PRINCIPLE 10
Research the Market;
Narrow the Options; Act!
Henry Ford once said, “If you asked people who have a horse and buggy what they want, they will probably say a faster horse.”
It is a good point. People are not always good at envisioning the kind of new products they need. It is up to you to create alternatives for them.
The questions are always the same, whether you’re someone barely out of your teens starting your first venture, or a serial entrepreneur:
1. How do you know you truly have a good idea?
2. How do you know that the idea is absolutely the best one to pursue?
Surprisingly, the path you take to find out the answers is the same in either case.
Invariably, if you’re inside—or used to be part of—a big company, your first inclination is to study the problem to death to make sure you have the best idea possible. You’ll survey the marketplace; read every analyst report ever written; visit with hundreds of potential customers. Only then do you come up with prototypes or mockups that you subject to endless market research and focus groups.
But the time you’re done with all that, someone else may have taken advantage of the customer need you’ve spotted, or the market has moved on.
No, the best way to do research—as we talked about before—is to go into the marketplace and ask someone to buy what you have.
I want to expand on that point for a second. The key is: Will they buy what you’re offering? If you ask if they like the product or service you’re thinking of offering, they’ll probably say, “Yes,” if for no other reason than to be polite. They know you’ve worked hard to come up with this idea, and they don’t want to hurt your feelings.
There’s a huge problem with market research in general and focus groups in particular. People tell you what they think you want to hear instead of the truth.
That’s why you want to know if they’re actually willing to pay for your potential offering. If, as the cliché goes, they’re willing to put their money where their mouth is, you’re probably on to something. The moral here: It’s wonderful that people say nice things about your product, but don’t take those kind words too seriously until they pull out their checkbook.
RESEARCH CAN BE A CRUTCH
When I see someone being overly dependent on doing research before going ahead with trying to sell a product or service, I think to myself, “This person is not a calculated risk-taker.” She can’t figure out if what she has is worth pursuing, and she’s too timid to take the idea to the market.
You can’t go anywhere if your boat is tied to the dock.
THE RESEARCH YOU SHOULD DO
So, does this mean you do absolutely no research? No. You only do the minimum necessary. That being said, as we alluded to earlier, one area you don’t want to skimp on is what your competition is doing. For one thing, odds are that they’ve probably invested in a lot of expensive and comprehensive research—the bigger the firm, the more research they’ve probably done—and you can then piggyback on their work. For another, your next opportunity could come from just “improving” what they’ve introduced. It’s remarkable the number of additional opportunities you’ll be able to think of once you see the new product/service they have unveiled. You can improve on what they have and prosper. It really makes sense to see what the competition is doing, in order to determine if you can improve on it.
GENERATING THE IDEAS
There are some people who believe that when it comes to researching the market, you want to be remarkably focused from the beginning. You should try to come up with one big idea almost immediately and then refine it—correcting flaws, adding and eliminating features, etc. They will tell you this is the most efficient approach, one that allows you to move the fastest.
I disagree. You want to get as many ideas as you can—and have those ideas, if possible, come from many different sources. If you surround yourself with people who are just like you—your age, background, and experience—you will, not surprisingly, get similar ideas. Get people of different ages, backgrounds, and experiences in the room; explain the challenge (“We need to expand”); and let the ideas fly.
Ideas don’t need to be targeted toward solving a specific problem. You can hold idea-generating sessions—and there are countless books and people who can help you do that—where the goal is “just” to come up with as many ideas as possible.
Let me stress this: You need to take the process seriously. If people suggest good ideas and those ideas are feasible, you need to give them a try. The worst thing you can do is what a major corporation did. They sent their middle and senior managers on a corporate retreat for a couple of days. The idea was to generate new ideas, and working as a team, they came up with dozens. They then narrowed the list down to a handful they thought would have the most impact on the company. They went back to work and presented their best. Unfortunately, top management told them, “They will never work.” Not one of those ideas was even tried.
