How To Find "Starving Markets" That Can Scale Your Business

I love studying great startups. There’s so much gold found in their stories. But one of my favorite things to learn is how, and more importantly, why those startups picked the market they did.

My curiosity has convinced me of a single truth: businesses rise and fall on markets. The market is king. You can have a great idea, a great product, and even great execution, but if the market you’re going after doesn’t resonate with it, the business will fail. In the words of Eugene Schwartz, who wrote Breakthrough Advertising, “You cannot invent market desire, only channel it.”

The Starving Crowd

Another favorite business story that illustrates this comes from the late, great copywriter Gary Halbert. In his famous Boron Letters, he told the following story:

"Every once in a while I give a class on copywriting and/or selling by mail. During these classes, one of the questions I like to ask my students is: 'If you and I both owned a hamburger stand and we were in a contest to see who could sell the most hamburgers, what advantages would you most like to have on your side to help you win?'

The answers vary. Some say superior meat. Others want sesame seed buns. Some mention location. Someone usually wants to offer the lowest prices. And so on…

After my students are finished telling me what advantages they would like, I usually say to them: 'O.K., I'll give you every single advantage you have asked for. I, myself, only want one advantage and, if you will give it to me, I will whip the pants off all of you!'

'What advantage do you want?' they ask.

'The only advantage I want,' I reply… 'Is... A Starving Crowd!'"

This story is profound because it speaks to the power of choosing the right market to sell to. Many businesses succeed not because their product is better or the founders are extra smart (although that helps too). Many businesses succeed because they successfully match a scalable offer to a growth market’s demand.

The Ansoff Matrix: A Strategic Tool

This approach is illustrated well by the famous Ansoff Matrix strategy tool. The Ansoff Matrix is a simple but powerful tool that helps you weigh your options and make smart moves. Picture a grid with four boxes: market penetration, product development, market development, and diversification. As you move from one box to the next, the level of risk tends to increase.

The lowest risk way to grow is to double down on penetrating your existing market or to find a new market for your existing product or service. Why? Because you're leveraging what you already know works.

With market penetration, you're saying, "Let's sell our offer to an existing market we’ve already successfully sold to before." You’ll likely focus on streamlining your scalable offer, differentiating yourself, and optimizing the sales process. But fundamentally, you're sticking with a proven formula.

The other lower-risk path to growth is market development. This is where you take your newly clarified scalable offer and bring it to a new set of customers. But this is important: for this strategy to work, it needs to be a hungry market. For example, if you’re expanding to a new geographic region, you’ll want to test the waters with customers to ensure it’s not a red ocean of competitors all racing to the bottom on price.

Real-Life Application

I went through this exact process with our company Unleashed. For years, we were known for placing and/or playing the COO role for small businesses. But over time, we realized our service didn’t fit the scalable model and couldn’t grow. So we narrowed it down to one thing: we were best at helping clients hire, train and retain A-Player talent with our SmartTeams system.

We identified our hungry market: Service Business Owners who needed highly skilled labor (contractors, professional services) & talented managers to grow; the problem was those people are in short supply and high demand! This market was stuck in the day-to-day, turning revenue away because they couldn't hire or train the right people and burning out when they tried to grow. After doing lots of interviews and research, we realized this market was not only hungry but also radically underserved.

This realization helped us see that serving this market wasn’t just a great opportunity; it was a calling.

Since then, it’s been remarkable to watch the growth of our company. Doors for partnerships have flung open, and as I said in the beginning, it feels like swimming downstream instead of upstream. That’s the power of choosing a growth market.

A Smart Bear's Insights

Another great tool to help you think through your growth market comes from Jason Cohen and his blog A Smart Bear. When I first saw this diagram from him, something clicked.

The diagram walks you through 6 questions you should ask to confirm you've chosen a viable market for your startup.

Though it was created with startup founders in mind, the wisdom here is profound for existing businesses that never quite nailed product-market fit to unlock scale.

