By Matt Goldman on April 25, 2018
As an entrepreneur, the measure of success for a product or service isn’t just about getting it out in the world but making sure you’re actually serving a market’s need. Without identifying the market potential for your startup idea, you might find yourself where many founders do: failing to acquire or keep customers, financially tapped out due to investing your own money and left facing a deflated dream.
In this post, we’ll provide you with some guidance to help you kickstart your market research as well as links to free, proven resources.
Do 90% of startups really fail?
Over the years, the statistics rumor mill reported widely that the failure rate of startups hovered somewhere around 90 percent. But that longtime stat isn’t quite accurate and hasn’t been so for a very long time.
According to a study that monitored the performance of nearly 28,000 startups, “research reveals that the real percentage of venture-backed startups that fail—as defined by companies that provide a 1X return or less to investors—has not risen above 60% since 2001. Even amid the dot-com bust of 2000, the failure rate topped out at 79%.”
So, by this measure, your chances for success are really in the neighborhood of 20 to 40 percent. Not too shabby. But if you’re planning on investing your savings to build your dream: 1) don’t skip researching why other startups fail and 2) proactively learn from their mistakes.
Why startups fail
When the research experts at CB Insights studied 101 failed startups, participants reported that “tackling problems that are interesting to solve rather than those that serve a market need was cited as the number one reason for failure, noted in 42 percent of cases.” The good news is market research can help you determine if you have a product fit before you end up with empty pockets.
How to begin researching your market and product fit
To determine if there is a market need, you need to clearly define and establish who you are targeting. You can begin to gauge a market need by listing the characteristics, such as job role, applicable industries, size of the company and most importantly, what problems you are solving for them. This is usually referred to as a target persona.
Next, research companies already working in this space, including their strengths and weaknesses to pinpoint your competitive advantage. Chances are you’ll find yourself in a scenario where you’ll have to convince a prospect who is a customer of your biggest competitor. Is your product or service enough to have them switch to your company? Do you solve a different problem altogether? You either have to be able to solve problems that their current provider does not or benefit them enough to win them over. In other words, you need to have a product (or provide a service) that has evidentiary proof that is solves actual problems.
There are several steps to begin your market research:
- Talk to a representative at your local Chamber of Commerce or Small Business Development Office
- Prepare a pitch deck that will help you zero in on your competitive edge
- Find friends and colleagues, who mirror your ideal customer, and pitch them to get their feedback (or better yet, conduct primary interviews with potential customers)
- Collect all feedback and data
- Use your research to develop and refine your minimum viable product
- Objectively review your data to gauge a market
- Ask yourself if your product still viable based on your target audience and initial feedback
While this is a high-level overview of what you need to determine product-market fit, there is an abundance of free resources out there to help you in the process. Investing the time in conducting market research is sure to save you time and money in the long run.