We’ve worked with over 60 early-stage companies over the past decade to provide our Market Driven Baseline (MDB) services, helping companies to truly understand the market for their product or service, including the key players in the sales process, and to tweak their value proposition accordingly. In the course of working with these companies, as well as observing others, we’ve noticed the 3 most common ways in which businesses fool themselves into thinking they are market-driven.
1. We are solving a real problem
Just because you have a cool idea or a gadget that makes something easier doesn’t mean you are solving a problem. This is especially important in this down economy as the focus has shifted from the “nice-to-do’s” to the “must-do’s”. Gone are the days when the budget allowed for nifty enhancements of existing tools. Unless you are addressing some aching problem in the market with clear and quantifiable ROI, you will soon be relegated to the dot-com dustbin alongside such businesses as mylackey.com, which essentially offered a “nice-to-do” solution to a problem you could deal with on your own for little extra effort.
2. We know who our customers are
This is perhaps the biggest one. When people tell us they know who their customers are, we say “Great!” Our next question is: Have you interviewed your employees, your competitors, your customers, your competitive wins and losses, and iterated on your solution several times? Generally, they haven’t, and they don’t fully know the:
- motivations behind the purchase
- how those motivations are affected by customer and employee perceptions
- competitive offerings and their effect on the value proposition
- key decision makers, economic buyers, and influencers
- attributes of a “perfect customer”
- common or likely reservations to a purchase
One chronic problem is the tendency to overstate your market, and not understand the difference between TAM and SAM. One client targeted the SMB market. Their vision was to become the hub for all small- and medium-sized business product and service sales. Unfortunately, this is a large, diverse, and unwieldy target market. The key decision maker for the purchase of office supplies is likely different from the key decision maker for facilities management. A value proposition may resonate with one and not the other. On the flip side, instead of picking too large of a segment that could be difficult to defend, some companies pick too small of a niche or the wrong segment altogether. We all know we need to, but few of us take the appropriate time to systematically and methodically research our market and our value within it—a critical step to laying the foundation for a successful company.
3. We understand the sales process.
Nothing is more upsetting than watching a salesperson waste precious time courting the wrong person. So many times we have seen the key decision maker be identified and wooed only to watch the economic buyer or the chief influencer kill the sale. Decisions are rarely made by a single, autonomous person; rather they are made by several people, sometimes even a committee. Therefore, the most important thing for a young company to learn is the decision-making environment inside of their client companies. We’ve talked about the need for the right people in the right roles (see ‘Hunters and Farmers’ and ‘Renaissance and Coin-operated’), but first you must understand what role you need to play, and to whom. Recently, I watched as a company spent most of its sales resources courting the VP of Sales (successfully, too) only to watch as the CFO, holding the purse strings, and the founder, with his personal allegiances, scuttle the deal. Before you think you can sell a software package to HR, make sure it’s not really the IT department that has the say.
Building a house without laying a foundation is dangerous and misguided; so too is building a company without thoroughly understanding the market. These are both enormous investments of time and money, and they both deserve the kind of systematic, methodical approach that can minimize risk and maximize the likelihood of success. It is cheaper in the short run not to have to lay that foundation, but don’t expect the house to last long.
