Market Opportunity Research
Researching Your Market
To be successful, you have to know your potential customers inside out. One entrepreneur reflects on the essentials of market research.
As an entrepreneur in technology companies, I’ve spent my fair share of time digging out from common pitfalls entrepreneurs make. As a venture capitalist investing in business-to-business technology, I’ve observed that many entrepreneurs encounter those same mistakes in their quest for success.
By far, the most prevalent of these traps, particularly among entrepreneurs with a technical background, is mistaking the ability to build a product for the ability to satisfy a market need.
Like Goldilocks in the home of the three bears, most customers are seeking the product that is “just right” for them. For entrepreneurs, the challenge is to understand what makes a product “just right enough” to satisfy the needs of a large enough group of customers so that one can claim there is a sizable market to address.
Determine Your Market
Three key questions to answer when starting a company are:
Who, if anyone, has a real need for the thing I propose to sell, and how many of those potential customers are there?
How much, if anything, are they spending to address that need today?
Does my product meet that need in a manner that either saves or makes them substantial amounts of money?
This will not only help you determine the market for your product, it will also provide information that is critical if you need to secure financing. In addition, the process will yield valuable information about your customers that will help you fine-tune your ideas.
Failure to Research Customers Can Be Costly
In 1990, I was a director of product marketing at Verity Inc., which made sophisticated software for document search and retrieval. We made an assumption that our product would be managed by high-caliber technicians at the companies that used it.
Our software’s complexity made it difficult to set up and maintain. We thought the product was important enough to our customers that they would have highly skilled personnel run it, but our customers felt they had scarce resources and that it was difficult to get people with the skills needed to use it.
In fact, the only report we had of a customer successfully installing the software on its own came from NASA’s Jet Propulsion Labs, a clear sign to us that maybe you did have to be a rocket scientist to use it.
Our solution was to reengineer the software to make it simpler to install and use. We did that, and the product was very successful. But the delay cost us a year, and we lost significant repeat sales early on because we didn’t do our homework. Had we simply started by asking ourselves and our customers the questions we should have, we would not have wasted all that time and money.
Know Your Customer Cold
To ask and answer those questions well, entrepreneurs need to be willing to be told they’re wrong. Often people have not taken the time needed to know their customers cold. It’s not surprising that the entrepreneurs who are most successful are those who visit as many potential customers as possible with two critical, if conflicting, outcomes in mind.
First, they try to sell the prospect the notion that they are right and the prospect should become a customer. Second, they listen to the prospect to learn why they are wrong and why the prospect shouldn’t be a customer.
The successful entrepreneur is listening from the very beginning, in order to change and adapt more quickly to real market needs. Entrepreneurs who spend a lot of time trying to understand why they don’t have it right are very likely to be selling a lot more of their product, a year later, than those who only try to prove they are right and insist that the customer is wrong.
Good Research Doesn’t Have to Be Expensive
Market research is often lacking in entrepreneurial endeavors because it can seem difficult and expensive. The trick to avoiding the trap is to apply dogged determination to the task. That means subjecting yourself to sometimes harsh market feedback. Though it may be unpleasant, it’s the only way, short of getting lucky, to actually succeed.
Some entrepreneurs in emerging markets rely on secondary market research because it’s an easy solution — but don’t do it! If you are starting a new business in a previously untapped market, there is no substitute for primary research. All the secondary market research statistics in the world won’t get you funded, but hard data from real prospects just might.
I’ve found over the years that even entrepreneurs without much of a budget can successfully perform quality research if they are creative, resourceful, and brave. Entrepreneurs on a budget may feel unable to apply formal market research techniques, but a simple four-step process can be effective:
- Determine how to perform the research (one-on-one interviews, focus groups, surveys).
- Develop the research instrument (interview questions, survey questionnaire, hands-on tasks).
- Identify and recruit participants.
The type of business you’re in will dictate the most appropriate approach. If your product is for a highly targeted market, and direct sales calls will be your method of selling, start by identifying the type of person you expect to sell to and engage in a mock sales call to understand what such people find interesting. If your product is aimed at a mass market, it may be more beneficial to recruit small numbers of people for focus groups until you have a feel for the market, and then validate it further using a survey.
Research Enables Decision Making
Market research is a prelude to selling. It teaches you a great deal about what you will need to know to develop your offering for the market and whether your offering is even worth developing. A positive and aggressive attitude toward market research enables entrepreneurs to make that most critical of decisions: Should I spend the next several years of my life on this business?
If you have decided to become an entrepreneur, then also decide to become a market researcher. Ultimately, the two are inseparable.
Darlene Mann is a cofounder of BroadVision and a general partner of Onset Ventures in Menlo Park, Calif. Copyright 2000 Darlene Mann