Mental Model to Choose a Market for Indie Hackers

For a business to achieve sustainability, it must generate positive cash flow—in other words, it needs to make money.

What is the key to making money? The key is having a competitive advantage over other competitors, meaning you can do things better than they can.

How do you achieve a competitive advantage? A company must design a series of specialized business activities around its target market. These activities, when working together, shape the company’s competitive advantage.

However, the prerequisite for designing these specialized activities is having a target market. Without a target market, you cannot effectively evaluate the success of your business activities.

A common approach for product managers or developers when starting a business is to first create a product and then try to find a market for it. This often leads to failure.

This method isn’t without its success stories—in fact, many early internet companies did just that. However, the biggest problem with this approach is often a lack of understanding of the market and how to choose the right one.

When considering how to choose a market, the first thing to recognize is that you can’t do business with everyone, nor will you have the opportunity to do so. Therefore, selecting a market that is both narrow and substantial enough is crucial—narrow in a way that you can effectively address, yet big enough to generate revenue.

The mental model I find useful to think about market entry is STP (Segmentation, Targeting, and Positioning).

Segmentation involves dividing the market under consideration into different segments based on various dimensions, such as user types or use cases. Targeting means identifying which of these segments still hold opportunities and choosing one as your target market, which represents the demand side. Positioning is about aligning your supply with the target market, meaning offering a product or service that matches their needs.

The chosen target market must be viable; without a viable market, you have nowhere to start. You can assess the viability of a target market by considering the following dimensions:

• Identifiability and Measurability: The target market must have clear boundaries, making it easy to identify and measure.
• Market Size: The size of the market determines how big your business can grow. However, market size isn’t fixed; it changes over time. Some markets may only exist temporarily and then disappear. For example, with the rise of AI, a market has emerged for teaching people how to write prompts, but this market may only be short-lived.
• Clear Access Channels: Even if a market exists, if there is no way to reach it, it’s a dead end.
• Purchasing Power: This is also crucial. If you create a product but discover that your target market lacks purchasing power, It’s a waste of your efforts.
• Effective Marketing: Taking a product to market requires marketing, which involves telling a compelling story. You must ensure that you can find a story that resonates with your target market.
• Clearly Defined Pain Points: Finally, if the target market doesn’t have clear pain points, entering that market will be a tough battle.

No amount of effort can save you if you choose the wrong market. So choose your market wisely.

Hope you find it helpful.