#007 - Market Research - A Misunderstood Concept
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When a great team meets a lousy market, market wins.
When a lousy team meets a great market, market wins.
When a great team meets a great market, something special happens. - Source
Let’s go over why you should care about Market Research as an Early Stage Startup founder.
Having worked with a lot of startups, one thing gets clear pretty fast. Most of them are being built on whim and pure intuition. There’s a reason 90+% startups fail to get off the ground – makes you wonder why 🚀 is the universal symbol for a startup.
Most startup founders will get that ‘one idea’ which they believe is the be all and end all. And then most will continue to build upon it without any research or understanding of the market.
Now don’t get me wrong, I have seen the other side as well. Where every decision and every direction is being over validated – which has its own problems. There is a reason intuition is as important as data and research when it comes to landing success with a lot of products.
I am sure you have heard of the phrase ‘you only have to be right once’
But here’s my take, with the right research and efforts.
You can avoid being wrong a lot of times.
In my experience the best place to be is the middle of it all. Lead with your intuition then plan smart efforts into validating key areas around your idea. Enters my spin on conducting Market Research for early stage startups.
Having been on the frontlines for over a decade now, I have a pretty good handle on what is important and what is not – for most. You can google ‘Market Research’ and find a hundred ways of executing one – the issue is that most don’t deal with what you need as a startup at an early stage.
The goal behind my targeted market research methodology is to help you tackle 3 things:
1 – Understanding your competition
2 – Understanding your market position
3 – Understanding the trends in market
Breakdown of my Market Research Methodology
When looking for outside help with market research, your priority should be getting someone who has experience with what matters for your startup. Consultancy and advisory businesses have a bad rep with transparency. Most service providers will hide foundational information before the first check clears out. I try my best to go over the breakdown of every step in the Product Dev process - so here’s all you need to know.
As an early stage startup you only need to focus on a few select areas for your market research needs.
Overcomplicating the process can take you two steps back with one not going forward.
Here is what you should aim to lock in as early as possible when building your Product:
Competitor Analysis for your direct, secondary, and indirect competitors
SWOT Analysis for your business position in the market
Elevator Pitches to get help with the messaging of your product
Market Trends and Learnings research to help you make decisions
The end result is to give you a full picture view of where you currently stand in the market.
Market is by far the biggest reason behind failing early vs growing 10x.
You can use the outcome of this engagement with every decision you plan to make for your startup till its a scaleup.
Having said that, let’s go over crucial components behind an effective market research engagement.
Market Research of Competition
Can’t say how many times I have heard this
“We have no competition”
And though you might be right, in most cases you will be wrong.
And actually be surprised to find out how wrong you can be sometimes.
See when it comes to software development, democratization of how to build and distribute tech means anyone with the right skillset can go out and build an app.
Synchronicity is at an all time high when it comes to providing digital services (or digital anything for that matter). Most of what exists in the market has usually been done before or is just a transformation of an existing concept.
So even though your idea might be unique, the execution of it doesn’t necessarily have to be. They say ‘don’t reinvent the wheel’ for a reason.
Researching the competition for your product can be done in multiple ways. If there is no exact match, we can go for secondary, or indirect, or tertiary – the semantics go on.
But wait, what is the difference between all these? Glad you asked.
Direct Competitors
In simple speak, direct competitors are the entities who offer the same product and services, in a similar market, at a similar price point.
Secondary Competitors
The scope of secondary competitors is quite similar to direct – only difference being the market. Secondary competitors usually have the same product BUT either target a different market or a different price point.
Indirect Competitors
Lastly, indirect competitors – flip it around. They have the same market to yours BUT have a different product and/or a different price point. To put it simply, they have certain aspects that you should aspire to have in your own product or service as you are committing to the research.
Once the list of competitors is ready we take a mix of qualitative and quantitative approaches towards ranking them. How this is done can vary product to product, but generally speaking the process is as follows:
Key Takeaways and Parameters of Analysis
We begin by writing down some notes:
2-3 positives about the competitors generally speaking
2-3 negatives about the competitors generally speaking
1-2 points on general user experience and findings about the various competitors
This will help you drill down further when you are doing an Analysis based on parameters.
What’s so hard about that?
You need someone with experience writing down what matters. Someone who has written down these takeaways for over a 100 companies. I tend to do a pretty good job at that – hence you’re reading this perhaps. So make sure you work with someone who HAS the necessary experience and exposure.
So then, what are the parameters of analysis?
Fancy speak for different aspects you want to rank.
Below is an example diagram that gives you a list of parameters you can work with, this isn’t conclusive and the parameters could be versatile depending on your product.
Link to source: https://www.antler.co/academy/startup-competitor-analysis
My rule of thumb is to stick to a maximum of 5 parameters.
Typically speaking – If I am doing a competitor analysis for a product based business then my go to are User Experience, Design Sense/UI, Unique Selling Props, Content and Messaging, and Pricing points.
