Classify Your Startup to Optimize Market Research

My initial idea for this post was to write about the steps required to conduct a practical analysis of the relevant industry or sector that helps the founder examine the external environment in which the team will operate. The more I researched industry analysis methods, the more I realized how challenging it could be for an entrepreneur to embark on this aspect of market intelligence. As I have mentioned in previous posts, an effective venture realization process must eliminate unnecessary noise for the founding team. Managing cognitive load and prioritizing venture tasks is an essential management strategy. The review of industry analysis leads me to take a step back and start with a simple question; how does an entrepreneur classify their startup to optimize their market research and later brand positioning?

As a first step, I will highlight the various ways founders can define how their venture fits within the current external environment ranging from the industry sector to business models to personal aspirations for their startup.

Traditional Industry Classifications

The first step to better understand your industry is determining how to best classify your venture in “industry” terms. As mentioned earlier, this is not always as easy as it seems. Specific classification systems will afford you different types of information and data. So to an extent, you should plan to apply strategies that provide the best information for your needs.

For industry analysis, I have founders look at two classification systems, the North America Industrial Classification System (NAICS) and The Global Industry Classification Standard (GICS). The NAICS has been the standard since 1997. It is updated frequently with the current data updated in 2017. The NAICS replaced the SIC codes, the earlier business classification. That said, many research databases still use this system. So it is worth looking up both and using readily available conversion tools so you can take one of the codes and translate it to the other system. The GICS developed around 1998 is designed to support the global business community. This classification system and the similar Industry Classification Benchmark (ICB) provide research data on public companies categorized into sub-sectors. There are minimal differences in how these sub-sectors are defined and categorized.

With a bit of practice and patience, these data systems help founders identify the venture’s industry, significant trends within that industry, specific activity within the targeted geographic area, identify and evaluate competitors, and estimate market sales potential.

Industry Vertical Classifications

A second approach to industry classification focuses on startups that cut across multiple industries. Sometimes referred to as industry or market verticals, these categories reflect companies that focus on a specialized market niche spanning numerous industries. For example, a startup labeled as a fintech company provides technology solutions to facilitate financial services to various industries. There are a large and growing number of these industry vertical categories. For example, Pitchbook lists over 100 such vertical classifications, including “emerging spaces” that embrace growing areas that may eventually become a well-recognized vertical. Examples of these emerging verticals range from autonomous delivery to sleep tech.

I encourage founders to consider where they best fit into these vertical industries. Positioning your offerings and markets helps structure your market research and communicate your value proposition to customers, partners, and investors. Here is a list of startup sectors I have founders start with to consider where to best position themselves for further analyses. They can also go to the Pitchbook list or the categories used by the Startup Genome for other options that they feel are a better fit. Finally, I have them review this list in conjunction with the more traditional classification approaches to optimize their industry research efforts. Founders typically find these categories easier to apply to help kickstart their research efforts. Additionally, these types of labels are more commonly used in media and financial reporting, thus making it easier to communicate your focus to a broader audience.

Select Startup Sectors

Business Model Categories

The third approach to classify your startup is by business model categories. Applying this type of classification is a good way for founders to evaluate their goals for their business as they make decisions about the viability of the opportunity. This type of evaluation should be done as part of their early pre-screening efforts and periodically reviewed throughout the development of their business model.

I have students use a more traditional business model approach by asking them to consider who they plan to serve as the end customer of their business. This classification is essential to define as you begin to formulate your business model and all the elements of the business-to-customer transaction.
Business Models|Description

  • Business to Consumer (B2C) (D2C): Companies who sell to end-users or customers
  • Business to Business (B2B): Companies that sell to other businesses.
  • Multi-sided (B2B&C): Companies that offer services to both sides of the market (B & C)
  • Peer to Peer (P2P) (Marketplace): Company acts as a middleman between two individual parties and creates value for both demand and supply sides.
  • Business to Business to Consumer (B2B2C): Company sells a product to enterprises that re-sells to consumers
  • Consumer to Business (C2B): Companies that facilitate individuals to sell goods and services to businesses.

Venture Realization Status

As a fourth approach, I have entrepreneurs self-identify by their venture’s “realization” status. This classification helps founders and mentors establish the level and types of support the venture needs at this development point. In addition, it helps all involved pinpoint where to focus founders’ attention and what external support is required.

  • Early idea Stage (some market research, limited or no engagement with target customers)
  • Customer Discovery (proven access to early customers with increasing engagement)
  • Extensive Customer Discovery (large sample of customers/collecting interview and survey data)
  • MVP/Prototype Development (early development based on customer discovery data and feedback)
  • MVP Testing and Validation (with a large sample of target customers)
  • Early Sales (evidence of traction)
  • Sales Growth Phase (evidence of increasing sales > one year)
  • Early Venture Funding/Seed Capital Acquired (Self, F&F, Crowdfunding, debt)
  • Later Venture Funding (later rounds with outside investors)

Startup Types

Steve Blank has proposed a typology that communicates the founders’ aspirations for their startup. Basically, what do they want to be when they grow up? His categories and brief descriptions are as follows:

  • Lifestyle Startups: Work to Live Their Passion.
  • Small-Business Startups: Work to Feed the Family.
  • Scalable Startups: Born to Be Big.
  • Buyable Startups: Acquisition Targets.
  • Social Startups: Driven to Make a Difference.
  • Large-Company Startups: Innovate or Evaporate.

Applying this type of classification is a good way for founders to evaluate their goals for their business as they make decisions about the viability of the opportunity. This type of evaluation should be done as part of their early pre-screening efforts and periodically reviewed throughout the development of their business model.

Launch Context

One final classification approach is a simple one. First, I ask founders to identify the business context in which their idea and venture will operate. The basic idea is to separate solo ventures from existing businesses, such as a family concern or a larger corporation. Defining the context helps identify the capabilities and resources required to develop and launch the venture. Next, I have entrepreneurs check the category that best fits their launch plans?

  • Full-Time Solopreneur
  • Part-time Solopreneur
  • Full Time with co-founders
  • Part-time with co-founders
  • As a employee/member of my family business
  • As an employee of a larger corporate entity
  • Weekend/evening side hustle/gig
  • Other


There are many other ways a founding team can identify their venture, and much depends on how they view their position in the marketplace, business model transitions, and growth plans. I will build on these classification issues to address practical steps to support startup strategies through effective research and planning.

For more on this subject and other entrepreneurship topics, get a copy of Patterns of Entrepreneurship Management, 6th Edition.

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