Validating the Market for Your Start-up Company’s Product or Service

From the desk of Bob Bridge:  

Scaling a business is all about profitability. There can no profits without revenue. There can be no revenue without customers. There can be no customers if you don’t solve problems that customers care about.

A real-life example: a university team invented a new type of catheter that would dramatically reduce the rate of urinary infections in patients. Doctors loved the idea, as did the nurses, patients and patients’ families. These people all validated that the new catheter provided great value and benefit. But it turned out that these highly-knowledgeable people were not the customer. Somewhere in the process of doing market validation the team discovered that the actual customer, who actually made catheter purchase decisions, was most often a purchasing clerk who was told to keep the supply cabinet stocked and to stay within the Medicaid reimbursement schedule. The new technology was more expensive than Medicaid would reimburse. The price point caused the clerk a problem rather than solving a problem. The team recognized that their technology would never gain wide market acceptance, and so they team decided not to launch a company.

Said another way, one of the biggest slams investors can make against an early stage company is to say that the company has “created innovative technology or service that now in search of a market”.

A much more promising approach is to first become the world’s expert on a customer problem, and then apply technology to solve that problem.

How do you go about becoming a world’s expert on a customer problem? There is no magic here, just hard work. Simply, get in front of 50 to 100 potential customers and understand their problems. With that number of interviews, you should gain a nuanced understanding of the problem, and understand that problem better than anyone else.

Who is a customer?  Someone with both a big problem and a budget they have the authority to apply to solving the problem.

What is a big problem? A problem that keeps a person awake at night with worry, or a problem when solved will get the person promoted. If your company can uniquely address those kinds of pains or gains, the person should be willing to write you a check (again, if they have the authority to allocate funds).

Nice-to-have or incrementally-better rarely motivates a customer to make a commitment to you. Especially since changing vendors can be risky or a big hassle.

And the customer is an individual. Your customer is not a group, like an engineering department, or a company, or an agency. These types of entities don’t decide to spend money with you. An individual with a name and a desk and a picture of their family on their desk can decide to spend money with you. When you find enough of these individuals willing to write you a check, then you have validated the market need and size.

In complex B2B sales environments there may be a variety of people influencing the purchase decision. But ultimately one individual makes the final decision. You need to interview that person.

When you interview the person, it is not productive to start off by talking about your cool product or technology and then asking the customer if they think your baby is pretty or ugly. No one wants to tell you that your baby is ugly.

And don’t ask about their opinions. You don’t care about their opinion. Opinions don’t buy products or services. Solving pain sells products and services

And don’t talk about the features of your product or service. No one buys features. They pay when your offering beneficially takes away their pain.

The more productive way to approach the customers is to start off by mentioning the general problems area that you are interested in, and then get the interviewee to talk about the pains they have in that general area.

Spend 80% of your time listening and only 20% of the time talking.

At the end of the conversation, if you have successfully identified a pain that you can solve, you can summarize your product or service offering, and ask how much they are willing and able to pay for a solution.

Good hunting!

2016 in Review

2016 was a great first year for the Southwest Angel Network.

The network ran four quarterly funding cycles. A total of 85 social-impact companies applied for funding during the year, including companies from the Austin, Houston, Dallas, the bay area, the east coast and the Midwest. The angels got to meet very interesting and talented executive teams, all of whom share a passion for making the world a better place.

Fifteen companies were selected to pitch at our four events, and four of those companies received funding:

Brobe is a women-led business that improves the lives of post-surgical breast-cancer patients. Our funding allows the company to increase inventory, which then allows a rapid increase in sales.

Flow Below reduces the ecological impact of tractor-trailer trucks by improving fuel efficiency and reducing their CO2 footprint. Our funding helps the company to expand their customer base to include truck manufacturers.

OneSeventeen Media is a women-led business that supports the emotional well-being of junior high and high school students by providing a mobile app, MyMobileMentor. Our funding allows the company to finish development of their initial product.

Querium furthers the education of students who lack the math skills needed to succeed in today’s technological society.  Our funding helps the company to enhanced their product technology.

This successful year could not have happened without our insightful and collaborative angels who are working to address significant societal problems, who enjoy helping young companies, and who are striving to achieve a financial return on their investments.

The network also participated in a wide variety of social-impact community events, including running an 11-week class for budding social entrepreneurs, and organizing in April a city-wide event addressing whether Austin can become a national hub for social entrepreneurship.

November 2016

An eleven week social-good entrepreneur workshop, that was organized by the Southwest Angel Network in conjunction with other Austin organizations, ended with an elevator-pitch competition. The winner of the competition was Sunconomy.

Sunconomy is not only changing the construction industry by using brand new 3D concrete print technology to print an affordable house in a day. We are also working with non-profit agencies such as the NCOA and Restore Texas Ministries to provide much needed skilled job training in robotics, advanced materials and IoT technologies. Our mission is to improve family wealth and stability by building affordable, smart, sustainable homes built by individuals that care for people.

Suncomony will be invited to present at the next evening dinner pitch event of the network,

September, 2016

The Southwest Angel Network participated in the Social Impact Epic Office Hours at the Capital Factory.

The Southwest Angel Network participated in the Intro to the UT & Austin Startup Ecosystem event at the UT McCombs School of Business.

August, 2016

The Southwest Angel network held its third-quarter evening dinner pitch event.

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