The effect of high market growth rate on company strategy

Analyzing markets is not an easy task. It’s going down the rabbit hole. Dynamics, competition, fragmentation or consolidation, PEST, TAM, SAM, SOM are just the tip of the iceberg.

That said in competitive environments, there is one ratio that stands alone. Market growth.

Jeff Bezos apparently decided to start Amazon upon realizing that the internet was growing at 2300% YoY.

From a product strategy perspective it might feel easy to discard market growth as another statistic. In fact, you might go as far as to say that a differentiated product offering would fare better against a steadily growing (stagnating & mature) market which is already shaped and rigid where differentiation has the ability to disrupt, erode, and re-distribute (to your benefit). And that is true. It can happen. But it’s against the odds success where a startup disrupts an industry, not the norm.

In practice, high-growth markets have a few fundamental advantages.

  1. High growth rates coincide with medium to small markets driven by early adopters.
    Easier to identify, target, and create early communities.
  2. Growing demand means that supply can have healthy margins.
    Since the market is growing and demand often outstrips supply, there is no incentive for suppliers to engage in price wars.
  3. Paid acquisition is very low and it’s possible to acquire customers at large.
  4. It’s possible to grow without a highly coordinated & sophisticated marketing plan.

COVID, Cycling and bike shops

Bike shops are a good example. It’s September 2020. The restrictions of the pandemic are very much in place. One of the (few) good outcomes of the pandemic is the rapid rise in cyclists where at least in the UK, their number of increased by 100% within 8 weeks.

Have you passed outside a bike shop? If you haven’t and you want to see the effect of rapid market growth in practice, find the most obscure bike shop, one without a website, and pass by on a random weekday. It’s very likely they’d be packed.

In fact today, I had to wait 1.5 hours to get a simple fix on my bike at a mom’n’pop shop that does not have a website or any market presence whatsoever. Why? Simple. Before COVID 42% of people > 5 y.o. had access to a bike and 8% cycled weekly. Within a space of 8 weeks the total miles increased by 120% and since all other means of public transport fell by a whopping 95% the urgency to fix our primary vehicles elevated from a “to-do” to a must-do. Result? Bike shops are getting customers left right and center with no effort. The market is pushing them up.

Market growth first, company second

The bike shop example showcases a fundamental truth: Jump on a wave and the wave will help carry you. In the case of the bike shop, it’s literally “Offer to fix it and they’ll come”.

In the case of a new business? Its so much better to follow market growth than not. It’s not just another metric. Then again, you can always go for a bike shop.

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