Tuesday, May 24, 2022

How to do Market Research Properly

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According to CB Insights, 42% of startups fail due to no market need for the product or service. I am sure that it would be the same problem for normal businesses.  I believe taht this number that would be significantly less if more founders conducted proper market research.

Candy, Vitamins or Painkillers?

To avoid becoming a statistic, you must uncover an urgent market need before designing a solution to solve that problem.

“We divide business plans into three categories: candy, vitamins, and painkillers. We throw away the candy. We look at vitamins. We really like painkillers. We especially like addictive painkillers!”

Kevin Fong

Ask yourself, if your solution is candy, vitamins or painkillers.  Candy refers to ‘nice-to-have’ products that we can do without. Vitamins are ‘should have’ products that we often put off purchasing. In contrast, painkillers are ‘must-have now’ products.

Think about the last time you had a painful headache. If the pain was acute, you probably wanted a pill to fix it right away and you probably didn’t care too much about the price.

The key for most successful startups is they have focussed on or solving a problem that causes significant pain. For example, Dropbox was born out of the pain that its founder, Drew Houston, experienced from always leaving his USB stick at home. Luckily the pain and frustration became so great that he began coding his solution.

Luckily millions of others had a similar pain of not having their data synchronised across multiple devices.

One could argue that other companies such as Facebook and Instagram do not provide pain solution. I would argue in response, however, that these addictive platforms solve the pain of not being connected to family, friends and perhaps the world.

Finding the Pain

After identifying a market you wish to target, you need to research problems that need fixing within that market. I call this finding the pain.

Finding an Itch to Scratch?

You will also need to be sure that you are targeting the right market. You will need to identify your ideal client and understand what makes them tick. You also need to discover deepest reasons for wanting their problem solved.

Once you’ve found the market that you wish to target, you need to know if they’re itch is itchy enough to make them put their hand in their wallet, pull out their credit card and pay for your solution. Pretty simple right? Incredibly, many people overlook this.

Think of it like this: You are providing a value through solving a problem. In exchange for your solution, the customer is providing value to you in the form of money. I know it may sound obvious. But it is important to understand the meaning of value – which is the foundation of your business.

Fast Market Research

I have heard entrepreneurs say that some of the world’s leading visionaries have not done any market research. For example:

Steve Jobs, who said: “People don’t know what they want until you show it to them. That’s why I never rely on market research. Our task is to read things that are not yet on the page.”

Hendry Ford, who said: “If I’d asked people what they wanted, they would have said a faster horse.”

Walter Isaacson – former chairman and CEO of CNN, who said: “Did Alexander Graham Bell do any market research before he invented the telephone?”

market research

The abovementioned visionaries not only predicted the future, they also helped shape it. If your product is as revolutionary as the first smartphone or motor vehicle, you may choose not to perform market research. Otherwise, do your market research.

Testing Your Assumptions

When starting their companies, many entrepreneurs make all kinds of assumptions. There are two assumptions that entrepreneurs can make. Those that you need to make and those that you shouldn’t make.

Where to Start with Market Research

We are incredibly fortunate in this day and age when it comes to conducting research. All the necessary resources we require are easily accessible online. The sites below have an incredible amount of data that makes it easy for anyone to perform preliminary market research.

• marketresearch.com
• gartner.com
• forrester.com
• acnielsen.com
• frost.com
• Australian Bureau of Statistics

When researching these sites, you are predominantly searching for demographics. For example, I was providing consulting to a company that provided retirement planning services.

We researched the Australian Bureau of Statistics to establish particular demographics of retirees. The numbers that we uncovered validated our assumptions of the market size. We then moved to the next step of researching the needs of the market.

It can also be handy to research trends. To do this, you can read industry or trade journals.
You can also keep your finger on the pulse by using Google Trends, which will send you email notifications of news that you are interested in. For trend research, you can also use BuzzSumo.com to uncover the most popular articles that are liked and shared on social media.

What to Research

Knowing what to research is equally as important as where to research. Below are the types of information that you must research.

Market Size: The first step is to search for the market size. This is a broad search that establishes if there are enough potential customers to sell to.

Demographics: This refers to the name, age, income, sex, location and other such aspects of those who are in your market.

Psychographics: These are attributes of your target clients’ beliefs, opinions, goals, habits and attitudes.

Market Need: You need to uncover what problems your target market is experiencing and whether your product or service can solve those issues. You can also uncover if the problem is bad enough that the target customer will pay for your solution quickly.

Research and understand your potential customers’ issues and get to know who they are.

The Best Market Research Method

Some founders want to start a company because of a ‘big idea’ they have. Others don’t have any idea. They may want to start a business in a sector they have experience in or want to be involved with.

Whichever type of founder you are, you must find the pain, and you must establish whether the pain is acute enough to make your target market pull out their credit cards and want to pay for your painkiller.

Pretty simple right?

This section of the book is the most critical aspect of starting a startup – or any business. Unfortunately, it also causes some founders the most stress. As a result, I am convinced that many founders avoid this part – to their detriment.

Do not avoid this step. I repeat, do not avoid this step.

