If you are a first time entrepreneur, “Your brain is full of lollipops, rainbows, and cheese.” Aldous Snow
Your biggest danger is yourself. In the words of brilliant entrepreneur, investor, and teacher, Keith Cunningham, always ask yourself the hardest question, “WHAT DON’T I SEE?”
I want to help you avoid one of the, if not the, most important lessons of a new venture: Validating Your Market. For an excellent study on the topic, Read If You Build It, Will They Come? (3 steps to test and validate any market opportunity) by Dr. Rob Adams if you are a STARTUP or No Man’s Land by Doug Tatum if you are a Mid-Market company struggling with growth. You may just thank me later.
Let me summarize the point of Rob’s book and the first part of Doug’s: Spend time validating your market, it is worth it. In another frame, companies that FAIL to reach their growth and business valuation goals almost ALWAYS under invest in validating their existing and future markets. Market and Customer Research is not just for start-ups, “It needs to become a part of your culture that you do over and over again.” Daniel Nelson, student of Rob Adams and Co-Founder of Phurnace Software, which was acquired by BMC last year.
Market Validation and Understanding Customer Needs may be the single most important lesson in my work! I have started and/or advised companies in different industries (entertainment, broadcasting, supply-chain and logistics, technology, construction, software) and of all sizes including startups (PGA TOUR Network, Chief Outsiders, Bigfoot Networks), mid-sized companies (All Access Today, Falcon Container, Compadre, BOWA) and large companies (Rackspace, Gaylord Entertainment). All of them need to create/enhance this skill inside of their company as a core competency. Read about BOWA’s new focus on market validation and understanding their customer and how it helped them grow, again.
Otherwise, you will fall into what my friend, advisor and founder of the largest executive services firm in the U.S., Doug Tatum calls in his best selling book: No Man’s Land (and become the reason Chief Outsiders exists). It all starts with your customers and knowing your market!
Validating your market (which I call Phase I: Market Research) for current and future products and services not only returns dividends in months, not years, but also protects your most valuable asset: your company.
Here are a few key facts:
- 90% of all start-up businesses fail
- 65% of all new products fail
- The US alone spends a whopping $260B annually on failed products and ONLY $140B on successful products
Why is this? Rob suggests and I concur through our experience that companies focus internally and do NOT focus externally on their current and potential markets. 85% of product failures can be traced to market related issues.
KEY: VALIDATING YOUR MARKET AND LISTENING TO YOUR CUSTOMERS IS CRITICAL FOR STARTUPS, MID-SIZED COMPANIES AND LARGE COMPANIES!!!
What are the 3 Steps to test and validate any market opportunity (READ THE BOOK) or scroll down for a sneak peak:
- Ready- a process taken on by the team to understand if the business model of the company is working (I help companies by working with the CFO, COO and CEO to understand this).
- Aim- a deep dive into the market to understand the value proposition of the company, the correct target customer(s) and his/her key needs, and the competition. Out of this come the key features that your customers are looking for. (Who on your team manages this process and works to make it a culture of the company?)
- Fire- converting the key features into a product and/or service and then creating and executing a go-to-market plan.
In explaining one of the key points of the book, Rob made a brilliant statement, “achieve success through a series of fast failures.” If you take 60 days validating your market and spend ~ 5% of the expected cost of developing the product, you will be able to make better decisions and avoid the potential failure of the entire program (which is 100% of the budget). It may also tank your company.
If your advisors, mentors, investors have hammered you with your market validations questions, consider it LOVE. It just may get your company to that 5x – 10x return.
“What you did was very spiteful, but it was also very brave and very honest and I respect you for doing that. But the content of what you said has made me hate you. So there’s a layer of respect, admittedly, for your truthfulness, but it’s peppered with hate. Hateful respect.” Aldous Snow