Starting a new business or product line?
Have you validated your market yet?
Do you have enough facts to convince a complete non-emotional stranger that once you have built your product or service that people will buy it and you will make enough money to create a business?
We all too often fall into the common trap of thinking that we have come from the industry, so we do not need to do any validation that customers will actually want and more importantly buy our product.
Too many businesses, fail to complete this best risk mitigation technique available to them, before ploughing into developing their product. 60% of new products fail when launched, many taking the company out with it. This failure rate can be eliminated with a simple 60 day market research programme, started before you invest your time and energy into developing your next product.
I have just read Rob Adams “If you build it they will come” book. This post is a small collection of some of the topics covered and thoughts I have had post reading it. This book is now going to be compulsory reading for my clients who are starting a new business, including those attending the new Activate – business growth programme I facilitate.
Rob details a simple process of first doing some basic market sizing work off publicly available information (secondary research) and then getting in front of customers to conduct a series of rounds of one on one interviews. Nothing in the book is rocket science – yet 90% of businesses I come across could save a lot of time, money and frustration by following his process.
Rob, recommends you allocate 10% of your product development budget towards market validation before you start developing it.
My recommendation is that you do 50 -100 interviews, including testing what your potential customers will want to pay for your product-service (ie the ASP – average sales price). Then work out how many you expect to sell each year.
Revenue per employee is a great benchmark metric for businesses, under $100K you do not have a viable business. Over $200,000-250,000 per employee then you are on the money.
Do the maths: (X customers x Spend Y$) / (number of people in your business) if < $100,000 stop and get help quick.
If the thought of interviewing 100 potential clients to understand their needs daunts or scares you, then I would say give up now, these same people are going to be the people who once you have set up your business you are going to be selling to.
This simple market validation process ensures that you can create a “must have product” rather than a “nice to have” that people will struggle to open their wallet for. I can guarantee as a result of these interviews you will change your product as a result. Don’t be like others who develop and release version 1 to find this out. Likewise you can establish the “minimum viable product” a concept of the least functionality you need to make your mark in the market.
Explore the bounds of your competitors including substitutes (work a round’s or doing nothing). This is particularly relevant when you are creating new disruptive products, in which case you need to work out what discretionary spend budget you are going to take the consumers money from.
So if you did not get a copy in Rob’s recent NZ tour, get yourself a copy. It will be going on my Top 5 must read books, kicking off Rob’s Early book “A good kick in the arse basic guide to entrepreneurs” only because this kick (market validation) is the most needed one for startups.
I love Rob Adams phrase “Business Pornography” – the fairy tale stories the press love propagating about businesses, that magically created the dream product, its running out the door and live is easy.
PS: This was my first kindle experience – loved the ability to highlight sections then export them to word doc.
PSS: for us visually oriented people, can we have some pictures-diagrams in your next book.