The 5-Step Process to Identifying a Market Need

According to a study by CB Insights 42% of new businesses fail because there’s “no market need” for what they’re offering customers.

“Tackling problems that are interesting to solve rather than those that serve a market need was cited as the No. 1 reason for failure, noted in 42% of cases.” – The Top 20 Reasons Startups Fail

The majority of business fail because they don’t make something people want. It’s absurd. Why would anyone knowingly put themselves in such a position? It’s even more shocking when you realize this can be prevented with minimal effort.

This happens because people think in terms of solutions. They get passionate and motivated around a technology more than the idea of building a sustainable, profitable business. They see something in the wild and try to reverse engineer their way to success. “Hey, chatbots are all the rage. I’ll make a chatbot for coffee shop owners!”

Huh!?

What you want to do is engage with the market and ask them what they want. Not to make something in a vacuum and to then tell them what they want. This unlocks customer insights and reveals opportunities.

Don’t come up with ideas. Get the market to tell you what it wants.

It doesn’t matter whether you’re trying to come up with a new business idea or trying to figure out what features to add to your application there are five steps you need to take to figure it out:

  1. Understand the customer’s situation.
  2. This means becoming familiar with the world around them and how they interact with it. Of course, you’re interested should be confined to a specific area of interest. E.g. being interested in someone as a coffee shop owner not as general consumer of products.

    The goal is to get to the point where you have a complete understanding of their responsibilities and the milestones that are important to them. Don’t stop asking questions until you have a complete image of them and their day.

    This is done by asking them questions that are specific to an area interest. For example, if you, say, are a web designer, you need to get them talking about their current website or online marketing efforts in detail. Here are some example questions you can use to get the conversation rolling:

    “Tell me about your current online marketing efforts.”
    “Walk me through your process for evaluating potential projects.”
    “What options have you looked at?”
    “Could you clarify by what you mean by…”
    “What else have you tried…”

    A bad question to ask is, “Is quality important to you?”

    This encourages a binary and obvious answer which, of course, is “Yes.” The problem is that it doesn’t help you get an understanding of what the customer values.

    A better question would be, “Tell me about the criteria you use for valuing the products and/or services you buy?”

    This activates them to think critically about what’s important to them.

  3. Identify their problems.
  4. As they’re talking they’ll be describing challenges or moments of aggregation. These are the items you need to drill into:

    Customer: Things are crazy first thing in the morning.

    You: Tell me what you mean by ‘crazy.’

    Customer: The line goes out the door and there’s a lot of activity as baristas are trying to keep up with all the orders.

    You: How does this negatively affect the business?

    Customer: People get aggravated and are sometimes rude to my staff. Sometimes they just leave out of frustration.

    When it looks like a problem has been identified you need to confirm whether it’s worth solving.

  5. Learn why they haven’t solved the problem.
  6. If you think you’ve locked in on a single problem that you think you can help them solve, you’ll want to get an understanding as to why they haven’t solved it. Is it a lack of resources? Time? Expertise?

    What’s important to see how much effort they’ve put in to solving the problem as well as get an understanding of the methods available at their disposal. If there’s a gap that needs filling then you’re on the right track.

    You: What have you done to try and alleviate this problem?

    Customer: We’ve tried to speed up the process for taking orders which helped a bit.

    You: Can you tell me a bit about the methods you tried?

    Customer: We limited the options people could get. We also stopped serving snacks that were low margin and took too much time to serve. For example, egg sandwiches.

    Of course, if customers have not bothered to solve a problem then you should question them as to why not. If the answer is reasonable you probably haven’t hit on a problem that is worth solving.

  7. Measure the impact of the problem.
  8. Problems have a degree of impact and it’s important to get a sense of the effect it’s having. If it’s minor or maybe just a necessary inconvenience then you’re on the wrong track. However, if this is major aggravation that keeps the customer up at night then you’re looking good.

    What’s important is to get the customer to think not only in terms of the financial impact but how it’s impacting employees and their customers. Most every problem can be reduced down to a number that impacts the business. Getting to that number and presenting it to the customer in terms they understand can go a long way.

    If the impact of a problem being solved is minimal then it’s not worth solving.

    You: What are the effects that is having on your business?

    Customer: People get upset with staff and baristas. There have been times where they yell. And I’m not noticing regulars as often as I used to.

    You: That must be rough for your staff. What has been their reaction to this?

    Customer: They’ve become cold and sometimes short with customers. The rapport between my staff and customers is not what is used to be.

    You: How is this affecting the business financially?

    Customer: My staff has noticed that tips have gotten lighter during peak hours.

    You: You said that customers sometime come in and leave because the line is too long. How many people do you see in an average day do this?

    Customer: There have been days where I see twenty people or more leave.

    You: And how much is a customer worth to the business?

    Customer: On an average order, people buy one cup of coffee and a small treat, which comes out to $7.50.

    You: At 20 people a day that’s $54,000 a year. That’s a lot of lost revenue.

  9. Measure the impact of a solution.
  10. You don’t need to come up with an actual solution. What you want to do is paint a picture of the before and after for the customer. Give them an image of what the world looks like with their problem removed.

    The principle here is to keep it simple. All you need to do is verify the importance of a solution at an emotional level.

    You: What would it mean to have an extra $54,000 a year?

    Customer: It would be huge. We’d be able to do some light remodelling

    You: And what would it mean if the pace of the line moved at a more comfortable rate?

    Customer: Well, my sense is that customers would be more at ease. They probably wouldn’t drop off like flies.

    You: And you staff?

    Customer: They’d go back to being their charming selves!

    Notice there is no mention of an actual solution? It’s irrelevant up to this point. What’s important is understanding and empathy. In fact, it’s the most important thing you can have for them because it will never steer you in the wrong direction.