Chapter 3: Knowing your market: Hitting The Market
"Without data, you're just another person with an opinion." - W. Edwards Deming
As a veteran in the technology space, I’ve seen good ideas fail because the guys didn’t care much about market research. I myself learnt this the hard way on a few occasions.
So, before setting out to place your product or idea into the market, spend some time understanding the market. This is where concepts like market research, competitive research and live testing come into the picture.
Most of the time we read stories in the tech space about the many success stories, like Steve Jobs, Elon Musk, Mark Zuckerberg etc. It’s really fantastic to be inspired by such entrepreneurs who have revolutionised industries, who all started with a big dream, a vision and literally conquered their industries and changed the world.
But at the same time, this needs to be augmented by a strong dose of reality. The successes are often media darlings who are featured in various stories, magazines and books; however, what we don’t see is the many ‘tech-wrecks’ that lie buried in the vast ocean of failures.
While failure should not be a fear that cripples your dreams, you want to plan for setbacks as much as possible.
One of the key steps to ensure that your tech start-up will be a viable one, is this very important step of market research.
Market research basically gives your daydreaming as an entrepreneur some grounding. Too often, entrepreneurs daydream but their heads are ‘in the clouds’; they end up creating product with very little practical application. Market research acts as that ‘grounding tool,’ to bring those pillars from the ground to support your castle in the sky.
Don’t be intimidated by the term ‘market research’. I merely see it as a way to help prove that my concept works; and it is also a great way to refine my product for the marketplace, to make it more beneficial and useful for my customers. After all, technology should help make lives easier, and that’s what market research helps you to do…to help refine your product so that it makes lives better and easier for its users.
Remember, the better and easier you can make life for your users, the more they are willing to pay you to use it.
Think about how much the iPhone has made information, communication and entertainment easier for millions of people. That is just one product that helped Apple make unprecedented profits.
Think about how much easier WhatsApp has made communicating with your friends and family.
That’s what your technological innovation should aim to do, even if it is just for a small local industry. You don’t have to change the entire world to be successful. So where does one start?
Here is my simplified, 7-step suggestion for market research for technology start-ups.
1. WHO ARE THEY?
I always start with who is the market I want to create a solution for; because whatever you invent, for it to be sustainable, you need people to use it and to buy it.
It’s good to start with what is known as demographics - to know where they live, how much they earn, what job they are in, what gender they are and even what income level they have.
A good exercise for this is to create an ‘Avatar’ that reflects your ideal customer.
Imagine you have a product like the smart wearable that can detect nutrient deficiencies. You might create an imaginary ‘Avatar’ for such a product and name him ‘Peter’.
Peter is 45 years old and works as a high level sales executive at a multinational shipping company. His annual income is between $100,000 to $120,000. Peter is married with 2 kids. He is a fitness enthusiast who exercises 4 times a week at the local gym and also enjoys cycling with his friends on the weekends.
Peter takes vacations twice a year with his family. He values his health and well-being and invests a lot in supplements. In his spare time, he enjoys reading books and spending time with his children. His greatest fears are that he may die young because of a terminal illness and that his family will not be taken care of. He lives in a $1.5M condominium on the East Coast of Singapore.
By creating this ‘Avatar’ and spending time daydreaming what it would be like to be ‘Peter’, it will help you to more clearly understand and feel what your market feels. It can also help you to pinpoint what are their fears, aspirations and even the best channels to connect with your market.
I have found this to be a very effective yet simple way to connect both on a practical and emotional level to my market. By doing this, you will be able to develop products that more effectively help your customers.
2. DEFINE THEIR PROBLEM
Many failed tech companies start on the wrong footing. They start based on what they think is cool and chic. While that can sometimes work, a better foundation is to start with the problem that your target market or target users are currently facing.
When I started my first software business, clinics didn’t have a proper inventory control system. That was the problem. They were using paper filing and things obviously would get lost and made information hard to retrieve.
The problem was they didn’t have a centralised place to store all the information, and there was no easy way to retrieve the information when they wanted to.
So if you were to put yourself into the shoes of a nurse or doctor that’s running the clinic, you can imagine it would be quite a hassle running around trying to maintain inventory, keeping customer records and so on.
So the key problems I managed to identify were:
1) They were spending lots of time managing records and inventories manually
2) They were getting frustrated with all the paperwork that took them away from their core business.
By clearly identifying these problems in their business, I went ahead and wrote a basic software program that helped them to manage their inventory, print drug labels and manage customer records. My software made things a lot simpler for clinics, and helped them to address their practical and emotional problems. They could finally focus on what they do best…attending to their patients and making sure they got well, instead of wasting precious time and effort to maintain their records.
