Step 2: Define your market boundaries
Phase 1: Preliminary Research · Step 2 of 13
Before you can measure an opportunity you need to know exactly what you are measuring. Market definition is the foundation of everything that follows.
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Markets are not natural categories. They are constructs created by analysts, investors, and incumbents to organize economic activity into groups that can be measured and compared. If you do not understand how your market is defined you will spend months researching the wrong thing.
The most common mistake founders make is defining their market too broadly. Saying you are in the productivity software market tells you almost nothing useful. It is a category so large that market size figures become meaningless and competitive analysis becomes impossible. Conversely, defining your market too narrowly can make a real opportunity look like a niche.
What you need is the analyst consensus. How do firms like Gartner, Forrester, and IDC categorize the space you are entering? What do they include and exclude? These definitions are not arbitrary. They reflect decades of observation about which products compete with each other and which customers cross-shop.
Understanding market boundaries also reveals adjacent markets. Adjacent markets are spaces that share customers or technology with your market but are categorized separately. These adjacencies matter because they represent both potential expansion paths and unexpected competitive threats.
Your output from this step is a clear, defensible market definition that you can use consistently throughout your research. Every number you cite, every competitor you map, and every trend you track needs to be scoped to a defined market. Without that scope your research is noise.
Key Takeaways
- Why: Undefined markets produce meaningless research.
- What: Use AI to identify how analysts categorize your market and what is included and excluded.
- Output: A clear market definition with category name, boundaries, and analyst consensus.
AI Prompt
Act as a market research analyst. I am building [paste your step 1 hypothesis here].
Define the market boundaries for this opportunity. Include:
- How industry analysts define and categorize this market
- What adjacent categories exist and how they differ
- What is explicitly included in this market definition
- What is explicitly excluded
- Why these boundaries matter for competitive strategy
Name the top three analysts or research firms that cover this market. Cite sources for each claim.