In my MIT mentoring at both the Venture Mentoring Service and the Sandbox Fund I see mainly very early stage entrepreneurs, often pre-product, even pre-prototype – just at the idea stage.
But they all realize that they need to present some type of evidence that validates their idea; every founder has a pitch deck. But not every founder realizes the differences between primary and secondary market research and the key attributes of each.
When it comes to markets investors, partners, and job candidates usually have the following questions:
- How big is the market?
- How fast is it growing? (If it is growing at all).
- Who are the major competitors?
- What segment of the market will you target initially, e.g. who will be your early adopters?
- What differentiates your product or service from competitors? What’s your value proposition? What is your competitive advantage?
- What will be your barriers to entry? In other words if you are successful what’s to prevent two people in a garage from cloning your product?
Any presentation needs to answer these questions. And answers need to be backed up with evidence, either first hand or second hand, with the emphasis on the former. As Daniel Patrick Moynihan said, “Everyone is entitled to his own opinion, but not to his own facts.” And as someone once said of a meeting between investors and founders, “Inside this room what we have is opinions. Outside this rooms are the facts.” That’s where market research comes in.
Primary market research generally is synonymous with customer discovery, going out and talking to the people you think will be good prospects for your product or service and getting their feedback. It’s very tempting to start with friends and family, I’ve made this mistake myself, but by the nature of their relationship with you they are going to be biased – in your favor. So you really need to plunge into the deep end of the customer pool, talking with prospects who have no relationship with you, though they might have a connection. But the further away they are on your social graph the more likely you will get unbiased feedback. False positives can lead you down the wrong path, wasting time and money. Lately I’ve seen a few founders who got lists of prospects and actually cold called everyone on the list. While this seems inefficient, it was surprising the number of people who were willing to talk with them. So spend less time on that pitch deck and a lot more time on your 30 second pitch and figuring out why a stranger would want to talk with you – what’s in it for them? Lots of people are intrigued by startups and entrepreneurs, so if you have a good story, like your origin story of how you got the idea, lead with that. And having some good credentials can really help, like being an MIT or Harvard grad, or having worked at a name company like Amazon or Google. You have about 10 to 15 seconds to capture someone’s attention, then you need to be able to hold it for several minutes.
Interviewing is a skill, and like any skill it will improve with practice. Start out with three questions you would like to get answers to, such as: what are you (the prospect) using now to solve this problem? How satisfied are you with that solution? What features or benefits would cause you to switch to a new product that better solves your problem? And forget about pricing! The key is to identify a market niche you can dominate, not to refine the price for a product you haven’t even created yet.
One good strategy is to go an organization that many of your prospects belong to or are served by. For example, if you have a new product idea to help the blind, in Boston you could go to the Perkins School for the Blind or the Carroll Center for the Blind. If you can capture the attention and the imagination of an administrator at an institution that serves your prospects they might help you set up interviews with their clientele. Much more efficient that cold calling! But again, the key is what’s in it for them? For example, you could promise to deliver a written report on your market research with their clients and/or a presentation.
There really is no substitute for primary market research. But there is value in secondary market research: scientific papers, research studies, analyst reports, journal articles, etc. But make sure it meets the following criteria:
- It comes from an authoritative source. There are a lot of fly by night market researchers out there, as well as stock analysts who tend to be biased by their bank’s or private equity fund’s strategy.
- The market research is recent. Given the time it takes to perform research, write it up and get it published, any published research is by definition somewhat out of date.
- You have more than one source. Ideally having three or more reports or published articles that help to validate your business concept will be convincing.
- It’s highly relevant to your idea. It may be hard to find research that’s completely congruent with your idea, but the more relevant it is the more convincing it will be.
Keep in mind that in an early stage company your business idea and value-added are both working hypotheses. It’s ok if you find prospects or even researchers that don’t fully support it – in fact mentioning one of these may help to increase your credibility.
Make sure you give credit where credit it due. Not only will the owners of the research appreciate this it will also enable your audience to track down the original report or publication – which an interested investor would be prone to do.
Student interns can be very helpful in conducting secondary market research. Find an MBA student who needs a project to help out while you concentrate on primary market research – never delegate customer discovery!
Finally, as you talk with individuals or institutions keep in mind you are going to need advisors, mentors, partners and staff – you might well find these people during your customer discovery and market research phase of your business.