Investors look for companies that have credibly identified ample, reachable market opportunities large enough to generate significantly better than average returns. So, how do you determine your target market? Join Andrea Ewing of Rev1 Ventures as she walks you through how to identify your audience. You will learn how to survey potential customers to find out which features of the solution they will pay real money for. Entrepreneurs are often surprised that features they worked diligently on and assumed were great can get a big yawn from customers.
Speaker: Andrea Ewing, Manager, Corporate Connections, Rev1 Ventures
Andrea is all about creating the connections and infrastructure that entrepreneurs need to build successful companies. Corporate partnerships and high-quality deal flow are the cornerstones of Rev1’s unique, stage-based investor startup studio.
As manager of corporate connections, Andrea advances both. She connects leading corporations that are actively seeking disruptive technologies with startups that are building ground-breaking solutions. Andrea also connects Rev1 portfolio clients with other potential customers—championing the startups with corporates for the innovation potential that startups can deliver.
—————————————-
VIDEO TRANSCRIPTION:
Introduction
Matt
Go ahead and get us started and we’re gonna record this session so anybody that pops on late can watch the recap on video. I’ll email it to everybody that registered for the event and we’ll eventually have it posted on our website, www.cultivateworks.org.
So, I’m Matthew Yerkes from Cultivate and we have several business incubators in the Columbus region where we help aspiring entrepreneurs and small business owners pursue this dream of entrepreneurship. So, we work with about a hundred fifteen different businesses right now that we work with. We have programs where we’re helping them as aspiring entrepreneurs to start their business through a program we called Launch Track where we help people to validate their business idea, create a business plan with projections, and actually execute a launch checklist to get their business going, and then we have a program called Road Track which is for most of our members where we help them to continually add customers and really focus on creating that trust-building process with customers to make that happen.
So in September, the 1st week of September, we have sign-ups for in-person events at all of our locations. We’ll be doing that in like, four different places in the first full week of September so keep an eye out for that if that’s something that you’re interested in joining and we’ll be meeting some people face-to-face as well. We’re community-partnered with Rev1. We’ve been working with Rev1 since we started back in 2016 and they’re a huge resource and helped us in a lot of different ways and so we’re just excited to have Andrea do this presentation today and I will just turn it over to you Andrea.
Andrea
Awesome! Thank you so much, Matt. Damian and Nicole, it’s really wonderful to meet you both. My name is Andrea Ewing and I’ve been in Rev1 Ventures now going on 5 years which is really blowing my mind. Here, I am the manager of partner success so I work on our corporate innovation team helping different corporations in the region meet their innovation goals. But throughout my time here, I had a lot of experience working with early-stage start-ups as you can imagine not only in the Columbus region but throughout the world and have heard you know a thousand pitches and a thousand of early concepts.
So, really excited to be here today to talk about some early market validation and hopefully be able to work with you guys a little bit closely since this is a small group and answer questions along the way including more information. So just let me know what questions you have and love to make this really interactive.
So at Rev1 here, our mission is really to help entrepreneurs build great companies. You can see that we are an investors-startup studio, that’s how we coin ourselves. As we are a non-profit 501(c)(3), we provide a lot of different services to our clients but we also have a lot of really great partners as well. So, you can see many of their names here and they range across a number of industries, community partners, and otherwise. So, really excited to have a really broad network to be able to tap into and more broadly support the region.
So Rev1 itself, we’ve created an economic impact as far as 2.43 billion. This start-up impact is made up of the capital attracted and the revenue generated by the start-ups that we supported. So really proud of that metric, looking forward to continuing and seeing that growth and that impact we made. So, we really do this through supporting our start-ups, through our investors start-up studio like I mentioned, and we do that through creating a myriad of different service offerings including helping them to build out their teams. So sourcing talent and building teams capabilities and understanding of how to build a start-up by facilitating connections to early customers, by providing capital to many companies and also, covid permitting, providing space. So not only space for our start-ups to live and grow and scale but also for them to meet and collaborate in a network. All of that combined kind of helps us to more broadly and holistically support our entrepreneurs.