If I am doing a competitor analysis for a service based business then my go to are Customer Reviews, Service Areas, Client Onboarding process, Content and Messaging, and How they work/Contract policies.
You have your competitors, and now you have some numbers – fun, let’s move on.
Differentiating yourself with Market Research
As an early stage startup, your initial focus should be playing on your strengths and generating the most interest in your product.
Finding your voice in the sea of ‘innovation’ and ‘bleeding edge of technology’ can often be hard.
Differentiating yourself in the ever growing landscape of products is a challenge. I for one aim to help you here.
But before we get into it – did you know market differentiation and product positioning are not the same thing?
Ah yes, semantics! – but it can be important.
Basically it’s a perspective difference –
Product positioning involves shaping how potential consumers perceive a product.
Market differentiation, or product differentiation, occurs when a company employs strategies to demonstrate why its product features surpass those of competitors.
Here’s my general advice for any new startup. Especially ones based around a product.
Focus on one problem to start out with.
That doesn’t mean you need to cut on features
That doesn’t mean you can’t be versatile
That doesn’t mean you can’t cater to a lot of needs
What it means is having the right focus. You can only have one right focus in the early stages. Having identified your key problem will guide you as your north star when making any decisions for your business.
SWOT Analysis (strengths, weaknesses, opportunities, and threats analysis)
A term every ‘business’ person knows. Thing is, what makes a good SWOT is the groundwork we have put in so far in this engagement. That is what separates me doing the SWOT for you VS if you were doing it by yourself.
The out of the box perspective we have built doing all that competitor research and parameter analysis will help us write a SWOT unlike others.
As the theme goes, SWOT is yet another tool in your arsenal to help you align your decisions as they come up.
Play to your strengths
Prepare against your weaknesses
Leverage new opportunities in the market
And Stay clear of the threats
Pretty straight forward when you put it like that. But knowing is half the battle, implementation comes later.
Elevator Pitch
Lastly, the elevator pitch – who can say no to a good Shark tank proposal?
Well a lot of people.
But still, this exercise will help you clean up your position when pitching your product to the market.
We will be using a framework (I know I know, sometimes frameworks are good).
The Elevator Pitch framework helps us answer the following questions about your business:
FOR (target customer), WHO HAS (customer need), (business name) IS A (market category) THAT (one benefit). UNLIKE (competition), Business (unique differentiator).
For – who is the target customer for our business. We need to have a specific category to offer a good fit for our services and working style.
Who – we need to identify a need that Company X promises to fill out
The – what is the name of the business
Is A – specific category of services we are offering or the product features we will be offering
That – what is the benefit we are providing to other companies (not same as features)
Unlike – Who are our competing businesses
Our business – What sets us apart from competition
Example: Salesforce (CRM solution)
FOR small businesses without a CRM solution, WHO need to control their costs, Salesforce Is A CRM solution THAT is financially flexible with low initial cost.
Unlike Siebel or managing customer relationships manually, Salesforce is quick to setup and easy to use.
This example is a bit dated, but it does a good job of explaining elevator pitches that disrupt the market.
Once we have a pitch ready, it’s time to get to the last stage of Market Research engagement.
Market Research of Trends and Decision Making
ChatGPT, AI, Crypto, NFT, 5G, IOT, Cloud – what do these all have in common?
They all were the subject matter for every CES in the past years.
Jokes aside though, trends and fads come and go. The biggest mistake I see founders make is falling for the ‘shiny new object syndrome’.
Although leveraging new technology is an excellent opportunity – but is it really for your product? Does your restaurant app really need to mint NFTs with every order of a burger? – pretty sure someone tried that.
Some technologies are good, some are bad – experimentation is important BUT making your product all about the hot new feature – is a mistake.
So what do you do? If not have headlining features?
Have headlining problems.
Fix the disease, not the symptoms.
Use any and all features that will get you to solving your initially defined problem.
Otherwise what will happen is, that hot new feature you have promised, will be cold come next cycle, and then you will be lost in a sea of apps with nothing important to stand on top of.
With everything we did so far, we have all the necessary data – qualitative and quantitative – to have a complete understanding of the market for your product or business.
If you’ve listened to enough decoder episodes a lot of executives are dumbfounded when asked how they make their day to day decisions. Having a good understanding of the problem space and your market will help you answer that question flawlessly – if Nilay ever invites you over.
Understanding the trends in the market are important, but understanding why you are building the product is always the answer.
With knowledge of your competitors, understanding of your strengths, clarity about your messaging, and a strong foundation on how to position yourself – you are now armed to have the best odds at winning the market.
With or without my help – I wish you the best.
As always, thanks for reading this edition of The Rift. If you have any questions or feedback, please reply to the email or leave a comment below.
I do read all the emails I get. I mean it.
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