This article was originally run in the Union Leader on September 25, 2023
You have a great idea. You have talked to your friends, your family, maybe even some potential customers and you have gotten great feedback and it seems like you have something great.
Before you spend your nights & weekends launching a business, you need to do customer research to ensure your product’s success.
Is the potential market for your product big enough that it’s worth investing your time and money into it? If you are seeking outside investors, they want to know this and they want the TAM (Total Addressable Market) to be big. If it’s small, you can create a nice lifestyle business, but investors won’t be interested.
Figuring this out depends on the type of business you are pursuing.
Are you making an existing product but better in some way – better features, easier to use, much cheaper than existing products? In this case, you can probably get research reports that tell you how big the market is for existing products. If you can’t find industry reports, network with people in the industry. You can learn a lot about the sales and size of it from experts.
If you are inventing something totally new, then you will need to do primary research to figure out market potential.
Defining Your Target Market
First write down your hypotheses of who your customer is and what problem you think you are solving for them.
Now start interviewing people in your theoretical target market. Ask them questions about their pain points. How do they solve the problem now? How satisfied are they with the solution? What do they wish was better? Give a rough sketch of your solution and ask for their feedback. I would aim for at least 25-50 interviews if millions of people would buy your product. For B2B or niche products, 10 customers will do.
How Much Will They Pay?
Based on these interviews, you should be zeroing in on the value your product or service gives to the target customer. Put together a list of possible features. Develop a set of price points you think are possible.
You now want to do more quantitative research to better identify your customer as well as which features they value most and what they are willing to pay. All this combined will tell you which people are most likely to buy your product and the market potential.
The most expensive part of this is obtaining the customer panel to survey. You need about 1,000 people to respond. Both Survey Monkey & Qualtrics are survey tools that will also rent you customer panels. You can put a link to your survey out on social media or send it to your friends, but it’s not going to be representative. It’s better to access a survey panel.
What to ask?
In terms of questions, you can ask ChatGPT to help you write a product concept survey. It does a pretty good job. If you want to do this yourself, here are the broad categories:
- Screening Questions. You want to make sure the 1,000 responses you get are in the ballpark. For example, if you are selling a $5,000 grill you want homeowners with high income. Or if your product is a pet product, your respondents need to own a pet.
- The problem. Now ask questions of the customer about the problem they have in this area and what they want to solve it.
- Present the concept. Write a rough sketch of the product and its features. Ask the customer how likely they are to buy. Now show them a combination of different features and prices to see how much they are willing to pay for certain features and how much they value them.
From this data, you will have the demographics of the customers most likely to buy (# people) and the price they are willing to pay. That tells you your TAM.
For pricing it’s best to use a conjoint analysis. If you aren’t a statistician, you might want to hire a consultant to do that part. Qualtrics has consulting services that can help you create a conjoint analysis for pricing and will help you write the survey and set it all up.
While this may seem like a lot, it’s the foundation of your business. You can build your forecasting, customer target persona and marketing plan on this data. It’s also essential to sell investors or potential partners on investing in your business.