Launching a business is hard, consisting of hundreds or even thousands of individual tasks. Bunker Labs’ How-To blog series asks an expert how to approach one of these steps. Today, Marine Corps Veteran, Bunker Labs Marketing Director, and entrepreneur Reggie Ordonez is making the case for doing market research while your business is still in the ideation-phase.
Are you launching a business? Make sure you check out Bunker Labs’ Launch Lab Online. This entrepreneurship education platform is for active duty military, Veterans, and military spouses who want to start their own businesses and jumpstart the next chapter in their life. It will help you learn about your customer, and yourself in the process!
Business Plans are Overrated
I know it might be hard to believe, but successful businesses existed long before the development of the formal “business plan”. Traditional business plans tend to be a marvelous works of fiction that rarely survive first contact with your customers. For those who are in the ideation phase of business, you may be led to believe that you need a full business plan… As Veterans, sometimes we try and control the uncontrollable, and writing a well-researched business plan before you “get out of the building” and talk to your future customers can hinder your entrepreneurial endeavors.
In a two-month window in 2019, I had six workshops with over 130 attendees of aspiring Veteran and Military Spouse Entrepreneurs pursuing small business ownership or some other form of entrepreneurship. All of them wanted to jump straight to the business plan. They wanted to approach it as a static document or template to be filled out with the intention of getting capital through debt financing or equity. Not a one of them had a customer, understood what their business would be offering, studied the competition, or even really identified how they would make money.
It’s not their fault. This is still the approach offered by countless start-up resources online, in seminars, and more traditional educational platforms. Traditional business thinking suggests we should write rigid plans before we start. But rigidity is the opposite of adaptability, and business is an adapt or die enterprise. You can hear more about this idea by listening to the Transition Podcast Episode 49 with James Suh, who talks about market research vs business plans for two of his businesses.
Early-Stage Market Research is your Businesses’ Best Hope for Survival
So, what is the first step to moving from ideation to business concept? It’s one of the steps most-skipped by early-stage founders: doing market research. According to Strategyzer and Steveforbes.com, roughly 70% of businesses fail because of a lack of product/market fit. In other words, entrepreneurs are building things that 70% of the time, nobody wants in the first place. This is a problem you can easily avoid with some early-stage market research.
If you kick the can down the road on market research, thinking you can do it after you refine your product or obtain funding, you’re going to have a difficult road ahead of you. You’ll be going into those phases without knowing exactly who your target customer is, or understanding how they currently relate to the problem your product or service is solving. This is a recipe for disaster. I know some folks who received a business loan thanks to their credit score, and six months later the business is struggling or dying because they never did their market research.
When you build a house, if the foundation is not set, the house will come crumbling down. And make no mistake, market research is the foundation of your business. Let’s talk about how to make that foundation strong.
Mistakes To Avoid with Market Research
Before we get too deep into what to do, I think it’s important to call out a few bad habits and false assumptions I’ve seen people make first.
Mistake 1: Believing the Eureka Moment is Everything
There is a perception among first-time entrepreneurs that the “amazing idea” is the most important part of a new business. Come up with the good idea, and the business will practically launch itself! If we build it, they will come…. right? Wrong. Odds are, you’re not even the third or fourth person who had that exact same eureka moment.
It’s important to have an idea you’re passionate about and believe in, but it’s only important because that helps drive your motivation for doing the work that comes after having the idea. The Eureka moment itself is just one early step among thousands of subsequent steps. One of those first next steps is doing your market research to determine if your idea has customers.
Mistake 2: Casting the Business in Our Own Image
We all have an idea of what we think the world is and how it works. Our worldview can be a dangerous trap, because it can make us assume we know what is best for our ideal customer without confirmation. This is particularly likely when we as entrepreneurs aren’t the ideal customer. I’ve seen entrepreneurs believe in their solution to a problem and move forward without first validating the problem exists outside their own home, and the collision with reality afterwards can be painful to watch.
Entrepreneurs, by their very nature, are unique individuals. What reads as a great value proposition to you as an individual consumer might not agree with the broader market. Market research is a great way to cut through your personal biases and see if your ideal customers are interested.
Mistake 3: Don’t Sell Backyard Shark Fences
Sometimes a problem is only a problem in your specific backyard. You might solve the problem of backyard shark attacks in the most genius way imaginable, but that solution will probably fail as a business. It doesn’t matter how brilliant your solution is, because you’re solving a problem people don’t have.
Building your business around a solution independent of a problem drastically lowers your venture’s odds of success. Always start with the problem and ensure it is—in fact—a problem. The solution will be the product or service provided. The problem and solution provide your business opportunity.
I talk about problem-based business ideation at length with “Iron” Mike Steadman on The Transition podcast. Check it out!
Primary Market Research: The Personal Interview
While there are many forms of primary research, I suggest you start with personal interviews, especially when you are starting from square one. Get out of your comfort zone and interview 35-40 people. Don’t forget to include industry experts and the competition when possible! You will be amazed at what you learn. This can become an exciting process when you begin to see your concept with more clarity.
Get specific and identify a target market. Then, you should create customer personas, and make some assumptions about those personas. One of my favorite tools to create a customer persona is HubSpot’s Make My Persona Tool. You will not be 100% correct with your assumptions, but that’s okay, the key is having general assumptions to refine and validate. Next, interview people representative of those personas, and learn and modify your assumptions based on the interview findings.
