The Simple, Definitive One-Step Hot Market Test

Founders, entrepreneurs, venture capitalists and startup employees often spend a lot of time wondering, worrying, and pondering if a company is in a hot market.  Will the company shoot the moon?  What is the market potential?  Are you in Geoffrey Moore’s tornado?

After 25 years or so doing high tech companies, I have a simple test:

If you have to wonder whether you are in a hot market, you’re not.

It’s really that simple.

That’s not to say that re-positioning / pivoting into a hot market is impossible.  But I have always believed the biggest strategy problem most companies face is not “step 2” — i.e., determining strategy given a situation assessment.  That’s actually not that hard.  Step 1, however — figuring out your market situation — is the killer.

Companies get it wrong because people are optimistic.  No one wants to call the baby ugly.  People confuse the potential to be in a hot market in the future with being in one in the present.  (If we just sit here, maybe Prince Charming will come along.)  And people want to believe that changing markets is as easy as putting { mobile | big data | social | analytics } lipstick on the proverbial pig.

Because the prospect of not being in a hot or soon-to-be-hot market is too grim to ponder (and/or too politically incorrect an assertion to state), companies tend to always assume that they are in a hot market.

I remember visiting an empty building with 2 guys sitting  atop a $30M venture capital sinkhole.  “We’re in big data.  That’s a hot market.”  That was funny I thought.  I didn’t think of them big data.  And I was on the board of Aster Data, one of the original “big data” companies.  And if you’re in a hot market, why is the building empty?

It’s also not to say that you can’t build a nice company or get a good return for your investors if you are not in a hot market.   Many strategies — mostly focused on developing series of market niches — can be successfully applied in these situations.

But if you get the situation assessment wrong, you’ll never correctly arrive at the right strategy for it.  (And hoping for offsetting errors isn’t a good approach, either.)

I’ve spent about 18 years of my career working in hot markets and about 8 in cold ones.  I’ve also advised a handful of companies over the past 4 years, some in hot markets and some in cold ones.  I can tell you there is a difference.  A difference so obvious that I am positive that the only people who wonder if they are in hot markets are the ones who aren’t.

If you’re in one, you know.