Written by Brant Cooper and syndicated from VentureBeat » Entrepreneur Corner
(Editor’s note: Brant Cooper is an independent consultant specializing in marketing and product management. He submitted this story to VentureBeat.)
All too often, the goal of market research is to hide assumptions, rather than test them. A depressingly large number of entrepreneurs forget the words of British Prime Minister George Canning (1770-1827), who said “I can prove anything by statistics except the truth.”
To some, market research only goes as far as finding a really big revenue number to put on the TAM (Total Available Market) slide of their business plan or investment pitch
For them, it’s a major victory when a Google search returns figures (ideally published by a major financial- or industry analyst) that provide credibility for their hockey-stick revenue projections. This is what’s known as the “top-down” method of estimating one’s market.
Others prefer the “bottom-up” approach, which requires a bit more creativity. Under this method, you estimate the number of customers acquired, how much product they buy and for what price.
The last time I checked, the world’s population was around 6.8 billion. If only 0.1 percent were to visit your website… and if you were to convert only 1 percent of those to paying customers… and they each paid $2 for a Thneed, for example, then revenues would be over $135M. (And everyone knows you could get way more than 2 bucks for a Thneed, which everyone needs!)
Bottom-up market sizing at least gets you thinking about potential customers and exposes the assumptions that formulate a business plan’s revenue projections - assumptions that can be tested.
Now that customer focus is back in vogue, entrepreneurs are being reminded to actually talk to potential buyers to validate a market exists. It’s a return to roots, of sorts. Speaking with customers has always been part of market research. Surveys, focus groups and interviews have been around as long as “word-of-mouth marketing.”
But talking to customers is not enough. What start-ups need is a change of intent.
In order to succeed, you have to be willing to fail. This is a tough lesson for entrepreneurs, since it runs contrary to their nature. But assuming you’re working to create something of value, failing early - even in the market-research phase - not only saves time, money and heartbreak, but it enables one to pivot quickly to an endeavor more likely to succeed.
It’s frustrating, but ultimately better to make the change now, rather than when employees, customers and investors are a part of the picture.
As Steve Blank cogently notes: “customer discovery” is not something that’s done sitting around a conference table with your colleagues - and it doesn’t entail feature requirements gathering. Rather, it’s about “getting laughed at, ignored, thrown out and educated by potential customers as you listen to their needs and test the fundamental hypotheses of your business.”
It sounds so commonsensical that entrepreneurs often believe they are naturally employing these tactics as they go about their daily routine of starting their businesses. But the practice must be overt in nature. Implement a conscious process of documenting and testing your core business assumptions – with no selling and no proselytizing.
It generally breaks down to three steps:
State your assumptions:
- Consumers need one article of clothing that serves as a shirt, sock, glove and hat
- 25 percent of users will also use the thneed as a carpet, pillow or bed sheet
- Pain is a lack of storage space and cost for all those items individually
- Buyers of thneeds shop online
- Consumers will pay at least $2, plus shipping and handling
- The contraction of “things” and “need” forms a name that will resonate with buyers
Find your early adopters:
- Start small; use your network, family and friends
- Use incentives to increase survey response rates
- Request to speak with a sample of survey respondents
- Attend meetings, events, or locations where your prospects congregate
- Participate in forums and social networking sites with your prospects
Test your assumptions:
- Develop landing pages to test keywords and conversions
- No selling, no proselytizing
- Speak less, listen more
- Ask “Do you have a storage problem”
- “How much would you pay for a hat you could also use as a curtain?
Building a business will never be pure science. Creativity and intuition are required to dream the big vision and solve immediate problems.
But businesses can benefit from applying sound processes to realizing the vision and preparing for inevitable problems. Processes such as proper marketing help mistakes from reoccurring and provide direction for pivoting from failures.
Photo by Ed Yourdon via Flickr
Interesting Articles, Management | Dharmesh Shah | 
January 26, 2010 15:00 | 
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