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So, you have come up with what you believe is a great idea. You are convinced that there is a problem and you have a solution that customers are going to love. Now, you just need to raise some money to make it a reality. Sound familiar?
For the past 17 years, I have worked with hundreds of aspiring entrepreneurs at Babson College and across the country in both my role as a professor and advisor for the Butler Launch Pad, as well as in my own private work. This is probably the most common scenario I have encountered. Entrepreneurs often bypass the most important question. It’s not how to start the business, but should you start the business?
Surprisingly, you are not alone. Research such as that by CB Insights, Tom Eisenmann and Kirol Kotashev has found that one of the most common reasons for new venture failures is lack of a market. In other words, the entrepreneur created a product or service that did not have enough customers willing to pay for it.
Fortunately, this mistake is largely avoidable with a little front-end market research. Here are three tips to understand whether your venture idea is worth pursuing.
Related: Is Your Business Idea Any Good? 5 Indicators That It Isn’t
Know who your customer is (and who it isn’t)
The first step is figuring out who makes up the market for your particular business. Your customers are whoever will give you money, and you need to know who they are so you can determine if there are enough of them to make the venture worth your time, energy and money. Why they would be interested in your product or service?
One question that is often overlooked is whether they feel they have the problem that the product or service solves. This may sound obvious, but you would be surprised how many entrepreneurs collect lots of information from people who are never going to be customers.
Next, make sure they see it as a problem worth paying to solve. I remember trying to sell diesel engines to a Russian truck manufacturer in the 1990s. We explained that we could save them fuel and help reduce emissions. The response was that diesel fuel was cheap and it was nice that we cared about the environment but they didn’t. They were never going to be a customer — they didn’t perceive either of these issues as being a problem worth spending money on.
Finding who the potential customers are isn’t enough; you also need to know what makes them different from non-customers to truly know how big your market is. There will always be people or businesses that have the problem but are not willing to pay to solve it.
In other words, what makes them interested in buying a solution? The answer is rarely demographics — almost nobody says, “I would pay to solve that problem because I’m 28 years old.” Imagine that you define your market as 18- to 40-year-olds. That implies that someone might say, “Wow, I love the idea of a solution to this, and if I hadn’t just turned 41, I would have paid for it.” Demographics are almost never what truly makes someone a customer.
Related: Get Picky With Your Clients — How to Identify and Attract Your Ideal Customer
Know what they are willing to pay for
Next, you want to make sure you understand what they are willing to pay for. In other words, what does your solution need to provide them to make them willing to part with their money? You don’t want to waste time and money on features that aren’t needed or that won’t get your customers to buy.
One thing to understand is how they solve the problem today. If they haven’t figured out a way to solve it, there is a good chance they don’t care enough to pay for a solution regardless of what they might tell you.
Next, what do they like and dislike about their current solution? Why are those things important to them? This will help you understand what features and benefits are valued and desired so that you focus on crafting a solution that truly addresses their needs.
Finally, you need to understand what aspects of a solution are key to the buying decision. What would entice them to buy one solution over another? Why do they use their current solution versus alternatives? Knowing this can ensure that your efforts are focused on the aspects of the solution that are more likely to result in a purchase. Additionally, it will also help you down the road in creating a marketing message that will resonate with your customers because you know what is important to them.
Related: Why Do Your Customers Really Buy from You?
Always ask “why”
Both in my work with entrepreneurs and in my previous career working in market and product research, I have learned that the single most important question in understanding potential customers and their needs is “Why?”
If one person is willing to pay to solve a problem and another isn’t, the answer to this question will give you insights into what makes these two people or businesses different and is the key to defining your potential customers.
You want to understand why certain features or benefits are important as well as why a solution is important to that particular customer. Customers often want everything. By understanding why, you will understand what they actually need.
Finally, people often try to tell you what they think you want to hear. However, to make a decision on whether to pursue an idea, you need the truth, not just something that will make you feel good. It’s much harder to explain “why” if the first response isn’t truly what they believe.
For some entrepreneurs, it can be uncomfortable to approach strangers and gather information, but it is the best way to understand whether or not your idea is worth pursuing. While a number of factors that can affect new venture success may be out of your control, ensuring that you do this work upfront can help you avoid one of the most common.
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