The Soule Entrepreneurial Institute
 

Imagine the world 10,000 years ago. Our hunter gatherer ancestors roamed the earth; scraping together what little food they could find, and avoiding dangers that could claim their life at any moment.

Now fast forward 10,000 years. The descendants of those very same tribes live in air conditioned homes, with clean water piped in directly. Our lives now are far more secure and predictable than our ancestors could have ever fathomed.

While our environment has changed greatly, we have not. Our brains are still programmed for life outdoors. Our instincts have trouble adapting to a paper-shuffling, domestic lifestyle.


For this reason we see epidemics of depression in office workers, and "ADHD" in school children.

Evolutionary Arbitrage – Creating products that are friendly to, or exploit human instinctual nature.

What are some examples of evolutionary arbitrage?

Nintendo Wii – The Wii transformed video games from a sedentary pastime to a full blown activity, selling 30M units in the process.

Hummer Brand - Nothing satiates a reptilian subconscious like climbing a 60 percent grade or fording 24 inches of water.


4 Hour Work Week – Millions of people are fed up with sitting in a cubicle from 9-5 and are working from wherever life takes them.

Sometimes thinking about the future means studying the past.

 
 

90% of entrepreneurs are ready to jump in and start building their product right away. They have a great idea for a product, their friends have told them how good it sounds, and the last step to becoming the next entrepreneurial success story is to build the product and start selling, Right?

Wrong


The reason so many entrepreneurs fail is that they don’t validate the market. They practice a ready, fire, aim development style. Successful entrepreneurs practice ready, aim, fire by validating the market.

Market validation compensates for most of the risk of entrepreneurship.

Once risk has been mitigated; your venture will give you the profitability of a start-up with the security or an investment.
And that is the most important lesson.

Read on for an explanation of Market Validation from the second chapter of Rob Adam’s book: A good hard kick in the Ass, Basic Training for Entrepreneurs. Rob Adams works with Austin Ventures, providing venture capital to start up companies. His book provides a valuable perspective through the eyes of a professional VC. While the whole book is a valuable resource; the most valuable section, by far, is the second chapter on market validation. The chapter is titled you don’t know your customer as well as you think you do.

Continue to...

 
 

Building a product without market research is like shooting a gun without aiming.

The Benefits of Market Validation:


1. You get the product right the first time
Instead of spending $10 million on a prototype that has to be redesigned, you spend $1 million and get the product right the first time

2. A beta community emerges
You gain a community of customers that will give you feedback during product development

3. You identify a wide potential Customer Community (Quality sales leads)

4. You can more easily raise smart investment capital
Market research, customers, and development communities eliminate risk and make smart VC’s eager to invest.

5. You clarify your competition

Market Validation Consists of four steps
Secondary Research
Stage 1- Explore the Pain
Stage 2 - Envision the Solution

Stage 3 - Establish Credibility

As the pyramid suggests, key validation activities include:

Identifying research contacts

Obtaining progressively more useful research

Contacting hundreds of people

Secondary Research

 - Research competitors and potential customers using the internet
 - Read the Industry press, including Information Week and Red Herring for a sense of current technology trends. Also, check out vertically focused periodicals in the industry being targeted.
 - Obtain reports from respected analyst groups, such as Forrester Research, Gartner group, Giga, International Data Corporation (IDC), Meta Group, and others.

This research does not qualify as market validation, it merely prepares you for...

Market Validation Stage 1: Explore the Pain

Stage 1 involves three steps
1. Construct hypotheses about the prospective market.
Who needs the product most? What does this market look like?
2. Gather data to prove or disprove your hypotheses
3. Isolate the most searing pain points


Who needs the product most? What does this market look like?

Examples:  The product is critical for companies growing at 50% a year or faster; ten to twenty people communicate with customers. Or, product is most appealing to young professionals living in urban areas.

Typically, you obtain your Stage 1 interview contacts via mailing lists from industry trade magazines or trade groups. Interviewees should include the full spectrum of people who may come in contact with your product-those who will use in, buy it, recommend it, pay for it, technically review it, and so on. All these groups have requirements. Your task? find out what those requirements are.

