Market Validation: Why Ready, Aim, Fire Beats Ready, Fire, Fire, Fire, Aim
BY Rob Adams
More than 65 percent of new products fail. Based on the percentage of new products that fail, $260 billion is lost in the U.S. alone.
You're working with an established company and looking to launch a new offering, or you're a new company trying to muscle its way into a market. Or you're just a savvy business person trying to figure out more about the markets around your existing products.
If these descriptions fit you, you need the book If You Build It Will They Come? Three Steps to Test and Validate Any Market Opportunity (Wiley, April, 2010) . More than 65 percent of new products fail. And that's just in established companies with other established products and deep resources. If we switch over to start-ups, the failure rate takes a huge leap to 90 percent. The amazing part is, we're not looking at data related to recessions or other tough business circumstances. These numbers have been stubbornly constant for thirty years.
Here's the bottom line: these numbers are simply not acceptable. Based on the percentage of new products that fail, $260 billion is lost in the U.S. alone. That is dollars right down the drain. What a phenomenal waste of time, effort, capital and business resources.
Why do products fail?
Products fail because they don't generate enough money. Of course. But why don't products generate enough revenue?
Because they don't sell well enough. Customers aren't willing to pay for them. Customers feel they're not compelling enough, or not worth the value given the price. They can't generate enough revenue to cover their expenses. Not, as many urban legends suggest, because the parent company or outside investors won't fund them. As an experienced investor and former corporate executive, I can assure you that corporations and investors will back promising products and services that show market traction. But companies have to prove customers want the products for this to happen.
Clearly, if a company's first product fails, that's the end. If a new product fails in an established business, the company may or may not survive. It all depends on the strength of other revenue streams, and on how many resources were burned on the failed product.
A company fails because it doesn't sell enough product or services. Outside investors or a parent company might cover shortfalls for a while, but ultimately the offering must stand on its own. It must generate returns that justify the capital—and the risk—that went into creating, marketing, and selling it.
So whether you're in a start-up or an established business, if you want your company to succeed, you need to consistently get your product or service offering right. This book was written to address this issue head on. It will show you how to cut your chance of failure. It's not a magic bullet—just a big step toward significantly improving the likelihood you'll succeed. It's also not a theoretical method, but a pragmatic system I've used with great success.
The process is Market Validation
Market Validation is a series of common business practices, assembled in a unique way, that prove the validity of a market before you make the product investment.
The concept was initially introduced in my first book, A Good Hard Kick in the Ass: Basic Training for Entrepreneurs (Random House: Crown Books, 2002). In that book I covered Market Validation basics in one chapter. The response to that high-level treatment has been significant and led me to write a book exclusively dedicated to Market Validation.
Use Market Validation to probe, test, and validate your market opportunity—before you invest all that money in product development. It is a systematic, proven approach. And it will make or break your business.
As you will see, there is nothing esoteric or magical about the Market Validation process. Like everything in business, there are no easy answers; if there were, business would be easy and all new products would flourish. Conceptually, Market Validation is easy to understand—but it takes discipline and effort to get it done.
Whether you are designing, building, or selling products, whether you're in a large corporation or a tiny start-up, whether your business is service- or product-based, Market Validation will significantly increase the likelihood your product will succeed in the market.
To win a free autographed copy of Rob Adams new book If You Build It Will They Come? Three Steps to Test and Validate Any Market Opportunity (Wiley, April, 2010) tweet this message: I want Rob Adams book on #MarketValidation from @incmagazine http://ow.ly/1Dd2H. We will randomly select 12 people to win. Winners will be contacted by direct message for mailing address information.
Last updated: Apr 27, 2010
ROB ADAMS is on the faculty of the MBA program at The University of Texas at Austin, and is the Director of Texas Venture Labs. He’s a former software executive, entrepreneur and fund manager, and has founded or financed more than 40 companies that have launched more than 100 products with transactions exceeding one billion dollars of capital.