Why Startups Fail
So I’d like to kick this conversation off with the question of: “Why do start-ups fail?” I’m sure that from your experience and just probably from talking to other entrepreneurs and otherwise you’ve heard a lot of different reasons why an idea has legs or it doesn’t. But through a study done by CB insights, year after year, they’ve been able to identify that the number one reason that start-ups fail is that there’s no market need. So, it sounds almost too obvious where you’re like, “what do you mean if there’s no market need why are they creating it?” But it’s really easy to kind of fall into that trap of thinking that there is a need in the market out there thinking that you’re solving a really relevant problem that’s applicable to a lot of people when in reality, it isn’t.
We’re going to talk through some of that today but it’s always been really interesting for me to see this because, in my mind, I’m like: “Oh, It was probably just a bad idea. It probably has a poor model or otherwise.” And this no market need continues to reign supreme survey after survey.
Knowable Unknowns
So, Rev1 going back to kind of what we do and how we think about this. We really try to approach this work through thinking about tackling those knowable unknowns and this is just one way to look at it but I’m gonna go over to one of our other i-charts. I know it’s a little overwhelming, but you can see over on the left side of the screen, there are five different core areas that we try to focus on solving risks within and that’s the Product, Market, Business, Team, and Capital. Within each stage of your company, you’re gonna see that there are different questions that you’re answering and each of these different risk areas and with each individual question, like for product and concept, it says it’s a concept differentiated within that question, there are a hundred other smaller, more detailed questions but it’s the really great way to start and think about the different risks that are present at a different stage of your company development and within the different areas of focus as well. So today, through our problem validation, conversation, we’re really focusing on these early stages within your product and your market and in your concept stage. So, when you first have an idea, what are you solving for? And how can we start to identify and solve for those knowable unknowns and we’ll come back to that again and again?
Customer Validation
So with this in mind, I really love this example and it really speaks to me. I’m also an Ohio State Graduate, so you literally saw this in the flesh on the campus itself. This idea is that before customer validation, we all come up with these ideas right? And we think, you know this sounds like it has legs, it sounds like it’s the perfect solution to a larger problem and with that in mind, you know we create a solution that we think that we gonna solve it and we build it and without asking people or maybe just through asking a couple of friends, you get this false sense of validation. So when you build it, you think everything is gonna be hunky-dory but in reality, we see that after customer validation, we often learn new information and we often learn that our initial solution that we had created isn’t always the best solution for the broader market. So, as you can see here, you know they set out, they said our people want a path through this park, they build a path and they later learned that people wanted to be able to get to their destination faster and more efficiently, and they’ve created their own path. So if they had done more customer validation in the beginning, they could have saved money, saved time, could have saved their headache of now having a dirt path in the middle of their beautiful park right? Just as a way to kind of visualize the importance of customer validation, we like to come set out this example.
So, this all goes back to it all always turns with your customers. Your customers are your most important person when you’re working on a new product, a new idea, and without customers, you don’t have a business right? Without customers, you have a hobby, and it’s a tough reality for many but it’s really important to always keep that really core to why you’re doing it and who you’re building this product for. It’s also really important to keep that in mind as a lot of these projects are passion projects. Make sure that you’re comfortable with having, and flowing, and growing, and evolving to meet the needs of your customers and not just build something that you’re excited to build because at the end of the day, again, it all comes back to your customer.
Problem & Solution Statement
So, I always like to start with thinking about its kind of core in simplest form with a problem and solution statement. In my mind, it can sound so obvious, again, another example of it being almost too obvious that you need to be able to have a strong problem and solution statement. But it’s so easy to get wrapped up in creating too complicated of a problem solution statement or otherwise. We do a quick example that I’ll walk through really quickly, and again, the purpose of this is really just to understand that building up a practical and impactful promise solution statement is so critical to make sure that those around you and those who are trying to communicate this to understand it fully, understand it simply and that if you are truly in an elevator with someone, you’re able to get your point across about what you’re working on and why.