Do you want to guess whether those people volunteered any ideas again?
THINGS CHANGE
The fascinating thing about researching the market the way we are talking about is that while the approach you take doesn’t change, you do, and the market does as well. New players are entering the field all the time; market conditions shift; your competitors do new things.
But the biggest thing that probably changes is you.
You get older, more experienced. You get exposed to more, and so you have a more refined frame of reference. The more you look at something, the more knowledgeable you become.
That’s why, if you are relatively new in business, drawing on advisers can be a very good thing. They will have the experience you lack.
HOW DO YOU BEGIN TO NARROW DOWN THE OPTIONS?
Once you come up with a list of promising ideas, you need to narrow down the list, and how you do it depends on where you are in your company’s evolution and your own career.
If you’re just starting out and money is extremely tight, you need to concentrate on the idea that has the ability to start generating revenues quickly. If it’s going to take $100 million to get under way and there’s absolutely no way you can raise that kind of money, it doesn’t make any sense to pursue a market that may be worth billions. You’ll simply run out of funding before you get anywhere near the finish line. (As we talked about before, you never want to run out of money on your first venture. If you do, it’ll be extremely difficult to persuade anyone to fund you for a second attempt.)
As your company gets a bit more established—say you’re researching your second venture—you have a bit more flexibility when it comes to what you want to pursue. For example, you may have come up with two truly wonderful ideas. While one has the potential to have twice the sales of the other, you’re absolutely passionate about the smaller of the two. In this case, you may decide to pursue your passion. Pick the best idea, based on where you and your company are in your evolution, and don’t look back.
SLOW HORSES AND BAD IDEAS
There are a number of reasons why the horse-racing business is fascinating. Here’s one of my favorites.
Most horses are sold at yearling sales (when the horses are one year old). The buyer can inspect the horse and watch it walk to see how physically correct its stride is. This is a good indication of how well the horse will run and how physically sound it will stay. They will also look at its pedigree, but not much else. Other horses are sold at two-year-old sales (when the horses are two), and there the buyer can watch the horse walk and work in “short workouts,” as they run over small distances, which is somewhat helpful. But since the actual races the horses will run in are longer distances, you have to make an educated guess on how the horse will perform when it counts.
Therefore, it’s not uncommon after a buyer has spent hundreds of thousands of dollars buying a potential racehorse to discover that it simply can’t run very fast for a longer distance in actual races. This is clear when the horse finishes substantially out of the money after a number of races. Many owners refuse to admit they’ve made a mistake. Instead, they will blame the circumstances—“It was a slow track” or an external factor; “He has gotten a lousy post position each time”—and they’ll constantly change trainers or the types of races the horse will run in. In fact, they’ll do just about anything other than admit that their animal is slow.
Sometimes—whether we’re talking about new ideas or racehorses—things don’t work out. If that’s the case, accept that fact and move on.
When do you know it’s time to quit? There are always extremely clear signs:
1. You run out of money . . . and you have no choice.
2. There are no repeat orders, or extremely high returns. Without repeat business, you can’t stay in business very long.
3. A new competitor, with a similar or better product, comes on the scene, and the only way you can compete with them is on price.
4. You decide you want to do something else, a decision that could be based on 1, 2, or 3.
FOUR TAKEAWAYS FROM THIS CHAPTER
1. Study the other guys. The most effective form of research is to observe what the competition is doing and then do it differently; better, cheaper, or faster.
2. Count your chips before you begin. If you only have a limited amount of money, you need to concentrate on developing new products and services in the area where you can get the biggest return the fastest.
3. Get out into the marketplace as quickly as you can. It’s the only way you can really tell if you’re truly on to something.
4. Don’t stay too long. As Kenny Rogers once sang, “Know when to hold ’em and know when to fold ’em.” If your idea isn’t working, and it can’t be fixed (at a reasonable cost and within a reasonable amount of time), accept that and move on to something else.