How to do research for a new business idea

Ideas are cheap.

I actually hate that phrase, because good ideas aren’t cheap. But the truth is ideas only become good when they’re really needed.

The phrase exists to elevate what’s really important in building a business: execution.

And that starts with customer. It starts with understanding what they need; in old school parlance, it starts with market research.

I’ve said before the phrase makes me cringe and think of people on high streets with clipboards, ticking boxes, not giving two hoots about the answers anyone provides.

I favour a much more human, skin-in-the-game kind of research, done by the people inside the business – not outsourced to “professionals”.

But outsourcing means at least the research will get done. It’s always tough prioritising it when doing it yourself – faced with a host of competing distractions and burning issues.

So the first step to research your new business idea is to actually commit to it, make it part of every week until you start to feel confident that your idea has merit, is in demand, and can scale (- and that means never stop it, make it systematic and cultural – but that’s for another blog).

I’ve read enough books on startups and worked with enough too to know that fundamentally there are three things you need to understand before investing too much time and money into your idea.

1. Understand your customer’s struggle and progress.

2. Understand your customer’s alternatives.

3. Understand you.

Imagine three overlapping circles venn-style, with the sweet spot in the centre your confidence to progress.

1. Circle 1: Your customer’s struggle and progress

A business doesn’t exist without a customer, so it’s critical you start here. Old fashioned MBA programmes would point you to macro views of the market to come up with huge anonymous populations ready to buy. But the world has moved on – as has our understanding of the huge range of factors that determine whether I’m your customer or not.

There’s a time and a place for the TAMs, SAMs and SOMs, but it’s not here, not yet.

Far better to follow Seth Godin’s advice to find 1,000 customers who love your product, starting with 10, who tell 10, who tell 10 etc.

Discovery interviews are your best friend in understanding your customer and getting early feedback and maybe even validation (either way) on your idea. The goal here is to listen to your customer’s pain or struggle, its consequences and context.

My experience is that after ten or so interviews with real people you believe might have the problem you’re looking to solve, you’ll start to notice patterns in what these people say.

Then build some hypotheses to validate how common those views and experiences are.

Your goal is to get to data, zeros and ones – not lots of verbatim comments in quote markets. These data give you – and increasingly other people – confidence that you’re on to something.

Talk to your potential customers as early as possible, before you fall in love with your idea, before you invest time, money and emotion, before you start closing your mind because you’re convinced you’re right.

Action for you today: don’t wait, book a call with five people over the next week, write down some questions that you can test yes/no and show up.

2. Circle 2: Understand your customer’s alternatives

Competitor analysis is your next area of focus – understand what options your customer has when solving their problem. It’s pretty likely their options aren’t that great if they’ve still got the struggle – maybe it’s price, maybe it’s access, maybe it’s some kind of lock-in.

The MBA route will point you to Michael Porter and a range of super complex theory which will leave you with a pretty meaningless 2X2 matrix.

Far better to focus on the human: think about the pain relief your customer takes when they’re struggling.

In some cases there will be genuine alternative products and services your customer will turn too. You need to understand them – and what they’re doing wrong, as well as what they’re doing right. You need this to identify how you’re going to be different.

Differentiation is probably the most important marketing lever. Again, you’ll need customer input into this to validate whether it’s good different or bad different.

In other cases – and I suspect more and more – your competition isn’t another product or service, but it’s Do Nothing. Or potentially Make Do. Faced with so many distractions, even when we’re in pain, we try to ignore it, we kid ourselves it’s not that bad, we kick it into the long grass, we make-do.

If your customer sees Do Nothing or Make Do as tenable strategies to overcome their struggle, you’re unlikely to get them to switch. My advice would be look deeper, find the niche who’s got most pain to lose or most gain to make from your solution and is now forced to act.

Action for you today: build a table of your main competitors and how they’re different from you. Use this data to test with your customers whether your customer cares or not. Also your discovery interviews will surface competitors you hadn’t thought of, like Make Do and Do Nothing.

3. Circle 3: Understand you

The final part of your research means looking inwards – at yourself, your team if you’ve got that far. Look at two things:

1) what are you good at, and, ideally better than other people at?

2) What’s your purpose, what do you care about solving?

Starting a business is gruelling and if it’s not easy for you and it’s not something you care deeply about, you should probably find something else. Ideas are cheap remember.

In some ways this is the hardest part of your research – because it relies on you being really honest with yourself. But trust me, if you can align your business around your distinctive capabilities and your purpose, your chances of success are much greater.

Action for you today: Write down those things you do better than anyone else – the things you do faster, the things that surprise and delight other people, the things that you see others struggle with. Test this list with people you trust – who can validate it.

There are lots of books and tools to help you get clearer about your purpose. I didn’t find any of them very helpful to be honest – what helped me was walking and listening to myself, and then walking some more, overplaying what I thought it was until it felt right, like something I’d always known.

So that’s it. Modern business requires a modern approach to “market research” – something quicker, cheaper, much more human, based on a deep understanding of customer – and also a deeper understanding of you.

But the other point about this approach is it’s progressive – if you find a dead end, you’ve not wasted anything, you move back a step and move on.

Whereas old fashioned market research gets you so invested (in time and money) that nine times out of ten you’ve already started building and just need the research to convince other people - because you’re already sold (aka blinded).

Do good market research.