EDIT: Updated by adding competitive analysis, very important to benchmark competitors.
EDIT2: Updated by adding experimentation (14th April, 2016)
Introduction
Somebody on Quora was asking about ‘tools’ for validating viability and demand for a startup’s products.
I replied it’s not a question of tools, but plain old market research (which seems to be all too often ignored by startup founders).
Modern market research methods
In brief, I’d include the following options to a startup market research plan:
- market statistics from various consultancy and research institution reports (macro-level)
- general market (country, city) statistics generated just for your case (macro-level à la PESTLE)
- competitive analysis, i.e. benchmarking existing solutions — will help you find differentiation points and see if your “unique idea” already exists in the market
- (n)etnography, i.e. going in-depth to user communities to understand their motivations (micro-level, can be done offline and online)
- surveys, i.e. devising a questionnaire for relevant parties (e.g., customers, suppliers) to understand their motivations (just like the previous, but with larger N, i.e. micro-level study)
- customer development, which is most often used in B2B interviews as a presales activity to better understand the clients’ needs. Here’s an introduction to customer development (Slideshare).
- crowdfunding, i.e. testing the actual demand for the product by launching it as a concept in a crowdfunding platform – this is often referred to as presales, because you don’t have to have the product created yet.
- experimentation, i.e. running different variations against one another and determining their performance difference by statistical testing; the tests can relate to e.g. ad versions (value propositions, messages) or landing pages (product variations, landing page structure and elements). Here’s a tool for calculating statistical significance of ad tests.
So, there. Some of the methods are “old school”, but some — such as crowdfunding are newer ways to collect useful market feedback. Experimentation, although it may appear novel, is actually super old school. For example, one of the great pioneers of advertising, Claude Hopkins, talked about ad testing and conversion optimization already in the 1920. (You can actually download his excellent book, “Scientific advertising“, for free.)
How to combine different methods?
The optimal plan would include both macro- and micro-level studies to get both the “helicopter view” and the micro-level understanding needed for product adoption. Which methods to to include in your market research plan depends on the type of business. For example, crowdfunding can be seen as a market validation method most suitable for B2C companies and customer development for B2B companies.
The punchline
The most important point is that you, as a startup founder, don’t get lured into the ‘tool fallacy’ — there’s no tool to compensate for the lack of genuine customer understanding.
Dr. Joni Salminen holds a PhD in marketing from the Turku School of Economics. His research interests relate to startups, platforms, and digital marketing.
Contact email: [email protected]