How do you figure out if there’s a market for your product? This is one of the hardest questions to answer and arguably, the most important. When we started Handshake.com in 1999, our diligence suggested that businesses, even the smallest mom and pops, were embracing the web. Nonetheless, we struggled to get businesses to use our online scheduling platform despite support from the largest online/offline Yellow Page company in the US. That experience taught me to be weary of “false market signals.”
Here are some False Market Signals I’ve seen:
General hype and market exuberance
We suffered this at Handshake, and perhaps the whole Internet economy did during the late 90s (and to some extent recently). Investors encourage you to spend to acquire customers, even if your cost of acquisition exceeds their value. Instead of really understanding the key drivers of your business, one lets macro trends dictate strategy. At Handshake, we started as a B2B company and ended up focusing on the consumer because the markets pushed us in this direction. We later reverted to being a B2B business, but it was too late.
If you make it, I’ll buy it
Whether selling to consumers or business customers, marketers often “hear” the answer they want. There’s often strong enthusiasm from prospective customers on new technologies, however, many enthusiastic entrepreneurs don’t push hard enough on economics. At Brontes, we asked a highly enthusiastic potential customer how many units he’d buy from us. He excitedly said “maybe 3 or even 5.” (we thought he’d say 500!) The other challenge with these interactions is that customers often envision the dream product, and most initial offerings are far from perfect. Test customers to see if willingness to pay remains strong if you start stripping away certain features.
Technology problems vs. market opportunities
Perhaps one of the most common false market signals is when technologists talk about a problem that is real but does not translate to a commercial venture. The statement that was first made about the potential of Brontes’ 3D imaging technology was that “cameras are inherently limited because they only see in 2D.” While this was true, the market didn’t view this as a problem (we have been using 2D cameras for decades). 3D required some pretty fundamental changes in displays and imaging that even to this day have yet to be fully realized.
Be weary of the trap of false market signals. There are many and I’m sure I’ve missed many others …