stories, subscribe for free here.
Conclusion
A CEO’s role is not to fight for a bigger slice of someone else’s pie, but to bake their own. By diving deep into the Underlying Needs of future customers, you create a market of your own — one where customers are transformed into Patrons, providing the most reliable defense against competition.
Next week, we’ll dive into Growth Metabolism. Stay tuned!
Strategy quips of the week
Business isn’t about making a profit. It’s about creating conditions in which profit becomes the most natural outcome of your actions.
The moment you name a goal, you turn everything else into a tool. If profit is your goal, who is being reduced to a means to an end?
There is no such thing as free time. You pay for every single second.