Over 40% of product failures occur because there isn’t a customer need, according to a 2018 study by CB Insights (USA) about 20 reasons for product failures. Founders are too often, and understandably, impatient to launch. They immediately embark on product development, not knowing whether the market needs this product or not, or who their market even is. The result is a waste of time, finances and resources that could have been avoided.
A Lesson Learned: Failure From a Lack of Market Research before Product Development
In 2014, I began my first startup. I was to build a secure intermediary, platform for transactions when buyers and sellers could not meet face to face. This platform was to operate under an ESCROW model, which is the intermediary that holds money for buyers when there is a transaction. They will transfer money to the seller if and when the buyer receives the goods. Instead of transferring money directly to sellers, buyers make transactions on this platform and transfer money to an intermediary website to avoid fraud.
The biggest problem in online trading is trust, this idea would have solved that problem. Online payment platforms also operate automatically which reduces operating costs to the lowest level, thus increasing profit. This was very appealing to me as an entrepreneur.
However, difficulties appeared during the trial stage, when we began to run market tests. Users did not have the habit of using an intermediary platform, so they had no need for it.
This is an example of a failure on my part to do market research. If I had done market research first, I would have known the percentage of customers who accept online payments was low, and I could have changed the model before spending all my financial resources on developing the wrong product.
Therefore, to reduce the risk of falling into failing startup groups, the first thing the founders should do is to understand the market. You should find, and get to know the customers you intend to market to. You should also research the competitors, to be able to plan an effective and competitive strategy. Competitor analysis is another important facet of market research.
What is Market Research?
Market research is simply the act of collecting information about a target market and analyzing the data collected. Market research can give startups many answers to future business problems. However, the founders should note that, although market research is imperative, it cannot guarantee the success of a business model or business decisions based solely on market research. After all, the market is comprised of people, and people are unpredictable.
Market research can only draw conclusions about the market and guide the decisions of the founder or founders. One can think of market research like a candle in a dark room. If the founders are looking for a door in this dark room, they can find the door much more quickly with a candle than without one.
However, luck is also a factor. A good founder should be able to find the door. Success always depends on founder’s ability to be discerning and flexible if the market research proves to be unreliable.
Market Research Helps Reduce Risk When Making Decisions
Without market research to guide decisions, founders can only make guesses. They will not know whether their product or media campaign is successful until it is too late to make major changes. But if the founder makes the effort to understand more about their users and competitors through market research, their decisions become more and more informed. This helps the founder spend less time and money adjusting for failures when launching a product or running an audience campaign.
SERIOUSLY InvestING in Market Research
Market research is a highly specialized job and it can cost a lot of money. So how is a new startup, with limited capital and staff, in fields such as agriculture, design or programming, capable of conducting market research? This question is the reason that many founders skip the market research process, despite being aware of its importance.
Market research is not just complex analysis with large amounts of data and professional processes. Small scale market research can be done simply by talking to and listening to customers, and even looking at the market yourself.
Imagine if you plan to open a noodles restaurant, the first thing you should do is observing the area around the location. Do the people living in this area like noodles? Are there existing noodles restaurants? What is the income bracket of the neighborhood? There are questions that the startup founders can easily find answers to themselves.
If most people living in the area you intend to open your noodle restaurant in are only willing to pay a price of 30,000VND for a dinner, it will be very difficult for your business to sell a bowl of beef noodles for 50,000VND. By observing the prices of local restaurants, you can easily find the right price and adjust your business strategy accordingly.
This is market research in its most basic form and is just a simple example. You will face more difficult questions in business that will require more intensive market research. Be aware of the importance of market research, it will help you find important answers preemptively, with little trial and error. The focus of your startup should be on users and markets rather than building products based on fantasy. 100 million VND for market research is a bargain compared to losing a few years creating the wrong product or spending billions of dollars on an incorrect audience campaign.