"How Much Should I Research The Market?"

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One of the very common themes that I come across with entrepreneurs and founders is that they are generally over confident. About everything! That goes from the valuation of their business to how quick and easy it will be to raise funding.

The other day I overheard in a startup a conversation that reflected this over confidence but in a very specific, and very fundamental, way. The conversation went something along the lines of ‘How much should I actually research the market? I know that my new product is great and that people will want it and will pay for it’. There seemed to be a suggestion that because the founder thought he was onto something, that he did not need to actually do any research to prove if he was correct or not.

I was left wondering if he had ever heard of steps such as proof of concept or market validation, and almost by definition it would seem that he thought that focus groups and other tried and tested methods prior to product launch were a waste of time. But without doing market research how is it possible to answer any of the following questions:

  • What problem does it solve?
  • What is the competition?
  • What are the barriers to entry?
  • What are your products unique selling points and why is it better than any alternatives?
  • Who will you sell it to and how?
  • What will the price be and what profit will you make on each product?
  • What are the fixed and variable costs to get your product to market?
  • How much investment will it take and how long will it be before your first sale?
  • How long will it be until you break even and start to earn real net profits
  • Will you need to recruit staff and when, and at what cost?

I have just mentioned some of the more obvious questions but there are many, many more. Even with some simple desk based research it is possible to start to answer those and other questions.

According to UK government statistics the biggest reason that companies fail in the UK is that they failed to investigate the market properly. Even major companies sometimes make major errors with a new product that fails and this causes them considerable embarrassment, but for an early-stage business with just one product or closely linked products, failure to research the market is much more likely to result in failure of the company rather than just embarrassment.

In my experience, most founders find that everything will take at least two times as long to achieve and cost twice as much as expected even when the underlying market has been well researched.

But I want to return to the comment I made in the opening paragraph about being over confident. To be an entrepreneur needs high levels of confidence and even higher levels of tenacity. But it is important that this is tempered with a sense of realism and being open to listen to advice and even constructive criticism.

I have lost count of how many times that I have heard a founder claim that their product is unique only to find very easily any number of much bigger, well established competitors offering an almost identical product or service and often even on a more competitive basis. So confidence should not mean blind faith, but rather it should mean an honesty to conduct in depth market research so that your product can be tailored to make sure that it truly does solve a problem in a unique way and that you will be able to grow a successful business. And should the research reveal too many difficult truths about your product or the market then that same confidence should mean that you can make the sensible decision to drop that product and build your new business around something else before it is too expensive and too late.

Be confident, be bold, but do solid market research, and be successful!