You can imagine creating the avatar as per Step 1 would help tremendously in Step 2 to help them define the problem. That’s why I encourage you to spend lots of time daydreaming in Step 1.
Yes, I had a passion to create something back then, but I didn’t just jump on the first idea I had…because if I had chances are it may not have worked out!
So as a tech entrepreneur, it is important for you to remember this…you are a problem solver. Make sure you snoop around and find a problem that you can solve with your technology before you go ahead and invest your time and money in it.
Just to re-emphasise this point, the more clearly you are able to articulate the problem of your market, the better you are going to be at creating a product that’s going to address their needs.
Here’s some questions you may want to consider when defining your market’s problem:
a) What keeps them awake at night, that they wished someone could help them to solve?
b) When they are at their dinner table, what do you think they would be complaining to their spouse about their work or life when they are having a heart-to-heart talk?
c) What frustrates them, what annoys them, what angers them? Find out what causes an emotional response with them and, if you have a solution for that, then you are likely to have a winner.
One of my investee start-ups created an AI based engine to interpret the results of social media campaigns of brand owners and suggest improvements to their future social media campaigns. It is almost like a robot adviser to digital marketing agencies and brand owners.
The challenge for them is to articulate this pain point to brand owners and marketing agencies who need to measure and improve their social marketing mix, to convince them of the merits of adopting this product.
Currently they are in the midst of revising their USP and gaining clarity around it. Even though they have a great product, their marketing will not be effective until they get clear about their USP. Similarly, investors will not be interested in this project until there is clarify in their USP
Once you believe you have adequately addressed the problem and defined it, you need to consider something else that’s a very important, and often forgotten, third consideration:
3. DO THEY HAVE MONEY?
Yes, it’s very practical and sounds materialistic, but the truth is you need to make sure that the people you are creating your software or tech product for have money. You might set off to save the world and create a super product that will make their lives 10x easier and more productive, but if the market you are targeting is not able to afford your product, then your start-up will not be successful.
For instance, you may want to create a home-use, water purifying equipment for poor people in remote parts of India and Bangladesh so that they can have clean water from wells. However, if your unit is going to cost US$500, they are unlikely to be able to afford it.
So make sure the market you are targeting does have the disposable income to buy your invention. If you have determined your market does indeed have the money to buy your product, then there is an equally important consideration next…
4. ARE THEY WILLING TO PAY FOR YOUR STUFF?
Having the money is one thing; being willing to buy your product or software can be a totally different matter altogether. Here’s where many tech products fall short, because they do all their research and find that the market they are creating the product for has the right amount of income and wealth, AND the product does indeed make their lives easier.
But they get a rude shock when they realise that market is not willing to fork out the cash to buy their stuff.
The DAT (Digital Audio Tape) was introduced in 1987. In truth it was a really cool product which was able to record with tiny little cassettes that were more durable and had a longer shelf life than CDs. To top it off, they could record at qualities that were even better than CDs.
It appeared that they were the new super-format for music storage of the future. However, people were not willing to fork out the cash for it as they didn’t really understand it. Furthermore, the music industry was also concerned about music piracy with the high quality recording format it was able to provide; hence this great technology ended up in the graveyard, rather than in homes.
Remember, sometimes the pain that your market has, they are happy to live with it. Why? There are many reasons. It could be because they can tolerate the pain of living with it.
When I launched my documentation system software, sales peaked when the EU decided that they were only going to import stuff from Singapore that had ISO-9000 certification. Part of that certification required documentation. Our sales skyrocketed because of this new legislation.
This demonstrates that many businesses were willing to live without documentation even though it clearly would help their business, and many were unwilling to pay for it. The moral of the story is that you might daydream up a product or service that is clearly beneficial to your market, but yet many not be willing to pay for it.
This brings into play the next consideration.
5. HOW TECH-SAVVY IS YOUR MARKET?
Let me say at the outset that this is a touchy issue, and you need to handle it with care. As a technology entrepreneur, I’ve interacted with hundreds of people from various backgrounds, and one thing I’ve learnt is that the number of people who actually understand technology inside-out is rather limited.
The biggest danger is assuming your users have the same level of technological know-how as you do. Even simple things like downloading and installing an App can be a big challenge for some users.
This is not to suggest that the inputs by those not tuned in to the technology are not important. In fact, they are extremely important. But it is good to know who is making what suggestion, especially when it comes to hardcore technology-related issues.
Many tech companies fall short in this by developing products that only their initial tech-savvy market knows how to use. But they fail to take into account the later majority of users may not be as tech-savvy as the first batch of users.
By failing to adapt and take into account the later majority of users and their level of technological awareness, many tech companies have fallen short of their full potential.
