Does my solution fix a problem that needs fixing? Well, does it?
I keep meeting startup founders that potentially have a great idea, yet many of them have developed websites and apps without understanding what the market opportunity is and their product-market fit:
- One person had spent over £10,000 without speaking to a single prospective customer! But don’t worry, they had spoken to two friends who thought it was a good idea.
- Another person did not know the top level key metric in their industry, but had developed a full online store without the knowledge of the total addressable market! How could you spend all that time, money and energy with knowing that?
There are a lot of problems out there that people are happy to either live with, or have a non-technical solution for that don't need a product built to solve, or it's not enough of a problem that they'd want to pay for it.
There is a lot of presumption going on out there and I’d absolutely love to help people slow down and do more upfront research.
I think the problem with research is, that truth be told, it's a bit boring. The results are super exciting, but the process of research isn't too stimulating for many people. But it has to be done. I tip my hat to those that enjoy it.
Let's start with market research. Who are your customers? Spend some time to get to know them. This work will help you identify the size of the market (Total Addressable Market), the amount that is serviceable in your target segment (Serviced Available Market) and your target market (Serviceable & Obtainable Market). Other important factors about your market include - the age of market, market growth (Compound Annual Growth Rate).
Don't forget to find out about who else is going to be selling something similar to your target market. There is always someone. Reminder, Apple never invented a new segment, but they do it better than anyone else (IMO). And of course, competition isn’t just someone making the same thing as you, it is also completion for customers mindshare and wallets!
Figuring out your pricing strategy is always going to be tricky. However, you can start by looking at what customers are already paying for services in similar sectors to yours. Then decide if your service is going to offer some kind of premium value or perhaps you’re going for volume and therefore need a lower pricing strategy.
Why will your customers pay?
One of the benefits of identifying your customers early on is so you understand what makes then likely to pay for your product or service. You can test your assumptions by talking to real users! Imagine that…
How many customers do you really think will pay for your service? Will you have multiple revenue streams? Tiered pricing, freemium/premium customers? Etc. When you know how many potential customers you can reach and have estimated your revenue per customer you can work out your total revenues.
When you have all the data, even estimated data as it will be, you can make the call on whether you have an idea worth investing more time and money in. Don’t be put off with all the research! You will learn so much about your potential customer and your business potential. It will help drive product development, the stories you tell investors and your sales and marketing.