

Ask HN: how do you conduct market research? - drewblaisdell

When I think about the side projects that I have abandoned in the past, most of them didn&#x27;t work out because I ended up finding that the market was more saturated than I thought, or that my service did not fix a common enough problem.<p>Talking to consumers and businesses (when I can make this happen, which is rarely) so far has resulted in me hearing about problems that already have lots of solutions online. I would like to be able to interview more consumers&#x2F;businesses, but that has been difficult to orchestrate.<p>How do you decide what to build, and whether or not that thing is worth building?
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mindcrime
Market Research is near and dear to my heart, although I won't claim to be the
world's foremost expert on the topic. What I can tell you is that there are
many different approaches, and that the details vary depending on whether
you're doing B2B / enterprise, or consumer facing web apps, or mobile apps, or
retail goods, etc.

But the basic point is to identify some "segment" ("redheaded boys between
9-13" or "mining companies with > 5000 employees" or "whatever") that you
think might have the problem that you think you are solving. Then talk to a
subset, but a large enough subset to get some validation, and find out if they
actually want / need the thing you're proposing to build.

Then, if you find that some percentage do want it, you can try to extrapolate
and do some rough "back of the envelope" math to see if it's worth moving
forward.

Example: You find that about 33% of the redheaded boys between 9-13 that you
talk to, do want your thing. Be conservative and round down to 25%. Then find
demographic data on how many boys between 9-13 there are, and then find out
what percentage of the population are redheads, etc. Run through all of that
until you have a (very rough!) number of potential customers. Say it's:

14,237,984 redheaded boys between 9-13, and take 25% of that, and you have a
market size of:

3,559,496

Hopefully your validation process gave you an idea of what price you can
charge, so let's say you found out you can charge $20 for this thing. So
you're looking at potential revenue of $71,189,920. Of course, you probably
can't sell all of them in one year, and once you exhaust that pool, you're
down to factoring in population growth and birth rates, etc., so see if the
influx of new boys in your age range is going to keep your market alive after
the first push.

Also, assume it costs $8.00 to build, and there's overhead for distribution,
etc., so let's project a per-unit profit of $10.00

So you're looking at a potential profit of $35,594,960.

Now figure out how much capital you have to invest, figure out the opportunity
cost of your time, and decide if it's worth chasing that $35,594,960 in
profit.

Note that all of these numbers are totally made up, and the only point I'm
trying to get at here is how you develop a _very_ early, preliminary "go / no
go" decision. If that initial number came out to $5.00, or negative, then it's
an obvious "no go". It it comes out to a trillion dollars, it's probably a
"go".

 _I would like to be able to interview more consumers /businesses, but that
has been difficult to orchestrate._

Some of the numbers I mentioned above, for consumer apps, are available from
the govt. or other public sources. Population data, demographics, birth rates,
etc., are usually available. What you'll have to put some work into is finding
that population sample to validate your hypotheses against. That takes elbow
grease and feet on the street. I don't know any easy way to short-cut it. You
can get _some_ mileage out of surveys, focus groups, etc., but nothing beats
actually talking to people.

You may be able to cheat a little bit by using Google Hangouts, Skype, and
other tools to avoid having to physically meet people, but you still want to
talk to them if you can.

One last caveat about the above scenario.. it's intentionally over-simplified
to make a point. I left out a lot of other issues you'd need to factor into
evaluating your market, like income levels, education, cultural issues, etc.
That's why I say the first number you will come up with is _very_ preliminary.
Basically you want an answer to the question "is this even viable in the very
best possible case"? If the answer to that is "no" then there's obviously no
reason to bother. But you'll rarely experience the very best case, so you'll
have to continually be learning and re-evaluating things as you go.

Finally, if you haven't done it yet, I cannot recommend reading @sgblank's
book _The Four Steps To The Epiphany_ highly enough. He touches on a lot of
points related to figuring out of a business is going to be viable or not.

~~~
bereft_orange
Do you go beyond public sources for you data? Commission research?

~~~
mindcrime
_Do you go beyond public sources for you data?_

The only thing we really use outside of "public" data is Hoovers.com.

 _Commission research?_

We have not to date, but I think you certainly could / would at a certain
point. Think of it as an iterative process, where you're constantly trying to
hone in and develop a progressively narrow, sharper, more accurate market
hypothesis. IF you reach a point where you need to commission custom research
from a research firm, then by all means, do it. Just note that that kind of
thing can be very expensive, so you'd probably want to wait until it's truly
called for.

There are also a lot of "stock" research reports out there that you can get
your hands on... a lot of times you can get them for free by accessing them
through a local library, where they might cost hundreds or thousands of
dollars if you bought them outright.

------
sbasi
1\. Before even you start interviewing - search on tech sites such as
Techcurnch, GigaOM or Hacker News (this site). What you need to see is how
many companies if any have been mentioned in the same space doing similar
things. If you find some, it means you are already 2-3 years behind in the
game. Then the key question is how you can differentiate?

2\. It is not only about how may people you can interview. Sometimes you may
be able to interview the segment you want but they might not understand if the
product or service you are going to offer is going to be a game changer. For
example, I was chatting with a friend in 2005 about how people were using a PC
because we were looking buy some PC related stocks. Our observation was that
most of the people are using them to browse the web. Netbooks were not there
yet and there were no signs of iPhone and the iPad. If you were to interview
consumer at that point or even tried fundraising from VCs, they were pretty
happy with the PC they had and there was no need for an iPad. But if you look
today - iPad is what everyone wants to buy today. Similarly Facebook and
Instagram or Facebook and Snapchat. What Instagram did or Snapchat is doing -
was/is already being done on the Facebook except the differentiators weren't
there.

3\. While the market research is a must, your idea shall not completely depend
on it. Instead the focus should be on what problem your trying to solve and
the market for it - e.g. for iPad it was a need for small and portable device
that can be used to browse web and manage daily digital activities. For
Snapchat - teenagers wish to keep their affairs separate than their parents
since Facebook let everyone in.

4\. Startups are about creating new markets the data you may not be able to
find from the research companies or the government databases. In my humble
opinion, most of the research companies look into the rearview mirror to
determine the road ahead.

~~~
mindcrime
All very good points. #3 is a very important point. Market research is
_important_ , but if you're doing something really innovative, where people
may not intuitively recognize the need for the new "thing" you might have to
work a bit harder to validate your market.

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LukeWalsh
I would also add a follow up, what is your go-to for testing if an idea for a
solution matches the problem?

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dakrisht
Agree with both comments in here. Some good insight.

For some pure market research Q