Paint The Picture
So, I will let you take a moment to read this problem statement. Okay, and then moving on to the solution statement. So as you can guess, this is not a great example. I mean for me, even I’ve worked with life science companies and bioscience companies for 3 years now and someone approached me with that idea, right off the bat, I would literally have to just ask them, “I’m sorry what?” And this is common for people of so much expertise right? And when you’re really thinking about taking a problem to someone, it doesn’t mean that they’re uneducated, but what you hold your expertise in and what holds your knowledge is probably not going to be the case for everyone in the room 99% of the time. So this problem statement uses a ton of buzz words, it uses a lot of very scientific and specific words that are not going to be common knowledge to the general public. This could be specific to any industry right? It might be a very specific company or terminology used in insurance or food science or it could literally be anything but this is just a great example, kind of life science example, of using too many jargony words or very specific terminology can really be challenging and staying with that solution.
So instead here is a much more simple problem statement. I’ll let you all read through this one. And you can see here that this problem statement first off is shorter, straighter to the point, and more clearly states there’s a disease, this is how many people are impacted from it, and this is the impact that it’s making, this is how it’s affecting people. And then the solution. So again, you can see a much simpler, a little bit less staccato of a statement. It’s much more of a story that it’s telling and it also uses these statistics that are really compelling to paint that story in more depth. So I think now you can probably come out of the saying, “Okay, I can more clearly understand the problem and the solution statement and what it’s trying to tell us”. This is a great example of that. You know when you’re thinking through creating a problem statement you really want to work to paint the picture. How can you most simply communicate what you’re working on so that anyone in the room can understand it? And this could literally be applied to if you’re trying to raise capital, right? If you’re walking into a firm that works with a lot of different industries, you’re gonna have a lot of really intelligent people in the room, but they might not know that specific terminology, that specific industry to the extent that you do. So how can you paint the picture for them so that they understand what you’re trying to build?
Be Concise
And then again, how do you strengthen this then with the stats and facts and statistics that are really relevant, that can help just build that picture in a broader and more impactful sense. So my biggest advice here, be concise, avoid your buzzwords and jargon and industry- or jargon from your industry. If you’re telling a story and using terminology that people don’t understand you’re gonna lose them. If you are speaking for 20 minutes on a specific piece of knowledge that you are very familiar with other people aren’t, you’re gonna lose them. So, the whole idea is how do you compel them? How do you keep them engaged and how do you make sure they understand what you’re working on?
Then I’ll pause there. Any questions on the problem-solution statement? Anyway, we’re a smaller group, so happy to take questions. Not yet okay, again, please do not hesitate, really happy to answer questions along the way.
The next piece of the puzzle though that I would like to bring up when you’re trying to validate your concept is what is your market potential, right? How big of an impact can this make?
Nicole
I’m sorry Andrew, this is Nicole, one question I had was, what you were talking about earlier: If you actually had an idea that solved a problem with the solution and so if you’re in a particular industry you trying to get into and you see like these other people doing the same thing but you have a slight difference niche to it. Any ideas or suggestions on how to validate that? What thing should the other person have to make an impact in that same industry?
Andrea
That’s a great question and we are going to dive into that a little bit more later in this presentation but even thinking about it in the problem-solution statement, that key differentiator, that specific thing that makes you stand apart from your competition is a great example of something to include in your problem solution statement. So being able to paint the picture of that same problem that’s being faced, and then being able to paint a different solution statement than your competition and calling out why that is so important and so critical to properly solving the problem is a great way to differentiate your product from the earlier stages of an elevator pitch and that problem-solution statement.
Nicole
Thank you very much for that. You can go ahead.
