Posted by Alan Nazareli ● Fri, Oct 14, 2011 @ 01:10 PM

Market Research: Seven "Mini Pivots" Start-Ups and VCs Miss

Al Nazarelli, Silicon Valley Research GroupA critical component of every successful venture is an understanding of customers and what they want from your product. Not every start up founder has the intuitive sense of a Steve Jobs to innately know this.

Getting such market insights is the province of market research. Yet a significant number of start-ups do not engage in this practice, other than the occasional survey monkey ad hoc survey. Moreover, the venture capital firms that fund these companies do not require or even advocate that part of the funding be used to validate features or market direction. We have also found that most firms who conduct traditional market research, a $29 billion global industry, do not actively cultivate technology start-ups, instead preferring to focus on the needs of larger companies who are ongoing consumers of their offerings.

We believe market research is vital to the success of startup ventures. Moreover, it represents the ultimate risk reduction for investors who can be assured the right bets are being made in the right way.

Here are seven start-up “mini pivots” that can be executed early in a company’s development cycle if a little time and effort is taken to conduct even some basic market research.

1. Point to True North in a company’s execution strategy: Is everyone on the same page with their own and their customers’ expectations?

2. Identify “make or break nuances” of customer preference: Identifying the value proposition for the customer and the reasoning for or against their decision to engage with a start-ups product or service is paramount.

 3. Kill non-viable product concepts and features early: Throwing good money after bad is a common start-up trait. Stop the bleeding early.

 4. Create killer features the company had not considered: While it may be true that “customers are not always right”, they very often have great ideas that have not yet been recognized.

 5. Identify tangential or peripheral opportunities: It’s amazing what opportunities can be uncovered if the time is taken to look.

 6. Uncover unforeseen competitive market threats: It’s one thing to know what product and how much of it a competitor sells, but why do people buy what they are offering?

 7. Validate the business model through price elasticity studies: Don’t leave money on the table when there are ways to test customer’s price sensitivity. What if they are willing to pay more than believed for a reason not considered?

So why don’t more VCs insist that their portfolio companies take these steps? Our experience has been that perceptions about cost and the ultimate return (or perceived lack thereof) on the dollars invested is one reason. Another concern has been time. Speed to market at the start-up stage is important, and time spent “navel gazing”, as some incorrectly define early stage market research, is thought to be time wasted.

Neither concern holds water. New techniques and methodologies, as well as the application of social media tools means high quality research can now be successfully achieved for a fraction of the costs required only a few years ago. Tools such as asynchronous online focus groups, online video interviewing and interactive surveying can produce better results with a greater volume of data and faster turnaround times.

And what about the cost of not conducting market research? Well, that cost is measured every day in start-up failure and investment lost. No, not every enterprise can be saved by market research if the idea or execution is fundamentally flawed, but we’d venture to predict that if VC’s consistently required a little market research at the early stage, the failure rate would be reduced. In these tough and highly competitive times, that would be a good thing for everyone.


Topics: Gaining Customer Insights, VOC, Customer insight, Customer Insights, Voice of the Customer, Customer Intelligence, Inside Marketing Research, focus research group, marketing strategy, customer dynamics, online survey, online focus groups, online focus group, HubSpot Tips

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