Entrepreneurs have new ideas all the time, but that doesn’t mean they’ll succeed. Using market research can help validate an idea’s potential profitability.
Many business owners have experienced this: Having an idea that sounds great… until it turns into a huge flop. I’ve had successes and failures in my businesses, and one thing I’ve learned about launching a new product or service is the importance of market research. But research that listens to people’s wallets, not their words.
One of my favorite strategies when I’m exploring a new concept or helping advise a colleague who’s considering a new launch is to start with a rudimentary form of market research: I ask what people think of the idea. Nearly always, people tell me what a great idea the new concept is. But here’s the critical step: I ask if they’re ready to put down a deposit. That’s when they start to squirm. You see, folks often tell you what they think you want to hear. You want to get to the truth… namely, will people be willing to part with hard-earned dollars for your new idea? Here are the ways I go about getting to that truth:
1. Start with a minimum viable product (MVP).
Creating an MVP means assembling (or building) the fewest number of features that will allow you to test market your new service or product.
In addition to discovering if it’s even remotely plausible to launch your new idea, doing market research can give you the opportunity to learn who your customers are.
Many well-known businesses start with a MVP. Take Zappos: Founder Nick Swinmurn took photos of shoes from retail stores, listed them and purchased the shoes to sell. Swinmurn’s goal was to determine if there was a sufficient market for an online shoe store. Obviously, there was, and by working with an MVP, Swinmurn was able to test the waters without leasing a warehouse, opening vendor accounts and setting up formal distribution networks.
When I’m kicking around a new idea, I think about how I can create a product-lite—a version that will be affordable to create and test market.
2. Get objective opinions from people who aren’t your friends.
Your friends can mean well, but they’ll likely tell you what you want to hear, rather than what you need to hear.
I had a friend who’d been told for years that his meatballs were the best on the planet and that he should sell them, so he started up a little business and began selling his meatballs to his friends. He offered me one around the time he was thinking of ramping up production and taking them public.
I tasted the meatball, and it was good, but it tasted pretty much like every other meatball I’d ever tasted. It was nothing special, and that’s what I told him. He was really offended. I explained that I was really his very best friend for giving it to him straight. He went ahead and put tens of thousands of dollars into his meatball venture, and it was a huge flop. He listened to the wrong people.
3. Get to know your customers during your market research.
In addition to discovering if it’s even remotely plausible to launch your new idea, doing market research can give you the opportunity to learn who your customers are. You can learn what they like, what motivates them, how they spend their time and what barriers (if any) prevent them from accessing your products.
I’ve learned not to skimp on this step. As I collect feedback about my new concept, I take the opportunity to learn my customers’ language, which helps me pitch more effectively.
4. Solicit the help of students.
Cost can be a barrier to effective market research for small and medium-size companies. It takes bucks to develop even an MVP, it takes time to collect data and it takes skills and/or software to effectively analyze the data.
That’s where your local college or university can be a valuable resource. I’ve gotten in touch with instructors and in exchange for a little work on my market research, students get course credit and real world experience.
5. Keep your market research going.
Market research doesn’t stop when I launch my product. Why? Because there’s always more to learn!
Once I’ve created a way to collect data—whether it’s a survey or a focus group—I periodically run them again. That way I can keep my finger on the pulse of my customer. I learn if there’s something more I can offer, if they’re willing to pay more for my offerings and if there’s a competitive product with better features than mine. I don’t ever miss a chance to improve and refine my offerings, and ongoing market research feeds me fantastic data.
Why do we do market research? Sure, it can help prevent us from making new offerings that are colossal flops. But market research can also become part of our corporate culture—one in which we refuse to rest on our laurels, one in which we constantly strive to do better. Making market research work for your company may pay dividends in both the short and long term.
Author: Mike Michalowicz
Author, Profit First