2. Market Research


Know your (potential) customers.

Long before you can create the words and images to talk about your product or service (that is, before you can advertise), you need to understand your market.

Your company is solving a problem. Who has this problem? How are they solving it today? Are they buying other companies’ solutions? How are those companies talking about their solutions? Where are those competitors advertising? What news sources, blogs, and websites are talking about this problem?

The more you know about your market, the easier it will be to reach your potential customers. A common mistake for first-time entrepreneurs is to focus on the problem rather than the details of their solution, assuming that any solution at all will entice customers. Another common mistake is for entrepreneurs to assume that customers are just like them. They build a product for themselves, expecting that others will find important the same features that they do.

While it is possible to invest too much time in market research, the more common mistake is not to talk with potential customers enough. As Steve Blank notes in teaching his “Customer Development Model,” you need to “get out of the building” and talk to dozens of potential customers.

Augmenting this idea is Eric Reis’s Lean Startup philosophy, which says not just to talk to potential customers, but to build a “minimal viable product” and try to sell to those customers. Most won’t buy it, but that isn’t your only goal when launching a company. You also want potential customers to talk to you about your product, to tell you why they won’t buy it, and, importantly, to tell you what is missing or what they want instead of what you are offering. With an actual product or prototype, rather than a theoretical product, the effort of trying to sell this product will provide you with better feedback. The more the conversation is like a real sales pitch, the better the feedback. You want and need potential customers to give you the actual list features that are important to them and tell you why.

The goal of your market research is to determine what customers truly want and will actually buy. With that information, you can not only go forward and build that product but also describe it in a way that future customers will understand.

Most entrepreneurs do not follow this style of market research. Most focus instead on their “grand vision,” planning and pitching a product that lies beyond their current resources to create and, more often than not, beyond what the customers truly need.

That said, the grand vision is important, as it is often the source of the entrepreneurial passion. But these visions can be so grand that they will take two or three or more years to implement. In that time, your company could run out of money and die. Given the limited resources of a startup, it is important to use market research to determine which aspects of your vision are most important. Find out whether your grand vision has sufficient potential customers (or any at all). But also find out the minimal set of features required before any customer will buy anything. The best way (and generally only way) to fulfill your grand vision later is to have paying customers now. These customers will finance your vision, and they will also keep your vision on the right track.

Ideally, the end result of this research is not only an understanding of the customers, but also a plan for how to get from the minimal viable product to the grand vision product in a reasonable manner, funded as much as possible by customer revenues rather than outside investments.

Finally, do note that market research does not stop once the product is for sale. Markets change. Competitors make changes to their products. New competitors arise. Economic growth and recessions affect prices. As you move your product forward from this stage, keep listening to customers. Keep using these techniques to determine what comes next in your products. The Lean Startup philosophy is not just for brand new startups.

Further Reading

The Startup Owners Manual by Steve Blank
Lean Startup by Eric Reis



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