The 2 Strategic Questions Every Cannabis Firm Needs to Get Right
Ok, there are a few others but if you don’t get these 2 right you will be in trouble.
Every strategy development activity must start with these two interrelated questions:
1. Who is your ideal consumer/customer?
All successful businesses are built around understanding and delighting a target consumer.
Marketers will form these consumers into addressable segments and personas based on common characteristics.
Finding the optimal target necessitates lots of consumer, channel and financial analysis as well having a strong sense of who you are as a business.
However, not every segment is created equal nor are they necessarily the best choice for your firm; managers need to consider the financial and operational trade-offs between different options.
For example,
> Go too narrow and you may be challenged in finding a big enough market or generating sufficient financial returns.
> Cast too wide a net and you could be signing up for big sale & marketing expenses, excess capacity or difficult competition.
2. What’s the real market size of your target segment?
Few calculations have led to more corporate and investor missteps around capacity, product mix and enterprise scale out than what is the ‘size of the prize’.
First off, ignore the TAM (total addressable market). It’s a best-case, often poorly calculated scenario that is often promoted by irresponsible cannabis cheerleaders.
Instead, focus on realizable volume and revenue, with emphasis on the latter (you bank revenue).
Concentrate on the 'number' that relates to your core business. For example, if you are a private label vape mfg, you should only care about B2B sales in your category.
The key word is realizable. This is about realistically accounting for important market size limitations such as competitive strength, seasonality, channel access and product substitutability.
Realizable market < TAM
You also want to judiciously consider the ‘time to targets’ including financial breakeven.
All estimates hinge on key assumptions such as expected market growth rates and time to value. A rising market tide doesn’t last forever. For example, slow market growth rates can arrive as quickly as 15 mos. post legalization.
Launch delays can also be painful. For a company looking at a $200M potential revenue opportunity and an 18 mo. market window, a single day of delay could cost them $1M in lost revenue.
These 5 tips can help you tackle the above questions:
1. Talk to lots of consumers and influencers;
2. Engage outsiders or internal contrarians to counter groupthink and hype;
3. Involve the Ops team. Your upfront choices have big downstream implications;
4. Don’t shortchange the analytical effort. Triangulate data sources to validate your estimates;
5. Be conservative.
#marketsizing #strategy #TAM #consumers #marketing