One Customer Does Not Make a Market

Share

Market Discovery vs. Validation

One customer does not make a market. I heard this phrase somewhere when I first started selling and it has stuck with me since. It is almost so basic I hesitated to write about it, but it seems that every week I am speaking to someone who is either not familiar with this concept or has temporarily forgotten about it as “the market for out product is huge!”

Case in point, I was called a couple of years ago by an engineering PhD I used to work with who wanted to start a company and asked me to join him. At the time, he worked for a company that made display devices and had just made a routine site visit to a customer of his, a radiology clinic in a large and prestigious hospital. While there, he was viewing some medical imagery with a physician who described what he was trying to quantify in the imagery. The physician went on to comment that if my friend could come up with a way to do this automatically, “everyone would want the product.”  Is the story sounding familiar already?

So, my friend, remembering that I knew this technology area, called me up and said all we had to do was design and build this product and it would sell itself. Did I want to start a company with him? My answer was no. I knew one customer does not make a market. While my friend had performed some market ‘discovery’, he had not  ‘validated’ the market.

Unfortunately, this scenario seems to repeat itself with alarming regularity. It’s easy to see why this happens – most start-ups evolve out of some sort of technical disruption in the marketplace, and the focus of these endeavors is usually around new PRODUCTS based on this disruptive technology rather than new PROBLEMS to solve with the technology. The typical scenario is a start-up team comes up with a product idea, goes out and talks to a handful of prospective customers, and some of  those prospects say “Very interesting idea, I’d like to see that” – that’s the discovery piece.  The team typically then goes off to design the solution, maybe including these prospects in the process, then builds a prototype to bring back to show the prospect. Sounds reasonable as they are testing their market and product assumptions, right?

Not really. This team has missed one really, really, big step – the market validation. Market validation is performed after the initial discovery of a market problem and once one has consensus from the engineering team that a differentiating solution could be built leveraging the company’s core competencies. It is a critical step as this is where the market as a whole is polled to verify the pervasiveness of the problem and to quantify the market: how many other people have this problem, how urgent is it, what other solution alternatives do they have, what they are willing to pay, what is the competitive landscape, etc.

It is the market validation that brings facts rather than assumptions into the business and product strategy. Or, putting it another way, market validation allows companies to build solid bridges to bring their employees and investors across, rather than requiring them to take blind leaps of faith.

So getting back to my friend with the medical imaging idea, things may have progress further that day if on the call he had said something like: “… “… so I sketched out a product concept, took it around to physicians at 20 different hospitals. Then I did some further additional polling through a radiologist’s on line group and here is the data which shows that 82.5% indicated a strong buying preference of our solution over the competitive offerings.” If my friend had done that, he would have had more than an idea or opinion, he would have had a market.

[Update: Just saw this relevant posting on VentureWire also discussing market research and validation:  http://entrepreneur.venturebeat.com/2009/10/15/the-hidden-secrets-of-market-research/ ]

Leave a Reply