Will your sports business idea win the crowd?

The sports industry is awash with fanatical entrepreneurs who all want to get in on the action. The key to making your sports business a success is basically the same as any other business, according to John Mullins, Associate Professor of Marketing and Entrepreneurship at London Business School. But if you can combine your innate passion for the industry with a nose for what it lacks, you’re already leading the race before the firing gun.

“Entrepreneurs need passion, conviction and tenacity,” says Mullins, “and die-hard sports fans usually possess those traits. But personality isn’t enough. You have to spot a hole in the market: something that people really need. Too many entrepreneurs fail because they have an idea they think is great, but realise no one wants it. You need to find out how attractive your market really is.”

How? According to Mullins, you need to understand your market on two levels: the macro and the micro. The stories of two phenomenally successful sportswear brands bring his framework to life.

Under Armour: don’t let them see you sweat

Kevin Plank is a name you’ve probably not heard of, but most sports stars will most likely have worn the underwear his company makes. An athlete himself – a college football player – Kevin was sick of getting overheated during practice and the ensuing heat exhaustion.

After fruitlessly searching though sports shops for something that would help evaporate sweat, he decided to make something himself. In March 1996, just before graduation, Kevin had some t-shirts sewn up in Lycra and gave them to his teammates. He had solved a problem common to almost all athletes, and Under Armour was born.

In his grandmother’s basement, Kevin made 200 shirts, which he sold to the football team at Georgia Tech for US$12 each. He ended his first year with sales of $17,000. Happy customers did his marketing for him as word got around, and demand from college athletic teams helped grow his sales.

Under Armour got its big break when the Oliver Stone American football film Any Given Sunday contracted the company to provide clothing for its actors. By 1999, sales were up to $1.35 million. In 2001, triple-digit growth led sports industry publication Sporting Goods Business to bestow Under Armour with their ‘Apparel Supplier of the Year’ award. Sales rose to $55 million in 2002, and to more than $400 million in 2006. Today, results from the start of 2016 put revenue at $1.17 billion for that quarter alone.

How attractive is your market?

“Kevin Plank made something that athletes needed,” says Mullins. “The market for sports underwear turned out to be an attractive one, though completely untapped before Under Armour came along.” But what exactly makes an attractive market? “You need to make assessments at both a macro (broad, market wide) and micro (particular to a specific segment, one customer at a time) level,” he says. “The macro/micro distinction is important because the questions you need to ask yourself differ.”

1: Take an aerial view: go macro

In offering an entirely new product that many kinds of athletes would benefit from, Under Armour had a broad appeal.

“It’s actually quite straightforward to conduct a macro-level assessment,” says Mullins. “One first assesses – usually by gathering secondary data from trade publications, the business press and so on – how large the market is. Market size can be measured in many ways – the more the better.’

Measures include:

• Number of customers in the market, say, participating in team sports
• The aggregate money spent by these customers on athletic apparel
• The number of units of relevant products, such as athletic apparel, bought annually.

You can also look at how fast the market has been growing recently, together with any forecasts on how fast it is likely to grow in the future. In Under Armour’s case, the market for athletic apparel, driven by companies like Nike and Reebok, grew quickly.

“You also need to assess macro trends,” says Mullins. “That’s demographic, sociocultural, economic, technological, regulatory and natural factors to determine whether things are likely to get better or worse in the future. Do trends favour the opportunity, or will you be swimming against a powerful tide?”

So it’s important for an entrepreneur to know whether the opportunity is a substantial one, or a niche without much room to grow. It’s also important to know which way the trend tides are flowing. But this is only half the job. “The macro analysis is done at the 30,000 foot level,” says Mullins. “It’s essential aerial reconnaissance and a good look at the road ahead, but for the full picture you need observers on the ground.”

2: A closer look: the micro level

Whatever market you enter, and whatever product you’re selling, customers will already be satisfying their needs in some way, even with a less than optimal solution. Under Armour didn’t invent sports underwear, but they did take an existing product and refine it to keep athletes cooler. So in that sense, a new market doesn’t really exist in customer terms. “Most successful entrepreneurs, rather than targeting the entire market, identify a much smaller segment of customers within the overall market.” For Under Armour, that market segment was team sports, starting with American football. There are four key questions any aspiring sports entrepreneur should ask when assessing a market at the micro level:

• Is there a target market segment where we give customers what they want at a price they are willing to pay?
• Are these customer benefits better than what’s currently being offered by other products? Differentiation is crucial.
• How large is the segment, and how fast is it growing?
• Is it likely that entry to this segment will provide us with entry to other segments in the future?

Nike: another global win at the micro level

It’s difficult to imagine Nike as anything but one of the world’s most recognisable brands. However, the first Nike shoes ever made were created with a waffle iron and some latex. Founders Phil Knight, a long-distance runner, and his track coach Bill Bowerman wanted distance runners to wear shoes that were lighter, more cushioned and with more lateral stability.

Once Nike had conquered the market for runners, it applied a similar segment-by-segment approach to other sports. This led to tennis players, basketballers and many other athletes soon loving Nikes products. Knight and Bowerman saw that they could offer individual runners a superior product; today Nike holds the leading position in the athletic footwear industry. It was also arguably responsible for that whole market’s inexorable growth.

Get your sports venture out of the starting blocks

“Just as most car buyers take a road test before committing to buying a new vehicle,” says Mullins, “so serious entrepreneurs run road tests of the opportunities they consider. Each road test resolves a few more questions and eliminates a few more uncertainties lurking in the path of every opportunity.”

If you’ve probed and tested the market for your sports business idea, made these assessments and the signs are good, are you clear to go full throttle? “Yes!’ says Mullins, though there’s still more to do, including assessing the industry in which you’ll compete and building the right entrepreneurial team.

“You can embrace your opportunity with renewed passion and conviction, armed with a new-found confidence that the evidence – not just your intuition – confirms your prescience. Your idea is now an opportunity really worth pursuing.