KNOW YOUR MARKET
Anyone who has played Pin the Tail on the Donkey can understand the challenge of launching a new product or service. You’re blindfolded and reaching forward, hopefully closing in on your target but with no way of knowing for sure. The kids who did well in that childhood game always had parents who grabbed their shoulders and lined them up in the right direction. The rest of us blindly wandered halfway across the house.
Knowing your market is like having someone grab you by the shoulders and point you in the right direction. Although you’re flying somewhat blind, your odds of finding a robust market go up dramatically. The reason is simple: Your ability to meet customer needs is strongly correlated to how well you understand them.
In 2005, American companies spent over a trillion dollars a year on outbound marketing, representing almost 10 percent of the country’s gross domestic product. If it were a vertical industry, marketing would rank as the country’s fifth largest, behind manufacturing, government, real estate, and professional services.7 The primary purpose of all this activity is to broadcast product messages out to as many prospective customers as possible. Seth Godin, in his 2005 book, All Marketers Are Liars, wrote that “all marketing is about telling stories. . . painting pictures that they (customers) choose to believe.”8
Granted, storytelling can be a powerful tool, but it is not the essence of business. A more essential issue is whether a business creates actual value for customers, rather than expected or perceived value, the kind created by marketing impressions. A story won’t determine how well you solve customer problems or whether the market is ultimately satisfied or frustrated with your product. Your customer’s experience of your product, not the stories they hear about it, will make or break your business.
This is why, for a new venture, the first and most vital aspect of marketing is the inbound part, the process of listening to the marketplace, learning about customers, and hearing their individual and collective voices. This will be an ongoing, iterative process. What you “know” may be proven wrong, and even well understood markets will change over time. But you can dramatically improve your odds of a solid start—and avoid some major headaches—by understanding the market you are going after.
To keep it simple, there are three basic paths to getting market knowledge before you launch. You can bring it with you. You can learn it. Or you can hire it.
BRING IT - When it comes to really knowing a customer base, there’s no substitute for direct market experience. I’ll always bet on founders who have worked for years in their targeted industry, especially if that includes field roles in marketing or sales, versus those who are new to a market or who have spent no time in the field.
I’ve already noted the value of J. C. Faulkner’s experience prior to founding D1, and every bit of that experience was centered in the marketplace. Over the first ten years of his business career, he took on branch sales jobs throughout the United States, developing broad industry relationships and learning about the market’s cyclical nature and fluctuating rates. In his last corporate assignment before his startup leap, he immersed himself even more deeply in the market, leading a two-year internal venture to evaluate and buy loans from other mortgage lenders across the country. “In order to work with these lenders,” J. C. says, “I had to go in and get their financials and understand their operations. I studied fifty of these shops over a two - year period, and spent a lot of time with all of them. After a while, I knew them better than they knew themselves.”
J. C. then designed his new venture to out-compete the businesses he had studied. Because of his relationships and credibility across the industry, he attracted top talent to run his first sales branches. Right away, he and his new team exceeded their sales projections, breaking even within nine months.
D1 was born in the market. The very idea of the company came not from a product development lab, but rather from its founder’s sales experience, his relationships within an industry, and his ability to see a phenomenal opportunity in the making. From inception, his venture was tightly nested within a known market space.
LEARN IT - Starting a successful business is a non-stop learning process, most of which happens after you’re up and running. But you can improve your odds of a solid start, and avoid some major headaches, by doing your market homework before you start. Studies have shown that effective market analysis can prevent up to 60 percent of startup failures.9
How you collect data, and how much you collect, will depend on the type, scale, and complexity of your startup; how much time and money are available; how much you already know; and so on.
The simplest way to learn about a market is the old-fashioned way. Get out and talk to people whose opinions you trust: potential customers, industry colleagues, and respected competitors. Ask people what they are seeing in the market, how their needs and interests are changing, and what problems and opportunities they are dealing with. Focus on listening to them rather than selling your idea and use their input to reevaluate your product or service. While enhancing your market knowledge, this approach also creates interest in your new business. These conversations plant seeds for future sales and referrals. Build a database of these contacts so that you can keep them informed of your progress as you move forward.
Another informal way to learn about your market is through published sources. Read as much relevant information as you can: industry magazines, research reports, customer databases, census information, etc. The Web is an increasingly broad and deep source of market information (see Appendix B for a list of good starting points for online market research), although the accuracy and quality of Web-based information can be difficult to verify. Plenty of fee-based services are available to provide more reliable market information on sectors most critical to your business plan.
To ensure that you don’t bend the data to fit your preconceptions, hearing what you want to hear, involve others in your information - gathering efforts. A talented marketing consultant can conduct surveys or focus groups in a more detached manner than you, and these professionals can research available data more efficiently, unfettered by your hopes and biases. They can also help you overcome the fact that customers aren’t always able to articulate their deeper motivations. They will say they prefer low-calorie ice cream then take the high - cal stuff home in their shopping bag.
One more word about learning in advance: Don’t overdo it. In the absence of real customers, your data collection will reach a point of diminishing returns. Be sure to do your homework and examine your beliefs about the market you are about to enter, but save a healthy chunk of your time, money, and energy for the rich learning that will come only after your products are out there and the clock is running. In Chapter Six, I’ll explore more thoroughly how to set up feedback and learning loops after you launch to continuously build a better understanding of your customer base and your overall market.
HIRE IT - If you don’t have direct experience in your target market, consider hiring or partnering with somebody who does. In his study of 850 technology startups, Edward Roberts of MIT found that “companies that had a marketing person or salesperson at the beginning did better than those that did not. Having a marketing or salesperson (with specific industry expertise) as a cofounder seems to be critical.”10 If you can find the right person—an important “if”—you can add immediately valuable market expertise to your team, freeing you to focus your energy in areas where you are more likely to shine.
Another approach is to tap an outside sales adviser or marketing consultant on a temporary basis. You can scale the role to meet your specific needs without committing a full salary or giving up ownership in your business. More than ever, because of macro-economic challenges, a lot of highly talented marketing and sales professionals are on the sidelines, acting as free agents, available to help startups better understand their markets. As a bonus, if the person is a great fit, you can opt to bring him or her on board full-time down the road.