Entrepreneurs are eternal optimists who tend to be ‘jack of all trades, and masters of none’, as they try to manage numerous tasks themselves with meager resources. Many thrive in the startup arena, as they have to cover numerous bases to move their businesses forward, and the role diversity is appealing. However, for many others ‘completing tasks’ can often mask deficiencies in the underlying business model , as prioritisation goes out the window and focus is weak. The lack of focus means that the more difficult areas are often parked. Why do I need to get out of the office to meet real customers and find out their needs, when I can be building a beautiful looking website?
Instead, entrepreneurs should be very focused on a small number of activities that directly support their ability to generate cash. They need to have goals, milestones, SMART objectives and be tracking against ‘actionable metrics’ as distinct from ‘vanity metrics‘.
Alongside this deficiency in focus, there is one other major ‘blind spot’ evident in many of those that I meet, and it should be at the top of most entrepreneurs lists (particularly those looking to raise finance). It relates to what I call ‘demonstrating evidence of demand’. Providing real evidence that there is a demand for your product or service, is one of the most important signals entrepreneurs can use to convey to all that there is a market for what they are doing. Many entrepreneurs chose not to address this (perhaps in fear they won’t find any evidence, more so than ignorance) and instead chose to build and build before launching to find their offering gets no traction.
In theory, demonstrating there is clear evidence you can point to, that there will be a demand for your product or service is easy. There is in effect a hierarchy with sales sitting right at the top. Clearly if people are buying what you offer they are sending a strong signal that they value what you offer. The more people that are doing so the better the evidence (I am assuming the demand is being served profitably!).
If you have not yet got your product to market there are numerous proxies that you can use to indicate that there is indeed a viable market for what you offer. Competition is one clear sign, as competitive industries suggest an attractive market opportunity may exist. If it is not easy for you to identify some competitors, it may be that the market you have identified is simply not viable (of course another plausible reason may be that you may be the first to identify it). For companies in Ireland, the need to demonstrate evidence of demand is particularly pressing. The domestic market is very small, and entrepreneurs need to be confident that local demand is strong enough to be served profitably, and that overseas demand can be easily fulfilled (and also in a profitable manner given the extra cost burden).
The nature and number of inquiries you receive is another good sign, where people have asked you for a product / service that does not exist / or you are yet unable to supply. Again this is a clear signal that people are interested in what you can offer. Using the Internet is another useful means to assess demand – searching on the main keywords related to your offering will enable you to assess the landscape i.e. are their Pay Per Click (PPC) adverts displaying on Google? If there are, it suggests others see value in the search term and are spending marketing $ trying to attract those searching on the terms. Again if there are no PPC adverts displaying for the top keywords for your business it may be evidence of weak demand (or that the market calls the offering by another name).
If you cannot find evidence using the methods outlined above it may be that you are a true visionary in the Steve Jobs mould building products that create new markets i.e. iPhone, iPad etc. However it is more likely you may be closer to Kevin Costner the lead actor in ‘Field of Dreams’ who built a baseball park in his front garden in response ‘to a voice’. The lack of a clear market and weak demand is usually a clear signal that your energies may be better focused elsewhere.
In summary, while it is tempting for entrepreneurs to run with an idea they have, and spend countless resources in building mode, it is a very high risk strategy to adopt. It is very important to establish upfront the level of likely demand for the product or service using whatever means you have at your disposal. If no direct evidence is available, using proxies or seeking evidence of demand for close substitutes is a good alternative. If after this research you are not finding the necessary evidence, the risk profile of the venture has lengthened considerably and it is best to talk to some more prospective customers to ensure you are producing something enough people will value for you to create a sustainable business. For some of you this advice may seem pretty basic, however one only needs to look at the ghost estates, empty shop fronts and golf courses in administration to evidence the impact over supply and weak demand can have on a market. Finally, an increasingly popular start-up methodology embracing many of these points is the Lean Startup as outlined in Eric Ries’ book of the same name.
This article first appeared in New Business magazine.