To summarize, here’s what the graph says to those of us with existing businesses who are trying to evaluate potential growth markets.

Growth markets check as many of these boxes as possible:

• A large pool of potential customers
• High awareness of the problem and motivation to solve it
• Ability and willingness to pay for a solution
• Actively looking to buy now
• Reasons to prefer buying from you vs competitors
• High likelihood of remaining loyal, long-term customers

To make it even simpler, you can narrow it down to three numbers:

1. TAM (Total Available Market): How many potential customers are there within this market? This will take a bit of research as well as some estimating. Is it 100 customers, 1,000 customers? 10,000? 10 million? A bigger TAM isn't always better. Usually, you want to get very specific and then expand geographically.
2. WTP (Willingness to Pay): Do people in this market have the need for your product right now, are actively spending money on it, and have the budget to pay for it? Rank this on a scale of 1-10.
3. CLTV (Customer Life-Time Value): This might be the most important metric for a successful business. What would the average customer spend with you over their lifetime? The goal is to pick a market with a recurring problem and offer a recurring solution, ensuring long-term customer retention.

Now it's your turn. Use the Market Selection Matrix below to list out all the possible markets you’ve served in the past or could serve with your scalable offer. Here’s how:

1. List out 5 markets you’ve served in the past or could easily serve. Be specific. If you’re a security system installer, don’t put down “homeowners.” Put down something like "Michigan-Based Million Dollar+ Homeowners." Then you could put down a bigger but more specific market like "Nationwide 5 Million+ Homes With High Security Needs." Think deeply and come up with at least 5 or even more.
2. Do a bit of research. Search for the size of that market. You can check Census Data in some cases or lean on surveys published in your industry. Compare multiple data points to come up with a reasonable estimate of the size of each market.
3. Think through each market’s willingness to pay and assign them a score of 1-10. Be honest about how willing, able, and eager this market is for a solution to their problems.
4. Estimate the average ANNUAL customer lifetime value. If you’ve already decided on your scalable offer, this part will be easier because what you sell is repeatable. Estimate how much the average customer would spend with you within the course of a year.

Finally, you’ll arrive at a score like this: Multiply each market’s TAM by their WTP as a percentage and then multiply that number by CLTV. For example, if you have a TAM of 10,000, a WTP of 4, and a CLTV of $4,000, you’d multiply 10,000 x .04 x 4,000 = $1,600,000.

The value of this exercise is in the thinking, not the actual score. Play with the different elements to find more favorable outcomes.

For example, what if we expanded from just serving Million Dollar+ Homeowners in our city to our state? That might take our estimated TAM from 10,000 to 100,000. Perhaps in that case, WTP might go down to 3 because one reason customers like to work with us is because we’re local. But the opportunity is more scalable.

Or what if we changed the market to be 5 Million Dollar+ Homes with High-Security Demands like CEOs, Celebrities, Influencers, or Politicians?

Or what if we went after specific large cities in our state where they tend to live? In that scenario, our TAM might be smaller, but perhaps Willingness to pay jumps to 8 and CLTV skyrockets to $100,000 or more?

This is the power of getting playful with your strategy and doing the deep work of thinking and working on your business strategy.

I hope you'll use this article (like I did) to deepen your understanding of the markets you serve currently and how to choose the one you will focus on and grow with.

Key Takeaways

1. Market is King: Your business can only succeed if the market resonates with your product.
2. Hungry Market: Find a market with a strong demand for your product.
3. Leverage Existing Knowledge: Focus on what you already know works.
4. Use Strategic Tools: Utilize the Ansoff Matrix to weigh your options and choose the right path for growth.
5. Identify Underserved Markets: Look for markets that are eager but underserved, offering a great opportunity for growth.
6. Evaluate Growth Markets: Check for a large pool of potential customers, awareness of the problem, willingness to pay, and long-term customer loyalty.
7. Three Key Numbers: Use TAM, WTP, and CLTV to estimate the potential success of your market.

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