The first thing to do in new venture creation is to define the problem you are solving and build a deep understanding of the market and customers. Leading with the solution is a rookie move! A little bit of pre-meditation goes a very long way. Note that some people misinterpret “Lean Startup” as “build it and iterate it until you get to product market fit”, but Lean Startup actually starts with a customer development / customer empathy stage before the Minimum Viable Product (MVP) comes into play. And building knowledge about the market and customer maps to that stage.
In this module, we will cover two sets of activities entrepreneurs need to take on in order to build knowledge about their market and customer.
- Defining and sizing the market: We will cover problem definition, market sizing and analysis and market segmentation.
- Understanding the customer: We will cover market selection, customer research and stakeholders / personas.
Market sizing and analysis
When choosing problems to solve in a new venture, one critical question to answer is how big is the market. How many people have this problem? What is this problem worth to them? An hour or two of secondary market research can go a long way towards helping you decide whether you are solving an impactful problem or whether your problem statement is a bit too niche.
In big companies, market sizing involves buying analyst reports for thousands of dollars yet, subscribing to an analyst portal such as Gartner, IBIS World and the like for tens of thousands of dollars. In a new venture we don’t have this type of budget. Here are a few pro-tips on doing quick and dirty secondary market research on a budget.
Hubspot has a great article that explains what these terms mean: Total available market (TAM), Serviceable available market (SAM), Serviceable obtainable market (SOM). Typically, investors look at TAM to see if it is big enough to be interesting, and entrepreneurs look at SAM for short term opportunities.
Market segmentation is a frequently overlooked step in venture creation. Entrepreneurs often lock and load on a specific target market without considering their alternatives. This can be expensive – if you pick the wrong area of focus, you could spend years building the wrong solution. Thoughtful segmentation coupled with primary market research to build knowledge about the customer will pay dividends for years to come and is very worthy of a few weeks of investment.
In this module, we will define terms and provide actionable advice on how you might come up with a segmentation framework for your own venture.
Qualtrics has an excellent article demystifying market segmentation and explaining the 5 types of segmentation frameworks. For venture creation we strongly recommend behavioral segmentation followed by firmagraphic segmentation (for B2B) or psychographic segmentation (for B2C).
Once you have segmented your market, you will need to pick one segment to proceed. This is called the the beachhead market (BHM). The basic idea is to identify, land and get established in a tightly defined market. You can then use that as a strategic base to expand to adjacent markets. This is also known as the land-and-expand strategy.
As a new venture you have very little time and resources. The beachhead market approach enables you to leverage your limited resources in the most effective way possible to help you get established. Following are articles that explain the idea and help you select the BHM for your own venture.
Entrepreneur.com has a recent article that provides an introduction to the thought process for selecting a target market.
MIT's Professor Bill Aulet has provided access to an editable worksheet from the Disciplined Entrepreneurship Workbook that helps you select your beachhead market.
With some basic understanding of your target market, it’s time to build empathy with your customers via primary market research. Customer research or primary market research techniques come in two broad categories: qualitative and quantitative. Qualitative techniques involve small sample sizes, and typically include detailed interviews, shadowing, diary studies or the like. Quantitative techniques involves statistically significant datasets collected via low touch, scalable mechanisms such as on line surveys.
A new venture starts by doing discovery research to understand the needs and wants of the end user and other stakeholders involved in the buying decision (more on this later). Discovery research is best done with qualitative techniques where open ended questions can be addressed with open ended responses. These techniques also help you build personas that can guide product development. Once you have a holistic understanding of your customer through qualitative research techniques, you can move on to quantitative techniques such as online surveys.
Following are some resources that can get you started on the journey to learn how to do primary market research.
Following are three resources by Professor Elaine Chen of Tufts on primary market research. Enjoy!
- The Three go-to techniques in primary market research - on Huffpost
- Scaling customer development - on Huffpost
- A primer on primary market research - on SlideShare
Hotjar, a data analytics startup, has posted a really excellent article that discusses the ins and outs of primary market research - specifically, lean market research, which is what we need to do as entrepreneurs without hiring an agency.
Stakeholders and personas
When you are building a new business, you need to consider the full suite of stakeholders who may be involved in making a buying decision. These stakeholders may include:
- Economic buyer or decision maker: The person who authorizes the sale
- Champion: The person(s) who advocate for your solution to the economic buyer/decision maker
- Influencer: People that the economic buyer or champion consult for input about the buying decision
- End user: People who use the solution
- Veto power: People who can shoot down the whole thing
Sometimes one person can occupy more than one stakeholder role. For B2C businesses the end user may be the economic buyer. For B2B, it can get complex.
To build knowledge about each stakeholder, we conduct detailed interviews and/or do shadowing research, then create a fictional, composite description called a “buyer persona” that summarizes key takeaways. Following are some articles that help you create buyer personas.
Download a simple persona template that provides you with the following structure for describing your persona:
- General description
- Needs & Goals