Watch Those Assumptions
Market Research
December 2007 / January 2008
Volume 5 Number 6
It is common for technology entrepreneurs to make assumptions about their business ventures. Without validations, however, acting on those assumptions can really have an impact on proposed business plans and opportunities for success, so you want to be careful in handling them.The most common assumptions fall neatly into categories of the marketing mix, handily enough. Let's examine some of them.
Product Assumptions
Does industry care about your product? This question can be especially difficult for entrepreneurs working with new technology; they just know it's better than what's currently in the marketplace and therefore will be readily accepted.
That can be an erroneous assumption. For example, a number of business plans tout products that can measure particles on extremely small scales. Does it matter to your potential customers? In some cases, it very well might matter.
In others, it may be a level of measurement that isn't meaningful. In yet other cases, the more minute measurements may be beneficial, but some customer processes can't accommodate measurements that small. If you are banking your business (and your mortgage) on your assumption that smaller is better, you should undertake some research to validate your assumption. Perhaps through careful market research you will find that customers do indeed want smaller measurements, but not as small as you are proposing. You can use research to tweak your product ideas before you get into the market and fail.
Customer Assumptions
I met with a client who told me that they weren't sure of what initial markets would be best for them. And that's good: they know they need to do some market research to identify those best first markets. But then they went on to say that they knew who their customers were not. Based on their product, I wasn't as certain that they were not; I felt that their "non-customers" might indeed be a good market for them. So who's right, the client or me? We don't know yet.
It just means that research needs to be done. If the client is right, it's good to have research to back up the assumption on the customer, and along the way the research will probably have yielded additional critical information to help in identifying markets. If I'm right, it means that the client will have missed out on a large and viable market in this case and one that is targeted enough to be able to reach out to in marketing plans.
Process Assumptions
You have a product idea that you think will make life easier for your potential customers. But will it? I talked with a client whose software could potentially save customers a lot of money. It depended on both distributors and customers making changes. This client had worked in the industry in an IT role, and seemed to have good knowledge of the workings of customers and how processes worked. After reading the business plan, I wasn't convinced that the product would be accepted, as he had never talked with potential customers or distributors, both of whom would have to make significant changes in order to implement his product. It could be costly for customers to make changes, and it could involve union folks losing jobs to save money. Distributors may not be willing to make required changes. If you have a product idea that requires changing processes, you need to be sure that customers and other entities are willing and able to make those changes. And you should definitely do this research before submitting your business plan to a venture capitalist. If you are correct in your assumptions, your research can be used to beef up the validation of the need for and willingness to implement your product. It shows knowledge of the market that can be used to convince both venture capitalists (if you are seeking funding) and customers to invest in or buy your product. If you are incorrect in your assumptions, it's better to find out now before you lose all your hard-earned money.
Pricing Assumptions
Most technical entrepreneurs assume that their products must be priced lower than prevailing rates for similar products. If you have validated a strong need for your product, and your product is different in a meaningful way, that is rarely the best assumption to make. You should always test pricing scenarios in your industry before making those determinations. In many markets related to technologies— but thankfully not all—€”pricing follows a downward trend. Why not get as much revenue as the market will bear when possible?
So, go ahead and make assumptions, but follow up and test your hypothesis through market research. You'll feel better knowing you are right, and will accumulate needed information to further funding efforts or customer marketing efforts. If you are wrong, it's likely early enough to go back and make changes to your product ideas or move on to something else to maximize your chance of success.
Betsy Gillette is director of market research and planning for Technology Ventures Corporation.
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