The Best Way to Determine Market Need is Also the Most Labor-Intensive

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A clever Malcolm Gladwell New Yorker article a few years ago looked at why the ketchup segment was so dull. In the condiment world, mustard was a hotbed of competition of creativity, ketchup was a relative backwater.

It wasn’t that people weren’t trying. But as startup after startup found, people liked Heinz ketchup just fine and didn’t see any room for improvement.

Many startups are learning a similar lesson. A recent study found that the main reason startups fail is that there’s no market need. Often, startups are more interested in solving a hard problem than solving one that’s of interest to consumers. Too often, founders get an idea and fall in love with it. They get a squirt of endorphins which drives them to follow their dream into oblivion.

The reality of running a successful startup is more prosaic. Rather than chasing their dreams, founders need to get out of the office and talk to actual users and potential users of their product. That’s the only way to find out if your vision has any overlap with reality.

The competitor trap

In the early stages of exploring a business idea, when startup founders look at a segment, they look at potential competitors. Competitors are a double-edged sword because that means that someone else has already figured out that there’s a viable market. It also means you are just an upstart against a company that has already created a market and customers. One path for startups then is to simply copy what the competitor is doing.

The problem with this approach is that if you orient yourself towards your competitor, then you’re implicitly believing that your rival is better at figuring out your customer’s needs than you are. It also may lead to price-based competition and lower margins since you don’t have anything unique to offer your customers.

Aping rivals is a lazy shortcut. As Bill Aulet outlines in his book Disciplined Entrepreneurship: 24 Steps to a Successful Startup, startups are better off going after a totally new market. Aulet suggests identifying 6 to 12 markets (like 25-34 year-old Boston men who play videogames) and heavily research those markets before you make your next move. That process should take a few weeks.

Getting over the hump of confusion

As Aulet suggests, the best way to get info about the market is to practice a vigorous form of market research. There’s no formula about how many people you should talk to. There is a number for every startup that is between too few and too many though.

Here’s how to know if you’ve reached that number: you need to talk to enough people so that you are thoroughly confused at one point. That’s because you will hear contradictory opinions and wonder if you have the next Uber or the next Segway. Push through and you’ll get over that hump of confusion and see similarities in the market. You might notice that a subset of customers are very interested in your idea and that’s true for pretty much everyone you meet in that subset.

There’s no guideline on how to determine market need, but the answer seems to be the more labor-intensive, the better. For instance, Scott Cook got the idea for what would eventually become Intuit because his wife complained of having to do the bills. Cook, a former Crisco brand manager at Procter & Gamble, wondered if other people felt the same way.

Since it was the early 1980s, Cook got the Palo Alto and Winnetka (Illinois) phone books and called people at random to ask how they did their finances. Cook then canvased consumers to ask them if they had used the then-marketing leading financial software. It turned out that 65% of the people he interviewed had tried it but only 4% were using it, according to his research.

To Cook, that revealed that they liked the proposition that the financial software companies were making but hated the product. That was valuable information since Cook knew if he built a product that addressed those needs, he had a shot at taking market share.

That type of customer focus is too rare. Too often, startup founders have an “If you build it, they will come” philosophy. As makers of the doomed artisanal ketchup segment discovered, that approach only works in the movies.