The “I reckon there’s a market for this” mindset is responsible for killing innovation. And chances are, you have it too.
If you were to task an entrepreneur or a company if ensuring a market existed for their concept prior to investing time and capital in getting it off the ground, they would likely say “of course”.
However, in reality, validating the market is commonly done too late or never at all. Market validation therefore, must surely take the prize as the most talked about and yet most neglected element of the innovation process.
When I have that first kick-off meeting with a client to assess the market potential of their concept (my day job), the client will typically have already completed a series of tasks on the way to setting up a company or launching that new product. These completed tasks might include the following:
- A Business plan containing some high level financial modelling
- A registered business name
- A standard patent
- A lease on a modest office
What’s wrong with having completed the above tasks prior to performing market validation? Nothing. So long as the concept is guaranteed to achieve commercial success. But without having done a proper market validation exercise, how do we really know this? The answer is, we don’t know. And putting money into patents and office leases before we do is subscribing to the “I reckon there’s a market for this” mindset.
Given that market validation is such an obvious starting point, where does this mindset actually come from? I have condensed my observations on this into the three key reasons why this happens.
Reason #1: Self-belief is needed, but can ultimately blind you into thinking you know your market
Entrepreneurs are always being told to be confident in their concept, especially when confronting naysayers. So why would you doubt your concept by performing excessive market research on something you know will be a commercial success?
Your time can be better spent, right?
Reason #2: Patents look and feel good. So do business cards. But a hurry to see tangible progress causes market validation to be neglected
Things such as patents and business cards are tangible. In the case of entrepreneurs, it allows them to talk about their visible achievements to friends and family. For an executive charged with developing a new product or spin-off company in the pursuit of a growth strategy, it achieves something similar, but this time to those monitoring progress within the company.
Reason #3: The complexity of how customers interact with and judge a product is underestimated
There is a fundamental misunderstanding of how complex the process of validating the market is. A great example of this oversimplification is the value proposition.
A value proposition is often used to communicate why a particular customer or customer group would buy something. And while a value proposition can be useful for communications (an elevator pitch for example), it’s detrimental to market validation. Why? Because being armed with only a value proposition over simplifies how customers interact with and judge products. In short, it doesn’t actually validate anything.
In assessing customer groups for a new concept, our team commonly spots between thirty to sixty ways in which a customer judges the benefits of a product. This list can easily grow depending on how long you dedicate to the task. There are methods out there that allow you to spot over one hundred customer judgement points and beyond, but that degree of detail is often the exclusive domain of corporations who can afford teams of internal and external researchers.
Understanding these customer judgement points has nothing to do with demographic data. Why? The underlying problem with demographic data is that it doesn’t tell us anything about why a customer would buy a product. And while demographic data is useful at later stages for forecasting, it’s hopeless at communicating market potential.
But let’s look at the good news. Market validation is something we can do prior to dedicating resources to a concept to avoid the ‘I reckon there’s a market for this’ mindset. The art of the process lies in understanding the benefits of your proposed product or service. Or put another way, what the product or service helps the customer achieve against competitive options.
A closer look
To give some basic insight into the market validation process, let’s look at the following over-simplified example. The main point of this example is to demonstrate that there is no substitution for understanding how customers interact with and judge the value of products.
We have an entrepreneur who has developed the ‘dicer’. A very technically advanced machine that, as its name suggests, dices something (use your imagination).
One of the elements of the value proposition for this dicer is its ability to save time. But what does this mean? Well, the inventor describes to us that his dicer machine only requires one person present to operate it, as opposed to two people with incumbent machines. At this point things are sounding good. A commercial case appears to be presenting.
But market validation is not about common sense or what I or the inventor thinks about how a benefit translates to a customer. And although the temptation is to apply common sense and past experiences to the process (this goes for me as much as any inventor), assuming that I could name and measure the one hundred ways in which a customer will interact with and judge a particular product would be misguided. The art is in assuming you know nothing about the customer and being prepared to find out everything.
Armed with this ‘time-saving’ benefit we now search for our first potential customer of the dicer (customers being the one and only information source for market validation). When asked whether the savings on employee wages from using this dicer would benefit them, our potential customer replies “No”. They cite three reasons:
- Her employees only require use of a dicer for twenty minutes each day (benefit limiting fact #1)
- The majority of her employees’ day consists of undertaking other tasks that they never usually have time to complete. Purchasing the dicer would not equal twenty minutes of wage savings per day, as the employee would simply be doing other tasks for that twenty minutes (benefit limiting fact # 2)
- And, for reasons of safety, she would not feel comfortable assigning the task to only one employee. Two would always be present at the machine, not matter what.
The dicer’s benefit of saving time is at first impressions impressive. What business doesn’t want to save time (and, by extension, money)? But it’s not until we identify the benefits of a product and gauge market reaction that you start to get a picture of what customers will value and what they will not.
Unfortunately, market validation isn’t as easy as the example above. After all, I don’t think our potential customer can systematically state the one hundred or more ways in which she assesses the value of the dicer. To get an accurate reading on whether your product, service or business start up will be successful; the benefits need to be identified, broken down and tested one at a time.
All the confidence, office space and patents in the world don’t equal a paying customer. They may seem more important, feel good and be far easier than performing market validation, but they often lead to a mirage instead of a pot of gold.
Unfortunately, instead of asking why innovative start-ups fail, we are content to conclude that innovation is random and unpredictable in nature. It’s only unpredictable because too many are happy to accept the “I reckon there’s a market for this” mind set. And chances are you have it too. We have all been guilty of this at some stage in our careers.
Ben Olsen is a senior consultant of product development for one of Australia’s largest accounting firms. He can be contacted on +61 (0) 8 8407 7157
