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Building a profitable, scalable business starts with one critical decision:
choosing the right market.
Many entrepreneurs jump into business with a great idea but quickly hit a wall when they realize they’re not serving the right people—or worse, they don’t fully understand the market they’ve chosen.
But here’s the good news: with clarity around how markets work and a simple model to guide you, you can stop guessing, make confident decisions, and build a business that grows.
In this guide, I’ll break down the five levels of market identification, showing you how to choose a market, define a niche, and target the right customers.
This model has brought me incredible clarity over the years, and I’m confident it will do the same for you.
The Power of Desires – Start with the End in Mind
Let’s begin with a truth that’s often misunderstood:
people buy based on desires, not markets.
If you’re struggling to figure out your market, it helps to first understand what’s driving your potential customers.
People make decisions based on three core desires:
- Health
- Wealth
- Relationships
These are not markets; they’re desires.
They represent the end result that people are looking for in their lives. And these desires shape every decision they make because people are constantly seeking ways to move from their current state (where they are now) to their future desired state (where they want to be).
Let’s take Wealth as an example.
Someone might be unhappy with their current financial situation, but their future desired state is to be financially independent.
This desire leads them to start searching for solutions that can help them reach that goal.
This is where markets come in.
The Market – The Road to Your Desired Destination
Once you understand the core desire, the next step is to identify the market.
A market is the path people believe will help them achieve their desired state.
Think of it like this: the core desire is the destination (e.g., financial freedom), and the market is the road they choose to take to get there.
For example, if someone’s desire is wealth, the market could be Investing.
It’s a broad path that includes many ways to reach financial independence, such as stocks, real estate, or cryptocurrencies.
But here’s the key: Markets are huge.
They contain millions (if not billions) of people, all trying to achieve a similar result through different methods.
While this broad market offers opportunity, it’s too vast to effectively compete in—especially if you’re just starting.
So, what do you do?
You niche down.
The Sub-Market – Narrowing Down the Path
Now that you’ve identified the broad market, it’s time to refine your focus.
This is where sub-markets come in.
Sub-markets are more specific categories within a larger market.
If Investing is the broad market, a sub-market might be Real Estate Investing.
Here’s a helpful metaphor: if the market is the road, then the sub-market is the type of vehicle you choose to drive on that road.
Each sub-market is like picking the right car for the journey ahead. Some people might choose a truck, others might choose a sports car. The vehicle is based on personal preferences and what you believe will get you to your destination most efficiently.
For example, within wealth, someone may choose Real Estate Investing because it’s more suited to their experience, risk tolerance, or capital.
But sub-markets still contain tens of millions of people.
To truly compete and grow your business, you need to go one step further: finding your niche.
The Niche – Finding Your Competitive Edge
This is where things start getting exciting.
Your niche is the sweet spot where you can build a thriving business.
If the sub-market is your vehicle, the niche is the make and model.
It’s the specific version of that vehicle that fits your needs. And just like there are dozens of sedans or trucks to choose from, there are dozens of niches within a sub-market.
Let’s stick with Real Estate Investing as our sub-market example.
There are various types of real estate investing: flipping houses, buying rental properties, or investing in commercial real estate.
Flipping houses could be a niche within the broader Real Estate Investing market.
Why does this matter?
Because niches are specific enough to help you stand out, but large enough to offer plenty of growth opportunities.
A well-chosen niche will typically have millions to tens of millions of people, allowing you to scale over time without getting lost in a sea of competitors.
Avatars – The People in the Driver’s Seat
Now that you’ve chosen your niche, let’s talk about the avatars who will buy from you.
Your avatar is the specific type of person within your niche who needs what you offer.
In the same way that niches are the make and model of the car, avatars are the drivers.
They’re the ones navigating the path, making decisions based on their preferences and needs.
For example, within the niche of flipping houses, your avatar could be first-time home flippers who need guidance on how to buy, renovate, and sell properties. Or it could be experienced investors looking for ways to maximize profits.
It’s important to remember that while you can start with one avatar, over time, you’ll likely expand to serve multiple avatars.
Each of these avatars represents a specific group of people who are all within your niche but have different needs or preferences.
Avoiding the Trap of Over-Niching
Here’s a common mistake I see: some businesses confuse avatars with niches.
They think they’ve found their niche, but in reality, they’re building their business around an avatar or, worse, an audience.
Here’s why that’s a problem: Avatars are smaller than niches.
If you build your entire business around one specific avatar, you risk running out of people to sell to, especially if you miscalculate the size of that group.
This can lead to the frustrating cycle of constantly switching niches, hoping to find one that works.
The issue isn’t your niche—it’s that you’ve gone too narrow, focusing on an avatar or audience that’s too small.
Audiences – Where to Find Your Avatars
Finally, let’s talk about audiences.
An audience is a group of people within your avatar, defined by specific preferences, behaviors, or demographics.
For example, within the avatar of first-time home flippers, you might have different audiences based on location, age, or investment budget.
Audiences are helpful for targeting your marketing, but they’re too small to build a business on.
Think of audiences as the preferences a driver might have for their vehicle—like leather seats, a specific color, or a premium sound system. They’re important details, but not something you should base your entire business around.
Section 8: Why Market Size Matters
At this point, you may be wondering, “Why does the size of my market matter so much?”
Here’s the deal: when you start marketing and advertising your business, you’ll need to reach a large enough group of people to make sales consistently. And the numbers may surprise you.
Even if your niche has millions of people, only about 1-3% of them are ready to buy at any given time. That means out of 1 million people, only 10,000 to 30,000 might be willing to make a purchase today. And when you factor in competitors, that number shrinks even further.
That’s why it’s so important to choose a niche with millions or tens of millions of potential customers. If you go too small, you’ll run out of people to sell to before you can grow your business.
Section 9: The Five Levels of Market Identification
To sum it all up, here are the five levels you need to navigate to identify and target the right market:
- Desire: The end result your customers are seeking (e.g., financial freedom).
- Market: The broad path they believe will take them there (e.g., investing).
- Sub-Market: A more specific path within that market (e.g., real estate investing).
- Niche: The exact strategy or solution they’ll use (e.g., flipping houses).
- Avatar: The specific type of person within your niche (e.g., first-time home flippers).
By following this model, you’ll not only identify your niche but also define your first avatar—the customer who’s most likely to buy from you. From there, you can continue refining your marketing and expanding to other avatars within the same niche.
Clarity in Market Selection Leads to Business Success
Choosing the right market isn’t just about finding a group of people to sell to. It’s about understanding their desires, the paths they take to achieve those desires, and the specific ways you can serve them within your niche.
By following this five-level market model, you’ll gain the clarity you need to choose the right niche, target the right customers, and build a business that can grow and scale.
Remember, success in business comes from making strategic decisions upfront. Choose your niche wisely, and the rest of your strategy will fall into place.
There you have it—everything you need to know about choosing the right market and niche for your business. Now, it’s time to take action and start applying this model to your own business. You’ve got this!
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