When interviewing, watch out for two unproductive interview tactics:
1. Leading the witness. Don't ask questions in a way that makes it more likely to get the answer that you want. Like "Don't you hate it when..." or "wouldn't it be better if". These questions will retrieve answers that are not objective.
2. Selling the solution. Do not talk to customers about the solution at this stage. You are after only one thing: a clear view of customer experiences and environments, requirements for performing a particular task, and the source of customers' most intense pain.

A hypothesis almost never holds up. “you know you are getting close to the right answer when you’ve radically modified where you started.”

Market Validation Stage 2: Envision the Solution


Stage 2 involves testing one hypothesis against people who experience the pain firsthand, or understand that pain. Stage 2 is more qualitative than Stage 1, It involves some face to face meetings. Stage 2 contacts are people who, in stage 1 interviews, expressed especially distressing pain, a high degree of interest in a possible solution, and a willingness to be contacted again.

You can also consult the heat map’s hot spots for additional customer contacts. You might be amazed by what happens. Even when you call hot spot contacts you haven’t spoken to before, they might want a solution so desperately that they’ll ask for a demo-right now. Thought leaders within the market space make good stage 2 candidates as well. In interviewees, having pain is more important than entrepreneurial enthusiasm.

Preparing for stage 2 interviews

Using the stage 1 market data, create:

·         A  first pass presentation. The presentation outlines the pain you will address, the market segment with the most biting pain, and – at a very high level, how your solution can solve this pain.

·         A prototype of the solution. Screens illustrate the user experience and provide a high level demo of basic functionality.

While conducting interviews, your team hits each one of the stage 2 contacts with the presentation and prototype. All the while, you carefully record their feedback. Initally the influencers will inevitably respond less than favorably to all or part of your proposal. Your team must simply go back, tweak to reflect the feedback, and iterate through the process again. You will focus on features that your customers care about.

Stage 2 results are indispensable, in three key respects:

·         Product features – when customers are tormented by their pain, a quick solution is all they want. They’re not really interested in bells and whistles.

·         Core Customers. – the customers you interview in stage 2 will morph into beta sites for testing your initial release.  The interviewees of stage 2 tend to stick with your startup. They will act as partners who help keep you close to the customer as the years go by.

·         A fine tuned presentation and prototype. Stage 2 feedback enables your team to sharpen these critical artifacts to the point where, when the “heavy hitters of stage 3 are approached, these leverage influencers quickly understand what you are doing  - and are more than willing to lend their stamp of approval.

Market Validation Stage 3: Establish Credibility

By the time a startup enters stage 3, it is about 90% there in terms of being ready to set sail as a viable venture. You use stage 3 to forge that final 10%. Here, your team creates a base of influence for building credibility

Stage 3 is meant for contacting thought leaders interviewed in stage 2, representatives of well known analyst firms such as, Aberdeen group, forrester research, gartner group, giga, idc, and meta group, editors of vertical publications that sell into the market. Consulting firms such as Accenture, eds, kpmg, or pricewaterhouse coopers, whose clients may be in a position to implement the proposed solution.

As you visit these people with your fine tuned company presentation and solution prototype, here’s what you aim to do:get them excited. Excited about your company, about the product, and about your startups prospects. Give your presentation and collect feedback. Hone the presentation until it expresses your solution’s advantages with absolute clarity and conviction.

 

The process is worth it for three key reasons:

·         Visibility in analyst reports and publications. Industry analysts are paid to spot new trends and promisiong companies. Theyre more than happy to spread the word about any new company that impresses them. So are the editors of publications.

·         Revenue possibilities. Consulting firms love to introduct new technology solutions that make a read difference in their client environments. They also like to be the first on the trigger with this.

·         Easier financing. You can incorporate positive analyst feedback into the presentation you use to obtain major financing from top tier investors. When raising money,a positive quote from a well known analyst gives you an enormous advantage.

By the end of stage three, your companies case is no longer hypothetical, it is proven. Your market is precisely targeted. Customers are already on board as advocates, partners, and advisors. Major industry influencers are in the loop and excited. Your team can progress with the confidence that it is addressing the market’s actual needs.