Remember, your goal is to validate that the customer problem you believe you have identified is real. We must start our entrepreneurial journey with the customer problem! Don’t fall into a trap of assuming your gut feeling is strong enough that you can skip market research on the customer problem. Get out there and talk to people!
Listen With a Critical Ear
While talking to prospective customers is great, you must realize that some people you talk to will never be customers. Be diligent and recognize the cheerleaders from the serious buyer. Don’t over-weigh any single interview, either. You shouldn’t be changing your product or service every interview. It is our job to analyze the data in aggregate and spot the patterns so it turns into information, and then adjust accordingly. It is worth noting that the serious buyers will reveal a solution to us… we just need to listen and not fall in love with our own plans. Stay flexible and trust the process!
Other Forms of Primary Market Research
Beyond interviews, there are a suite of primary market research tools, which include surveys, focus groups, and observing buying behaviors in places your customers already shop. I recommend these methods as you begin to hone in on your value proposition. The more you learn about your customer, the more solid your value proposition will be.
Secondary Market Research: Do your Reading
It’s important to stay current on market trends. This means as an entrepreneur, you have to read articles about your industry and customer. It’s a good idea to search for news articles and census data that support your primary market research. The more in touch you are with current trends, the easier you’ll be able to make sense of your primary research data.
I once worked with someone who was starting a hot-shot trucking company. He was able to optimize his timing to enter the market because he was able to synthesize his own primary market research with current internet news and trucking magazine articles that aligned with what he was hearing on the ground. This confirmed he had the pulse of regional market conditions, and it gave him deeper understanding of supply-chain shortages causing real problems for distributors.
White papers, trade journals, and the newspaper are also great resources to digest information. Census data is relevant when you want to dig into the specific demographics of a relevant area. I don’t recommend starting there, but there will be a time where you need to use it. For example, if I am providing a gadget to busy moms in a brick-and-mortar boutique and my gadget is pricey, I want to ensure there are 24–35-year-old women with disposable income in that area. Lastly, you can visit sites like IBISWorld and obtain industry-specific reports from different government resources for entrepreneurs, such as the Small Business Administration’s Veteran Business Outreach Centers.
A value proposition is a short and concise statement that explains why a customer should buy a product or service from you and not someone else. There are always determined competitors in the market trying to solve the same problems. Once we have identified what the problem is, we need to look at the competition.
How are these alternative products or services NOT solving the problem(s) you have identified through your research? How has the market changed to leave this problem unaddressed? What about your solution makes it stand out from the competition? What thing did you learn about your target market that changed your product that the competition missed? This is your secret sauce, or your competitive advantage. No one can do the thing you do quite like you, and you cannot be copied because of it!
Don’t Compete on Price
For bootstrapping businesses and early-stage founders, you should avoid competing on price. Your initial volume and margins will make it difficult to sustain your business. That is why it’s important to do something well and be the expert. Big businesses can compete on price because their ability to scale and move a lot of product volume to bring down costs per unit. You won’t have that advantage. Instead, your goal should be to provide a more tailored product or service to an imperfectly served niche of the market.
Proof of Concept
The proof-of-concept phase is the testing phase before we dive into devoting our time, energy, passion, and dreams into a full business launch. This is where we test and refine our business model, preferably by hearing from customers and watching them interact with it first-hand. If you have a product, you should be hitting trade shows, pop-ups, and expos where your customers are. Make a sale! Get feedback through surveys and reviews, and then refine! For service-based businesses, do some work pro bono in exchange for reviews on your website, and begin to land your first paying customers.
Do your best to keep expenses down. You don’t need a building or an office. Jeff Bezos started Amazon from his garage. Work from a coffee shop or your home office, and store your product in the trunk of your car. The money you make in your business in these early stages can be put right back into the business!
If this is your first venture, it’s likely you’ll be working a day job to pay the bills and working on your business during the weekends until you reach a point where you can dedicate yourself full time. Bunker Labs’ Founder, Todd Connor, wrote a book about this specific brand of start-up culture called Third-Shift Entrepreneur, and I cannot recommend it enough! He describes the value of starting a business while holding down a job.
Final Thoughts: Okay, NOW you can write a business plan and seek funding
As you go through this process, you will find that you have 60+ pages of notes, some on napkins and cardboard. You should always take notes. When your business needs cash or resources from outside parties, NOW you can write a traditional business plan, this time using realistic information, experience, and understanding of where you are in the process.
The business plan is simply a snapshot in time of your business, with a vision of where it’s going. There is always a gap between that vision and reality, and that gap is largely filled with resources. The business plan is written to help you get those resources. Now lenders and investors can see you as someone with industry experience, sales, and a proven business concept. This goes a long way when you are asking for other people’s money! When you are ready to tackle your business plan, reach out to your business counselor from an SBA Resource Partner. Many offer Live Plan at no cost. For those of you who are Microsoft users, Microsoft Word has several business plan templates that not only provide the framework but offer content suggestions.
Don’t forget to check out Bunker Labs’ Launch Lab Online. LLO is going to help you revisit some fundamentals for your business ideation and launch, and make sure you’ve checked all the boxes to launch your venture.
About the Author
Reggie Ordonez served in the US Marine Corps Infantry for over a decade in Light Armored Reconnaissance units, deploying to Iraq, Afghanistan, and Haiti. He has an MBA from the University of Arizona, and currently serves as the Bunker Labs Marketing Director. When not on the clock with Bunker Labs, he works as a marketing and business strategy consultant for small businesses. In his spare time, Reggie trains Brazilian Jiu-Jitsu and runs a charity that pays for youth BJJ training.