How to Assess the Market Potential of Your Idea
The facts are sobering: the majority of small businesses fail within five years of starting up. While there are many reasons that businesses fail, including some that have nothing to do with an owner's skills, it’s also possible that many of those same businesses collapsed simply because they couldn’t get enough customers to buy their product or service. In other words, the owners founded their business on a strategy of “build it and they will come” where, unfortunately, the customers never came. In fact, a recent study undertaken by the Blackbox seed accelerator found that many tech start-ups failed because they focused more on their product than on their potential customers.
The good news is that there are a variety of ways you, as an entrepreneur, can conduct some market research to assess the potential demand for your product or service without spending a lot of money or hiring an expensive market research team.
Ask the Right Questions
As a first step to determining the potential market for your new product or service, you want to focus on asking a couple of questions of yourself first, says Victor Kwegyir, a business consultant, business motivational speaker, and author of The Business You Can Start: Spotting the Greatest Opportunities in the Economic Downturn. Some of the questions you may want to begin with, Kwegyir says, include:
- Is this product or service I have in mind going to satisfy a market need?
- Who are my potential customers, and where can they be found?
- What competition is out there? Is it direct or indirect, local, national, or international?
- How distinct is my product from what is being offered by the competition?
- Can the product stand the test of changing trends or take advantage of it before it dies out?
- Does the law of the land allow for such a business to be established?
- At what prices are consumers prepared to buy my product, and can I make any profit at any stage?
While it may seem obvious, using Google and other search engines can be an effective way to gauge the potential market for your idea and whether or not you’ll be facing competition. “Believe it or not, you can do a simple keyword search using either Google keywords or any reputable marketing software such as Market Samurai or Magic Bullet to see if your idea already has a demand,” says Jesue Walker, a serial entrepreneur and president of The Ultimate Emergence Company. Once you have the keyword results in front of you, click on them and pay attention to the right column of the search, which lists the paid advertising. “Click on each of these and see what they are offering,” says Walker. “This is your competition, if any at all. Going back to the search page or keyword results and [seeing] how many times a day and week this keyword is searched for...is the beginning of finding out if you can gain at least one percent to two percent of this market.”
Getting direct feedback via surveys or interviews can be another very effective way to gauge interest in your product or service. The easiest way to test a new business idea is by crowdsourcing your idea first,” says Ian Aronovich, CEO and president of GovernmentAuctions.org, a site that compiles and provides information about government auctions of seized and surplus merchandise from all over the country. “Get the perspective of a large group that you already know is capable of giving you truthful and helpful advice. Crowdsourcing is quick, easy, and you will get an array of positive and negative criticism.”
To do this, you may want to draw on an increasing number of online tools that will allow you to tap into the wisdom of the virtual crowd for modest prices. Examples include: uSamp, UserTesting.com, UsabilityHub.com, CrazyEgg.com, GutCheckit.com, and Ask Your Target Market.
You can also consider creating a video, says David Ciccarelli, CEO of Voices.com, where you hire a professional to narrate the features and benefits of your product or service. “Then upload it to YouTube and see the response in the comments,” he says.
If your big idea is a new product, you might also consider pitching it to a product development company like Edison Nation, which, for a modest application fee, evaluates your idea based on the potential market for it.
What you don’t want to do, however, is base your decision on the opinions of your friends and family, says Lolo Siderman, the founder of Gypsywing Media, a virtual ad agency based in Los Angeles. It’s a mistake to ask people you already know, she says, because they cannot be objective. “Of course they’re going to tell you it’s a good idea,” she says.
Sell Something, Anything
While spending time in front of your computer conducting research and gathering information can be helpful in ascertaining the potential of your product or service, the truth is that the most valuable feedback you can get is whether someone, regardless of what they tell you, will actually hand over money for it. “It is amazing how many people will spend years and hundreds of thousands of dollars on concepts that people ‘really like’ without ever asking them if they would buy it,” says Matt Ferguson, president and CEO of Progressive Health Innovations. “Even better, also ask the people selling in the space if they could sell it for a certain price.”
The best way to get this kind of feedback, then, is to actually create a prototype of your product or service, even in its most basic form that you can shop around to retailers, distribution partners, or even attendees at an industry trade show.
“I have found there is no sure way to gauge the success of a service type concept except for biting the bullet and start doing it.”
There is actually a name for this kind of company-building approach, Minimum Viable Product or MVP, which was coined by entrepreneur and influential blogger Eric Ries. An MVP approach would be, for example, launching a minimalist website where customers are actually prompted to pay for your product or service before it even exists as a way to guarantee the market potential. That's how Scott Yates tested the idea behind his new company, BlogMutt.com, a site that offers to supply content for company blogs. “It was only when we had real businesses pull out their credit card and sign up for $79—before we even had a site working—that we knew we were on to something,” he says.
Similarly, you could post your product or service on a site like Kickstarter.com, where you ask people to pledge money to support you. A great example of this was the inventor of the TikTok watchband mount for the iPod Nano; he raised $942,978 from customers who pre-ordered his product idea.
Just Do It
The truth is, in the end, research can only take you so far, says John Schulte, president and chairman of the National Mail Order Association. “You might not get anyone to agree with me, but I have found there is no sure way to gauge the success of a service type concept except for biting the bullet and start doing it,” says Schulte. “Many times you can spend just as much trying to research something (and still not know for sure) as it would cost you to just start doing it.”