Lean Market Research for Startups

Up and to the right bitch

One of my favorite Startup T-shirts until someone pointed out to me: “only Linear growth?” :)

Most startups will fail in their first two years of operation and only one percent of the startups that pitch to VCs will end up receiving funding.

This post includes the slides I presented in a recent talk for entrepreneurs at London Business School on “How to Research Your Market” to avoid common mistakes. Market Research is something that most of us do instinctively, but it’s easy to get it wrong,  so I thought it would be useful to share the presentation with the wider VC Cafe community. Hope you find it helpful.

The presentation covers a lot of ground at a relatively high level, so if you’re looking to go more in depth, below are some select links and recommended additional reading:

Methodology – many models, pick your own

Market sizing

Summary: The first rule of market sizing: go bottom up. When you say that there are a billion an a half people and China and you only need 1% of the market to buy for you to become a millionaire, and you see everyone in the room laughing at best (or asking you very direct questions at worst) you’ll be happy you did your homework here. How will you acquire your first 100, 1000, 10,000 users is a question you’ll need to think about when researching the market. Your answer will be full of hypotheses, which you’ll have to validate later on. When pitching to investors you’ll ideally need to be able to demonstrate the following:

  1. There is demand out there for our product/service

  2. The demand is huge and growing

  3. You can capture that demand by achieving product-market fit (“when, in a survey, at least 40% of users say they would be “very disappointed” without your product or service”, Source)

Competitive analysis

  • Summary: Competition is not a bad thing necessarily. It can serve as validation that you are pursuing an attractive market. Note that investors would rarely accept “We have no competition” as a valid argument. Look deeper and consider substitutes to your product, even if not digital. (i.e. a Todo app competition, could also be as simple as ‘pen and paper”). You need to research and articulate the following:

    • Who are your competitors?

    • What makes you better, faster, cheaper, unique?

    • What is your unfair advantage?

  • Tools –  The method you choose to display the information can make a difference.
    • Attribute matrix (“Up and to the right”) – pick your attributes wisely to show what makes your startup unique. Place your competitors on the grid. For best results – your startup should be top right :-)
    • Lumascapes – See “Save and Print these Lumascapes” and “New Lumascapes on startup funding
    • Owler – previously known as InfoArmy is about to launch a cool product that will help you get this info on your mobile. Sign up for their beta :)

Customer development

Summary: To quote Stanford Entrepreneurship Professor and best seller author Steve Blank, most startups fail not because they failed to develop their product but because they failed to develop their market. One of the most common mistakes founders make is to obsess on their startup idea, spending time and money developing a product (that is usually way too complicated to prove that there is basic demand) without speaking to customers, or understanding their market whatsoever.

I could dedicate a whole blog on Customer Development, but it wouldn’t do it justice. Read about it, learn the tools and practice, practice, practice.

Further Reading:

Using Google for market research

Summary: Apart from “Googling” for information on your market, Google tools can be extremely helpful when conducting market research. This is a partial list only – I’d love to hear your experience on using Google tools for market research.

  • Google Trends – what are the search trends for various keywords. Ability to compare keywords and see what’s on the rise on what’s declining.

  • Think Insights – access reports, stats, break down search data by location

  • Google Analytics and Google Website Optimizer– analyze the traffic and user behavior on landing pages and A/B tests

  • Google Adwords – drive traffic to test experiments – with little budget, it’s easy to test an hypothesis

  • Consumer Surveys – a new paid tool to enable users to tap into the wisdom of the crowd through targeted surveys for Google users.

I know of people that creatively use Google APIs and products like Maps, Youtube and PlayStore to research competition. Learn more about it on Google Developer Tools for Startups.

Startup intelligence tools

 Summary: there are many ways to find competition – take a look at the VC Cafe Startup Intelligence List 2013 to find information sources on other startups. Think you can add new tools to the list? Help other startups by contributing to this Hackpad: http://goo.gl/ORvoC

Questions and final thoughts

One of the questions I received was about the value of MBAs for startups. My advice to MBAs: don’t obsess on market research to a point where it’s “Analysis Paralysis”. It’s important to get out of the building, ask customers and ship a minimum viable product (MVP) early… and then iterate very quickly based on the feedback. It’s important to ‘Nail it Before You Scale It” – no need to spend tons of money and time in proving your first hypothesis.

Another question had to do with entering a crowded market and competing with larget incumbents. There’s many examples of startups that disrupted their market despite their size and that of their competition: Instagram, Spotify, Wonga, Netflix… and many more. They were able to move quick enough to achieve product-market fit while the large players argued on ROI and the risk of cannibalizing their own market.

Eze Vidra

Eze is startup investor and advisor. Until recently he was a General Partner at Google Ventures Europe. Before joining GV, Eze started Campus London, Google's first physical hub for startups, and led Google for Entrepreneurs in Europe. He's an experienced product manager and startup mentor. In 2012 Eze founded Techbikers, a non-for profit supporting children education in developing countries.

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