Many great products started in the minds of individuals from a broad range of backgrounds. In fact, being inspired by a personal need (called a “pain point”) is a common catalyst of innovation. Yet there is one hard truth to bear in mind: you are the worst person to judge your own idea.
Having an idea for a product is a little like having a child – you don’t want to see it fail. As you begin to invest your money and time, or sweat capital, into your innovation, your judgement will become even more biased. Friends and family – they’re horrible judges of your idea too! Family members are either overly supportive, or will tear your idea to shreds, even if it has merit.
So, before you spend thousands with a contract manufacturer let’s look at how you can accurately vet your idea. If you’re self-financing, or “bootstrapping,” your small business you simply can’t afford to skip this process.
The U.S. Small Business Association defines market research as “the process of collecting and analyzing data and information on a product or service.” Primary data is information you directly collect yourself, while secondary data comes from third parties such as marketing companies, government censuses, etc.
When bootstrapping your small business, you might not have access to the expensive data big companies use to guide their product lines, but there are plenty of great low-cost tools at your disposal. We will discuss a few of these options; as you learn about them, keep the following questions in mind:
- Who is your customer? You should develop a clear idea of your customer. If your product is for consumers, you should have a clear understanding of what demographics your product applies to. Does it apply to a specific age group, or maybe a specific category of consumers? For example, an amazing all-in-one gardening tool you’ve invented won’t find many customers who rent apartments downtown. If your product serves a business-to-business need, understand exactly what type of companies may use your product, including those in industries you may not have initially considered.
- What does your customer need? This is important. Pain points vary between customers – and just because your product is EXACTLY what you need doesn’t mean it’s what someone else might trade their hard earned money for. After you’ve interviewed several customers, carefully examine their needs. Does your product fully address them? If not, what design changes can you implement to ensure your product fulfills the needs of the market?
- Who is your competition? Tread carefully if your product doesn’t have many competitors on the market. While it is possible that you have a completely new and groundbreaking idea, the odds are slim that it’s viable if there isn’t someone else already addressing the need. You should have strong knowledge of what your competition is, including how much it costs and what makes your product superior. Additionally, there could be legal or environmental barriers to entry that have prohibited products like yours in the past, such as a patent or copyright.
- What is the size of the market? Do your best to estimate the total size (in dollars) of the industry your product serves. This is referred to as the Total Available Market, or TAM. Within the Total Available Market is the SAM, or Service Available Market. The SAM is the portion of the TAM that is addressed by your product and within your market area. For example, the TAM for an all-in-one gardening tool would be the annual money spent on residential gardening, and the SAM would be the annual revenue from gardening tool sales.
- What portion of the available market can you capture? Here, you need to be realistic with yourself. Do your best to determine your Service Obtainable Market, or SOM. This is the portion of SAM you can capture, or how much revenue you realistically expect your product to generate.
Cost Effective Market Research Tools
Customer interviews are the best low-cost market research tool. Engage as many potential customers as you can, find out what their pain points are, and (most importantly) listen to them! Your job here isn’t to sell them on your idea. Find out what they want or need; many great products were significantly modified based on customer interviews.
Of course, you’ll want to spend some time on the internet. This is a great way to see who your competition is, what their products offer, what they charge, and how they reach their customers. Large online retailers are a great free resource for this information, but don’t forget to visit applicable brick and mortar stores once things open back up. If you’re serving the business-to-business market and are having trouble contacting the appropriate managers, it may be worth a trip and registration fee to attend an applicable trade conference.
While a lot of in-depth market data is costly, good searching often yields free insight into the size of your market, and even the annual revenue of your competitors. If your product will compete with offerings from large companies, their annual report, full of revenue information, can often be found on their website. Don’t forget about census data – it’s free to access and can provide valuable demographic data in your geographic market area.
If you have some money to spend, there are companies willing to sell you statistics or conduct surveys. Make sure you thoroughly research any market data firms before handing over your valuable cash. Customer surveys can also yield very valuable information, but you often have to pay to reach a broad audience. If you’re interested in conducting surveys, check out the Small Business Association Market Research training video (link below) to get some good tips on crafting a helpful survey.
Make sure you use all of the data sources at your disposal. Relying just on internet searches is a common source of this mistake. Even with low funds, you’ll want to find and use as many market data sources as you can.
Don’t only use friends and family. This is worth re-stating. Friends and family are useful to bounce ideas off of, but they really don’t provide unbiased feedback. Make sure you interview a wide pool of potential customers.
Don’t pay high fees. Unfortunately, there are market research companies that are more parasitic than helpful. If you do choose to spend money on market research, investigate the firm thoroughly, make sure they are reputable, and make sure you’re getting your money’s worth.
Confirmation bias. This is a hard one. It’s human nature to discard the unpleasant, but do your best not to. Don’t focus just on information that supports your product. Your goal is to get an accurate picture of the market, not to confirm that your product is great.
SBA.gov Learning Center – Market Research. The Small Business Association offers a free 30-minute online course on market research. You’ll find some similar information here, but the course goes a little more in-depth on drafting questionnaires and is worth checking out.
The SBA also provides Local Resource Partners. These are great for small businesses to engage with at any stage.
Google Trends allows you to see how search terms are trending. It doesn’t provide raw numbers, but you can see if interest in your product area is increasing or not.
SurveyMonkey is a great tool for conducting online surveys. Plans start at $25/month, but are billed annually – so make sure you’ve budgeted appropriately.
Statista is a well-known marketing statistics portal. A basic account with minimal access is free, and a full single account is $59/month billed annually.
New York State also supports a vast ecosystem of innovation resources to help entrepreneurs grow their businesses and thrive in New York State. Reach out to us at FuzeHub for a free consultation to assess your manufacturing or hardware innovation needs, and be connected with a curated list of NYS resources available to help you.
About the Author: Benjamin Weinberg is FuzeHub’s Engineering Solutions Specialist and our ‘okayest’ staff engineer. He project manages a program that is testing a predictive failure system in robotic cells to help manufacturers reduce their operating costs. He is also an entrepreneur himself and has experience designing hardware prototypes and is bootstrapping his own entrepreneurial endeavors.