Market research is critical in determining if a business idea has actual customer demand to avoid common startup failures. Understanding customer needs, their willingness to pay, and the reasons behind their choices are key steps to validate a business venture. Defining the true market involves more than demographics; it requires insights into problems customers are willing to pay to solve.
The author has worked with hundreds of aspiring entrepreneurs at Babson College and across the country for the past 17 years. A common scenario encountered is that entrepreneurs often bypass the most important question – it’s not how to start the business, but should you start the business?
Research has found that one of the most common reasons for new venture failures is lack of a market. In other words, the entrepreneur created a product or service that did not have enough customers willing to pay for it. Fortunately, this mistake is largely avoidable with a little front-end market research.
There are three tips to understand whether your venture idea is worth pursuing. First, know who your customer is. Your customers are whoever will give you money, and you need to know who they are so you can determine if there are enough of them to make the venture worth your time, energy, and money.
Next, make sure they see it as a problem worth paying to solve. Finding who the potential customers are isn’t enough; you also need to know what makes them different from non-customers to truly know how big your market is.
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Understanding what customers are willing to pay for is key. What does your solution need to provide them to make them willing to part with their money? You don’t want to waste time and money on features that aren’t needed or that won’t get your customers to buy.
One thing to understand is how they solve the problem today. If they haven’t figured out a way to solve it, there is a good chance they don’t care enough to pay for a solution regardless of what they might tell you. What do they like and dislike about their current solution? Why are those things important to them?
This will help you understand what features and benefits are valued and desired so that you focus on crafting a solution that truly addresses their needs. Knowing what aspects of a solution are key to the buying decision can ensure that your efforts are focused on the aspects of the solution that are more likely to result in a purchase.
Always ask “why”. In work with entrepreneurs and in previous career working in market and product research, it has been learned that the single most important question in understanding potential customers and their needs is “Why?” If one person is willing to pay to solve a problem and another isn’t, the answer to this question will give you insights into what makes these two people or businesses different and is the key to defining your potential customers.
Customers often want everything. By understanding why, you will understand what they actually need. People often try to tell you what they think you want to hear. However, to make a decision on whether to pursue an idea, you need the truth, not just something that will make you feel good.
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It’s much harder to explain “why” if the first response isn’t truly what they believe. For some entrepreneurs, it can be uncomfortable to approach strangers and gather information, but it is the best way to understand whether or not your idea is worth pursuing.
While a number of factors that can affect new venture success may be out of your control, ensuring that you do this work upfront can help you avoid one of the most common reasons for failure. They can increase their chances of success by doing their research and understanding their customers’ needs.
As you consider your business idea, it’s likely that you’ll need to make some adjustments based on what you learn from potential customers. This process can be iterative, and it may take some time to refine your idea.
However, by doing your research and understanding your customers’ needs, you can create a business that truly meets the needs of your target market, and this can be a key factor in achieving long-term success, much like finding the right franchise opportunities.