Founders must get in front of their target audience to interview them. The best way to ask is in person. However, Skype or Zoom meetings are fine – less personal but more efficient and convenient. I don’t recommend phone meetings because you cannot see the person’s facial reactions – which are usually very telling.

It is relatively simple to locate people in your target market to interview. For example, if you are considering entering the business to business (B2B) sector, I recommend searching LinkedIn to find people in your target market.

On the other hand, searching Facebook Groups are better to find people in the business to consumer (B2C) sector. Just remember, when reaching out, keep the message friendly and straightforward.

For example:

“Hi Kevin,
I am considering starting a business that services leading real estate agents like you. Could you spare 10 minutes to help me by having a chat? I just have a few questions before I go and spend money on starting up 🙂
Cheers Tim”

This message is a little on the unprofessional side on purpose. It is intended to sound like someone who is a) friendly, b) thinking of starting a business, c) who needs help, and d) who thinks the contactee is ‘leading’ expert (massive ego stroke).

You don’t want the interviewee to think you are a marketing, advertising or bogus ‘research’ company. People are very aware of these sales tactics and will avoid them at all costs.

Will it work 100% of the time? No way. Get ready for rejections and non-responses. Keep going, push through the discomfort and book calls. You should speak to at least 30-40 people before you can begin to start getting sufficient data to identify the most significant and pressing issue in the market.

In the meeting, or on the call, after engaging in a little small talk, you need to ask the interviewee about the biggest pain that they are experiencing in their business. You need to frame the question correctly, so you don’t appear to be nosey.

For example:

“As you know Jane, I want to start a business in the real estate sector. But there is no use starting a business unless I can solve a problem. So I am asking leading real estate agents like you, their biggest pain or frustration that you experience. I then plan to see if I can solve this problem”.

After they answer, dig deeper. Ask how the problem makes them feel and why. Delve deep into the problem. Ask the ramifications if the problem is not solved. What will happen? Ask what they are currently using or doing to try to solve their problem. Are they using a band-aid solution, or are they simply avoiding it?

Then ask them this positive question:

“If you had a magic wand and could wave it over your business, what would you change and why?”.

That question will prompt them to look forward and describe their ideal outcome, which is also valuable information.

I also recommend asking about any systems, digital, manual or otherwise, that they are currently using to give you an idea of whether you should consider integration or potential partnerships.

Remember to record all interviewees’ market research data in a document that will allow you to compare and revise. You can also advise them that you can call back and share what others in the industry said. If they agree, they will see that you are a person of action who understands them. You can also present them with your prototype, which we will discuss in the next section.

Creating a Prototype

I recommend creating a prototype of your product or service before creating an MVP because there is a lot to learn.

Although I speak about prototyping in the context of software, the prototyping methodology may be used in the development of any product or service. You just need to use a little creativity. For example, when I was writing my book, the table of contents was the prototype that I validated with my target audience. Likewise, an online course creator may use a PowerPoint presentation of the course modules as the prototype.

I know. Everything is about minimum viable product these days, which is great. However, creating a prototype is the best way to confirm that your solution is exactly what your target market has in mind and will help to solve their problem.

A prototype is a visual concept of the solution you designed to solve their problem – your painkiller. The idea is to show the target audience that you interviewed earlier how your solution operates so you can get their feedback before going to the expense of building an MVP.

Prototypes in the software context consist of a clickable interface (with no back-end) to provide an interactive visual representation of what you intend to create.

Demonstrating your prototype to the people you have interviewed in the research phase is important because understanding whether your product or service will solve your target audience’s problem is critical.

People are more likely to be honest when giving feedback when reviewing a prototype because they know you have not spent a lot of time or money on it.

However, if you have spent time developing an MVP or full product, people will avoid telling you that the product sucks because it is awkward and embarrassing to tell people they have wasted lots of money on something they would not use.

If you want to make a prototype for software, check out UXPin. This brilliant service is incredibly cost-effective and allows you to make stunning prototypes without going to the time or expense of hiring a developer.

If you use a solution such as UXPin, you will get a working prototype for just a fraction of the price of an MVP.

The Ultimate Validation Test

As mentioned earlier, once you create your prototype, you will need to return it to those people you interviewed to demonstrate it to them. Take notes and feedback. Ask them for advice.

After demonstrating your prototype to those you interviewed, offer them early access to the MVP. They obviously should show some interest. Otherwise, you may need to do another round of changes before presenting the early access offer.

The price of the offer should be minimal and the terms very favourable to them. For example, you can provide these early adopters with an added incentive by offering grandfathered pricing, which locks in that low monthly or yearly price for life.

Make sure you provide a guarantee that they will receive a refund if the MVP doesn’t get off the ground.

The agreement should be simple to understand. Remember, it is a legal document to give the purchaser comfort – not you.

The offer must be so favourable to the purchaser that it will outweigh any risk that customers may perceive. We will talk about how to create killer offers in a later section.

The key at this stage is not to make money – it is to validate. If you have paying customers at this early stage, it validates: there is a ‘pain’ in the market, and people will pay for your painkiller.

Ben Waldeckhttps://benwaldeck.com
Ben Waldeck is a Tech Lawyer and Author of the book Start-Up and Scale.

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