Market Validation Part II – Best Practices and Tools

[Jeff M]

For this Part II blog post on Market Validation, I will lay out a spectrum of best practices and tools that can be used for market validation.  To get started, let's look at relative costs associated with each of these tools, because you will ultimately need to make trade-offs based on your time/budget.  The red boxes represent secondary market research, which while important, is generic market data that most people (including your competitors) will also have access to.  The blue boxes represent primary market research, which is proprietary domain knowledge that you will create as you better understand the target customer. 

Before going further, let's recall once again why market validation is so important.  The relative costs of doing market validation, are dwarfed in comparison to the cost of NOT doing market validation and building a product that is destined to fail.  It's much cheaper to listen to customers before you build the product, especially if they are telling you that your product idea is not that great. 

Now let's look at each of these tools in more detail.

Secondary Market Research (Generic information)

Secondary market research is a great place to start, and can quickly help you determine the market size and competitive landscape.  I use the following two types regularly:

Market Research Reports.  At NI, we purchases various market research reports in the industries that we operate, they usually cost a few thousand dollars a piece.  You can typically secure the abstract page free of charge, which contains high-level information.  Example companies that offer market research in the high-tech space include Forrester Research, Gartner, EETimes, Frost & Sullivan, VDC, Prime Data, Aberdeen, and many more. 

Publically Available Financials. All publically traded companies (and some privately held companies) have financial information available that you can use to do a "market build-up" and come up with your own projected market size.  What's great about this, is it can be done free of charge.  One of my favorite sites for financial information is ycharts.com, you can dive in by industry and sector. 

Primary Market Research (Proprietary Research for your Product)

The purpose of primary market research tools when doing market validation, is to go beyond the general market data and really understand the customer's needs.  The outcome of this step will help shape your product offering.  Here's a few of the tools I use for market validation, it's not an exhaustive list but I find these to offer a good variety.  Note that each of these have their own tradeoffs. 

Industry Conferences.  You need to get plugged into the market and the best way to do that is attend a conference that specialized in that area.   The primary goal is to make contacts and learn best practices to go deeper with your market validation.   A follow-up activity would be 1-1 interviews with key contacts you meet at the conferences. 

LinkedIn Groups.   This is an inexpensive time investment to get started, and it's free of charge.  Just like attending an industry conference, LinkedIn can help you find experts in your field, and you can use the Groups on LinkedIn to participate in conversations.  The downside is, it still takes work to get something out of this, and I find the face-to-face interactions to be more effective than online mediums. 

Surveys.  If you have a list of contacts that you can reach out to, online surveys can help you collect information efficiently and at a low cost.  I personally use jotform.com as my tool of choice, but there are plenty of options out there.  Be careful with surveys to not ask leading questions, and also keep in mind a survey is not nearly as powerful as a 1-1 conversation. 

Phone Interviews.  Phone interviews are more time consuming than surveys, but also much more powerful.   If someone is willing to spend 30-60 minutes on the phone, that is a pretty good indicator that they are feeling some pain with their current product -- and presumably your product could address that.  The rule of thumb from experts, is to talk to at least 100 people when doing your market validation.

Focus Groups.  Focus Groups are more challenging to pull off logistically, because you'll need a team to execute this.  This is something you can outsource, but they can be expensive.  The results can be very effective though, because you are bringing together a sample group of your target audience and getting in-depth discussions led by a moderator.

Customer Visits.  This is my favorite activity when doing market validation, because you gain tremendous insight by going on-site to a customer and learning about his or her challenges.  A popular book at NI that many of the product managers read, is called "Customer Visits: Building a Better Product Focus, by Edward McQuarrie".  It really offers a "recipe" for how to apply customer visits to gain market insight.  The downside is, if you are a new player in the market, you don't have any existing customers to go and visit. 

Expert Opinion.   My last recommendation is to speak with the experts.  This may also be the most challenging and cost prohibitive activity.  For example, a business tycoon such as T. Boone Pickens may require upwards of $25K for a discussion on energy.   However, in many cases you can get response from an expert without paying a speaking fee -- so don't be discouraged.  I've reached out to experts via email (or on their blog) and had some success with getting responses.   Also, if you aware of a speaking engagement that the expert is delivering, many times experts will stick around and answer questions after the session.

Conclusions

Consider using a range of tools for both secondary and primary research when doing your market validation. 

Secondary market research key points:

• Includes:  Market Research Reports, Publically Available Financials
• Can be easy to access
• Contains general market information
• Generic in nature (available to anyone)
• Can be paid (Market Research Reports) or free (Publically Available Financials)

Primary market research key points: 

• Includes: Customer Visits, Phone Interviews, Expert Opinions, Focus Groups, LinkedIn Group discussions, Survey, Industry Conferences
• Represents your proprietary research
• Can shape your product design
• Requires significant time investment, but is well worth it
• Rule of thumb: Experts recommend you talk to at least 100 customers when developing a new product

To wrap up, remember that perhaps the best return on your investment will be the times when market validation helps you realize that the product idea isn't that great.  It's 10 times cheaper to find out a product will fail, before you build it, then going through with the product launch and then have it flop in the market.