To find out is there is a market that is large enough to sustain a new line of business, you need to make 100 phone calls.
To your target audience.
The usual reaction here is Whoa! What!? Where am I going to get those names? How will I get them to talk to me? What if they don't want what I'm selling?
That's it! That's exactly what you do want to know; and know it now before you spend too much capital designing and building the wrong product.
So where are you going to get these 100 names? The exact same place you're going to get them when you're ready to unveil your product. You need to know today who your customers are going to be, how much your cost of acquisition per account will be, and how many potential customers exist. You not only need to know how many names you can get your hands on, but you need to know how productive your leads will prove to be from a marketing-response standpoint. If you're going to sell through telemarketing, for example, interviewing 100 potential customers will give you a good indication of what your future sales forecast should be.
By the way, the industry average response rate for direct response methods is 0.8 percent--yes, that's 8/10 of 1 percent--so typically you'll need to obtain a really healthy number of names to make your telemarketing operation productive. If you can't find 100 names now, how will you find many more names a year from now when your product hits the market?
The next step in the 100 calls regimen is to come up with an interview script. You need to write down all your questions in advance. This is so that you can take every interviewee through the same set of questions, ensuring consistency of data . And be prepared to throw away a lot of material. If a potential customer doesn't make it to the end of the process, you can't use that interview. In my experience you need to be off the phone with them in 15 minutes; if your interview stretches much beyond that, your hang-up rate will go sky high.
You're probing the market to understand how your potential customer addresses the problem you're hoping to fix. Your mission is to find out what pain your customers really have, and to ask them how they fix the problem today. You want to find out how satisfied they are with their current solution; ask them to state the three best and worst things about how they address this particular problem today. And ask them how about your competition; if they use another product or service, ask them to rate it on a scale of 1-10. Find out how important fixing the problem is on their current list of priorities.
One thing to keep in mind: No matter what, avoid the temptation to discuss the new product that your company intends to bring to market. Mention no names, and no features, not even a hint that it might exist. You will find not discussing a new product to be an incredible challenge. It's your natural instinct to sell. But keep in mind: You're looking for the pain your potential customers suffer from. Looking for pain means not proposing how to fix it. If you start talking about products, customers will stop telling you what they really think because they'll feel like they're being sold something.
And here's the good news: interviewing potential customers is far more productive than selling in the early stages. People at the other end of the phone are far more responsive to being asked questions about products than they are about being sold products. In my experience you will get 2-3 times the response rate interviewing by phone versus selling by phone, so factor that into your sales and marketing program productivity numbers. Stick with the plan and you'll come back with an incredible understanding of what's happening out there in your market.
I think you're getting the idea. Ask these kinds of questions of 100 people in your target market and you'll find yourself developing a much different offering than before you asked these questions. Take the time to invest a little in market validation and you can save a lot of the headaches that innovators face when they devise products having never soliciting ideas and information from the very people they hope to serve.