Definition
Market Types is a concept from Steve Blank's Customer Development framework that identifies four distinct types of markets a startup can enter, each requiring a fundamentally different Customer Creation strategy. The market type determines how fast the startup can grow, how much capital it needs, and what competitive dynamics it faces.
The Four Market Types
Existing Market: The startup enters a market with established competitors and known customers. Competition is on performance — the startup must offer a clearly superior product. Customers know what they want; the challenge is convincing them your product is better. Growth can be fast if the product is demonstrably superior. Example: a new CRM system competing with Salesforce.
Re-segmented Market: The startup enters an existing market but targets a specific segment (niche) or the low end (cost disruption). The startup does not compete head-to-head with incumbents but redefines the market around a segment's specific needs or a lower price point. This connects to Christensen's disruption theory. Example: Southwest Airlines (low-cost segment of air travel).
New Market: The startup creates a category that did not previously exist. There are no direct competitors, but also no existing customers — the startup must educate the market about why this category matters. Growth is slow initially because customers must be taught to recognize the problem. Capital requirements are high because of the long education cycle. Example: early smartphones, early cloud computing.
Clone Market: The startup copies a proven business model from another geography or context. The business model is validated elsewhere; the challenge is execution in the new context (regulatory differences, cultural factors, local competition). Example: adapting a U.S. e-commerce model for the Indian market.
Why Market Type Matters
Blank argues that market type is one of the most consequential strategic decisions a startup makes, and that most startup failures result from applying the wrong strategy for the market type:
Significance
The market types concept is important because it connects Customer Development to competitive strategy. While the four steps of Customer Development are universal, the specific Customer Creation strategy depends on market type. This is one of the more nuanced elements of Blank's framework — requiring strategic judgment about the competitive landscape, not just customer contact.
Sources: "The Four Steps to the Epiphany" (Blank, 2003)