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Market and Customer Validation for Startups


Unable to find a market kills 42 % of all startups

The number one reason why most startups fail is because there is no market need for their product or service. Different surveys have looked into this and some state that it is as many as 42 % of all the startups who close down due to lack of market.

The situation of a startup lacking the market can look different and come with many explanations why the market is lacking.

“We ran out of cash”, “the founder team pulled in different directions”, [insert reason of your own choice], but at the end of the day it comes down to the fact that 

  1. The business model or product did not resonate with enough people to an extent so they would buy it.
  2. You were not able to change your business model or product so you could attract different people then you first intended.

Note that we should talk about A market and not THE market. A market is not static or a solid material which can be dug out of the ground, but should be discovered. 

A market, like undiscovered land will look different depending on the way you explore it and which “glasses” you are wearing. A group of people can not be a market for a product, but with changes in features or with a different business model applied, they might.

How can you as a startup founder explore a new market and enhance your chances of success finding your customers?

Be a Marco Polo

Like the famous adventurer, Marco Polo who traveled along the Silk Road from Europe to Asia in 1271 and 1295 you are also an adventurer exploring unknown land. What you will find depends on how well you are prepared, how well you adapt to changes on your journey and what you set out to find. 

You might already have been asked the question: A) “how big is your market?” or B) “who are your customers”. Two important questions, which at first could sound the same, but they are not.

Staying with the adventurer analogy a bit longer you can compare the two questions with A) “How big is the land in square kilometers” to B) “What does the land look like and are there people living there?”.

“How big is your market” is a quantitative question where the answer can be summed up in a number (and often a very big number for startups). The question “who are your customers” on the other hand is a qualitative question, which can’t be answered meaningfully using only numbers.

Not surprising, answering the two different questions will also take different methods.

Photo by Holly Mandarich @ Unsplash.com

Setting out…

So, where should you start? It depends. 

Have you extensive experience selling or launching products to the same customers for previous jobs or startups or do you have little or no knowledge of the product and customers you are about to explore and? Depending on your situations your approach would be different.

Learn how Retest Security used their industry knowlede to do their market validation

Nevertheless your starting point, it is important to stay humble and curious because what you think is unchanging truths might not be applicable in your new setting and context.

Selling software in a large company is not the same as doing the same in a startup. The experience helps off cause, but the context and framework is very different.

TAM, SAM, SOM

If you are looking for the “how big is your market” answer you will properly run into TAM, SAM and SOM. Three acronyms that represent different subsets of a market.

  • TAM or Total Available Market is the total market demand for a product or service.
  • SAM or Serviceable Available Market is the segment of the TAM targeted by your product which is within your reach.
  • SOM or Serviceable Obtainable Market is the portion of SAM that you can capture.

Here more traditional and quantitative market research methods are used. You might be able to find various reports stating that a given market is worth X amount of millions or billions, but will that help you get customers to buy your product? The short answer: No!

Photo by Tim Mossholder @ Unsplash.com

 

Who and Why?

So start setting out to find the answers to the questions: who are your customers?, why would they buy from you?, what are their pain points?, how can your product help them get rid of those pain points? And how do you create value for them?

Ok, Marco Polo! What do you need to make a successful journey? Well, you need a map and insights into local customs and language. Let’s dive into how.

Your map: The Value Proposition Canvas

The Value Proposition Canvas developed by Strategyzer is an easy to use tool for creating hypotheses on what problems people have and how you can help solve them. 

The Value Proposition Canvas is inspired by the great work of Clayton M. Christensen et al about exploring your customers “Jobs to be done”. The short explanation of “Jobs to be done”  is when we buy a product, we essentially “hire” that product to help us do a job. If it does the job well, the next time we need to solve the same “job”, we tend to hire that product again.

Using the Value Proposition Canvas is therefore a great way to get an overview of who your customers are and how your product provides value to them. You might discover that your customers are not a single homogeneous group, but consist of different groups, which is why you just create a Value Proposition Canvas for each of your customer segments.

Find the Value Proposition Canvas and more info on how to use at the Strategyzer website: https://www.strategyzer.com/canvas/value-proposition-canvas

Photo by Mauro Mora @ Unsplash.com

Learning the language and local customs: The Mom Test

When you have mapped your Value Proposition Canvas you can with your new knowledge and insights move on and use The Mom Test created by Rob Fitzpatrick to further learn about the customers you think you have. 

The Mom Test is a framework for how you engage in meaningful talks and dialogues with customers and how you get useful insights from the conversations. The Mom Test brings forward a bold statement. That is: “Everybody lies to you, even your Mom”. Why? Because you ask the wrong questions and they (including your mom) would rather lie than hurt your feelings by telling the truth. 

If you are not mindful about how you talk to people you can easily fall into the trap of trying to get the acceptance from the person and direct the talk so you leave the conversations with a false positive result. That is why one of Rob Fitzpatricks advice is that you should avoid asking the worst questions ever: “Do you think it’s a good idea?”

The Mom Test is a simple, yet powerful way to learn if you truly can create value to your customers, which is shown in their willingness to buy your product. NOT giving you compliments.

Quick intro to the Mom Test

The Mom Test is guidelines for making questions that even your mom can’t lie to you about. How?

  • Talk about their life instead of your idea.
  • Ask about specifics in the past instead of generics or opinions about the future.
  • Talk less and listen more.

You should stay away from and be very cautious of compliments and fluff:

  • Compliments. Avoid it by not mentioning your idea. People will try to protect your feelings.
  • Fluff 
    • Generic: I always
    • Future-tense: I would, I will
    • Hypothetical: I could, I might
    • The world’s most deadly fluff is: I would definitely buy that, if…

There are many more great insights and takeaways that you can explore here https://www.momtestbook.com/ and in his book.

It is never too late to go on an adventure

We have now looked at two ways to strengthen your market and customer validation practice. Many more tools and methods exist, but this is a very strong starting point. 

You might think that you are past the point where you should think about market validation. Who your customers are and why they buy your product. You have maybe done many customer interviews, sales meetings and talks. But you should keep learning and stay curious on ways to improve your market and customer validation practice.

Remember that it is never too late to go on an adventure. So, buckle up Marco Polo, enjoy the adventure and keep validating.

 

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