There’s a great book by Geoffrey Moore on this topic, titled ‘Crossing the Chasm’. In a nutshell, what he says is that the innovators who will happily adopt your technology product are only a very small portion of the market; so to rely only on them buying your product is not good enough. You need to be able to reach the next stage of the early minority, which amounts to 13.5% of the total market. These people are generally younger and more willing to adopt new technology.
Failure to further innovate at this stage for the next segment, the early majority, which comprises 37.5% of your total market, will result in failure of your product in the marketplace. But if you manage to take into account the needs and requirements of the early majority, then you are able to ‘Cross the Chasm’ and see your product adopted in the mainstream market. Only then you are able to reap the profits and success for your tech product.
And yes, sometimes the product you create for the early market may be different for the mainstream market, to perhaps be more usable for the less tech-savvy users. This once again requires you to dream up features that make your product more user friendly for them.
6. DON’T FORGET YOUR COMPETITORS
In the start-up phase, it is very tempting to lock yourself in a dark room and emerge one day from it as a hero, with your completed technology in hand.
Well, before you head into your dark room and build your prototype, I would suggest that you do some competitive research beforehand. It doesn’t need to be a 20,000-word thesis, but by knowing what is currently out there, it will prevent you from coming out of that dark room only to discover that someone else has come up with the exact same product before you.
Logically, a good place to start would be the internet, just to see what else is out there. But just because someone else has a similar product doesn’t mean you should give up. There is a good chance you can find a new angle, a little bit extra here or a small tweak there. But it is important for you to be different. It doesn’t mean you have to be better…you just need to be different in a way that’s meaningful to your market. It may be as simple as targeting a narrower niche market by adding a simple feature.
Just because Friendster was the first big social media site, didn’t mean Facebook had no chance of succeeding. And similarly, it didn’t stop Twitter, LinkedIn, Instagram, Pinterest and dozens of other social media sites from succeeding either.
You can also learn from your competitors’ successes and failures. If you have a very successful competitor, the chances are they are doing something right. So why not buy their product to experience what they are doing right? What is their packaging like? What kind of marketing material do they send out? How do they treat their customers? What are the key benefits they are trying to sell to you?
By being a customer of your competitors you will glean lots of useful experience that you can improve and modify for yourself, and make your business different from (and sometimes better than) that of your competitors.
Use that information that you have gleaned to dream up something new, exciting and meaningful for your product.
Now that you’ve taken these 6 steps, it’s time to do some live testing.
7. TEST YOUR PRODUCT OR SERVICE
The ultimate market research one should do is to do live-testing of your product. As they say, ‘The proof is in the pudding’. So you should get your product into the hands of your market and see what they think.
In a new business, the hardest part is moving from the ideation state to building the prototype which gets you your first real validation. You are no doubt in a mood to carpet-bomb the market with your product or service. Don’t. Take it to a small sample audience first. Gauge their reactions, take their feedback, and incorporate some vital changes if necessary.
When you actually implement an idea on a small scale, the possibilities start expanding. Recently, a guy came up to us with an idea that he was trying to build a messaging app based on location. Everybody in a radius of, say, five hundred metres would be able to message each other if the app was installed.
Now, this is an interesting idea. Why would you want to broadcast a message within a one-km radius? Would it have any takers? Frankly, I didn’t know. But he said: “I’m going to run this trial on a university campus”. And we backed him. How will it turn out? We don’t know yet, but it is a promising idea and it has progressed to the testing stage. And that’s a cool thing as far as I’m concerned.
Live testing is important. If it’s a software, you want a group of users to get their hands on it and see if it’s working for them. Does it give them a distinct advantage? Is it easy to use? If it’s a new e-commerce education portal, let a group of students handle it for a couple of days. Perhaps they may want a couple of additions on the home page and more features.
Of course, not every idea has to be taken seriously. But listen to every idea carefully. And if many people are annoyed with the same thing, you don’t want to ignore it.
A questionnaire is generally a good way to get feedback. This is also your chance to see if all the back-end operations are working well and, in case of a website, if your team is able to update it at regular intervals without glitches.
Remember, customers don’t know what they really want sometimes. If Steve Jobs had relied on consumer research and focus groups, he would have never come up with the iPhone. So sometimes you do need to rely on your intuition as an entrepreneur, take the plunge and get the product to some live users on a small scale.
As you are doing your market research, use each stage to help you daydream for the purpose of refining and improve your product. Sometimes, if the research shows that no matter how hard you tweak or improve your product there is not going to be any market acceptance, then you need to be willing to scrap your idea and dream up something very different. Yes, it can be painful, but it is sometimes better to accept the harsh reality than to spend all your energy and resources on a venture that has little chance of succeeding.
Now that you understand the role of market research in helping you dream up your business idea, the next chapter will take a look at the key ingredients that go into the making of a successful business.