product-market fit

Test 1: How to Check Market Potential for Your Business or Technology Idea

Test 1: How to Check Market Potential for Your Business or Technology Idea

Is there a real need? Is there a market?

[This post is part of a series of blog posts titled “ 6 Tests to Know Whether You Should Pilot Your Idea” and focuses on Test 1: Market. The full blog post series is available in a downloadable ebook. It is covered in more detail in the online course Opportunity Assessment for Entrepreneurs and Innnovators. See also the main overview post and the next post – Test 2: Competition.]

Why is this important?

Dog and food image

“If you address a market that really wants your product — if the dogs are eating the dog food — then you can screw up almost everything in the company and you will succeed.” – Andy Rachleff, co-founder of Benchmark Capital

The number one determinant of success is whether there is a real need. Does the problem really exist? Does a meaningful number of people experience the problem? Is it important enough to them that they will be willing to pay for your solution?

The best ideas come from problems you have yourself. “Why is it so important to work on a problem you have? Among other things, it ensures the problem really exists,” says Paul Graham, founder of Y-Combinator.

How can I check this quickly at low cost?

1. Identify the ideal customer – someone that will love your solution to their problem. If you yourself have the problem, you already have an idea of who this is. If not, think about the most likely customer. Who will jump at the opportunity to use your solution? Write down who they are and what they look like.

2. TALK to some ideal customers. What do they think of your idea? Are they excited about it? How much would they be willing to pay for it? (Friends and family may lie to you out of kindness, so it is better to speak to strangers. But even they might be too kind. The ultimate test is whether strangers are willing to pay full price for your product or service. More about this in the last post in this series.)

Man with magnifier image

3. Get some market data. Do a rough estimate of market size. How many people have this problem? What are they currently doing to meet their need or solve their problem (called the current alternatives)? What do the current alternatives cost?

4. What does the industry look like? If you can find any information on the industry into which your product or service fits, it can help you to assess potential. You should be able to find some basic information on the Internet, including from market report summaries, industry association reports, press releases and company annual reports. There are helpful frameworks to interpret this information, such as Porter’s Five ForcesIndustry Value Chains and Wardley Maps.

5. Where is the market heading? Is it growing, shrinking, consolidating or shifting to a new technology or business model? A growing market provides more opportunity for small players.

A small market size does not mean your idea is doomed. A small customer base that loves your product or service can be a great launchpad for success. “You have to find a small market in which you can get a monopoly, and then quickly expand.” – Sam Altman

6. How difficult is it to reach the market? Are there barriers to entry? Are there companies, regulations, organisations or people that control access to the market? Do you have any obvious channels to market (where will you sell it, or who will sell it)?

Real-world post-mortem – No real need for Juicero

The razor-and-blade business model is a perennial favourite that keeps popping up in new guises. The reason is that it works! Think Nespresso, Sony Playstation, mobile phones. Thus it should come as no surprise that people try to emulate this success for other products.

Juicero was a company that sold a $400 wifi-connected juicer. You buy the machine, and then you buy packets of fruit & vegetable pulp (from Juicero, of course) to be squeezed out by the machine. Juicero raised over $100 million in funding. All good so far, except…. After this video appeared showing that you did not actually need the machine to squeeze the juice, things went downhill fast.

Juicero juice presser image

What was the main reason for its failure? Trying to invent a need that did not exist. Yes, people want fresh juice. Yes, it is inconvenient to press and juice fruit & vegetables yourself. But packaging juice or pulp that you can buy freshly prepared in the local store into a ‘special’ package and then adding on an expensive machine to press it does not solve a real problem.

This was a case of forcing a business model onto a product that did not need it.

Here’s how Jeff Dunn, last CEO of Juicero, tried to convince everyone of the existence of a real need:

“The value of Juicero is more than a glass of cold-pressed juice. Much more.

The value is in how easy it is for a frazzled dad to do something good for himself while getting the kids ready for school, without having to prep ingredients and clean a juicer.

It’s in how the busy professional who needs more greens in her life gets App reminders to press Produce Packs before they expire, so she doesn’t waste the hard-earned money she spent on them.”

And here’s one of the responses that sums it up:

“This is everything wrong about Silicon Valley in one note. A sort of unique sense of out of touch that makes people who ship chopped vegetables at 4000% markup think they are changing the world because of a nice looking app. And then they feel appalled that real people don’t see it that way.”

The lesson? Existence of a real need is critical.

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In the next post in the series I discuss how to test your idea against the Competition criterion.

Let me know in the Comments section what you think of this method or if you have a good example of where things went wrong based on the Market criterion.

This methodology is part of a Moolman Institute online course called Opportunity Assessment for Entrepreneurs and Innovators. The course guides you step-by-step through the 6 tests and provides you with a set of practical tools and templates to make it as easy as possible for you to get to product launch or idea demise.

If you would like more useful content like this or get notified when the next course launches, subscribe to the Moolman Institute newsletter on the home page.

Photo of pug by Charles PH on Unsplash. Photo of magnifying glass by Marten Newhall on Unsplash.

Posted by Sean Moolman in Opportunity Assessment, Technology Commercialization, 0 comments