Market Potential
Andrea
Great question, we’ll talk through that in a little bit and mind here throughout the next kind of stages but it’s definitely something to keep in mind through each of these different components. So let me know if you have any follow-up questions through these other components as well for that exact example ‘cause I think that’s the case for a lot of solutions that come to market today, right? We have a lot of different saturated markets that exist today. So, how do we really differentiate with a few key components and make sure that enough to stand apart from your competition? So great question, anything else right now before I move on. Okay, don’t hesitate to interrupt me.
TAM, SAM, & SOM
So, moving on. Market sizing is a really great way to validate that your concept has enough market potential to make it a viable business. So again, if you’re gonna be going to, you know, maybe a potential partner or a potential investor, being able to communicate the size and scale of what you’re trying to create are really important to be able to help them understand the value and potential impact. So, there are three different components that we always think about: TAM, SAM, and SOM.
So our TAM, this is our total available market. So as a really simple example, if we’re thinking through a fast-casual, creating a fast-casual restaurant, your TAM would be your total available market. So this is all of the revenue opportunity for all fast-casual restaurants in the United States, right? That could be that total market. Then as we start to boil down, this is really where you start to think about what’s available to you and actually obtainable for you.
So the SAM is the next step down, your serviceable available market. This is a portion of your total market that your product or service is really filtered and created for, so maybe it’s that you’re creating a healthy or vegan or something like that fast-casual restaurant. That would then your SAM could be what all of those healthy fast-casual restaurants do? What’s the total revenue there? And you really need to take into account what are those filters that are specific to your concept that you can boil that Sam down with.
And finally, your SOM. This is the most challenging to calculate but this is your serviceable obtainable market. This is that smaller market segment that really is defined by what your product offering is really targeted for. So maybe it’s that you’re targeting young families that make X amount of money. I am living in an X type of community right in our have these different on like food behaviors or eating specifications. So, that will help you filter down to your SOM. What’s really important here is to understand what- it’s really what you can realistically gather and what you can realistically capture off the market. So this is gonna be a smaller subset of the market and when you’re really being intellectually honest about that, is that a large enough portion of the market to make a viable business plan and this will maybe also help drive your business plan to shift who you’re targeting, what your product actually is, so on and so forth.
So diving into this a little bit more, when you’re thinking about the viability, you’re really thinking about, is it a financially interesting SAM? Is it large enough- is it impactful enough to pack a punch and to make it worthwhile? So this could be a couple of different things. Maybe it’s a small percent of the massive market, right? If you’re able to capture 5% to 10% of a billion-dollar market, that’s still pretty impactful. On the opposite side, maybe it’s a large percent of a small market. So maybe it’s a real niche industry but you think that you could get a lot of market share from that small industry. That could also be incredibly impactful. And then there’s the small on occasion other third-party where it’s a small percent of a small market. This can be really appropriate if it’s a really niche market. Maybe it’s a medical device that you’re working on or otherwise and it’s a condition where only a small percentage of the population has it and it’s only applicable to a small percentage of those individuals but it’s a really high valued product, right? Maybe it’s a specific drug that is really impactful in that market specifically. That could still then have a viable market. But think about that as you’re starting to build out your business plan and understanding what value and what impact your idea could have in a market space. What kind of round does this plan too? Is it a small percentage of a large, large percentage of a small, small percentage of a small, and how does your kind of scale fit into that?
So a couple of approaches of how to start to think about calculating this, and I’m going to keep this super high-level but of course, you can start with the biggest from the top-down approach. Think about the overall size of the restaurant industry, going back to that example, and then filtering down to what’s specific to you, and then as you become more sophisticated, and the market knowledge that you have and understanding your pricing for your product, who your target market actually is, and the size of that target market, you can approach it from a bottom-up approach, right? Really, formulating out what that SOM is in more detail and definition and then building from there.
So in summary, your TAM, SAM, and SOM are really important to understand, to be able to communicate in the earliest stages. Your TAM and SAM are what’s really really crucial and as you further define your product, that SOM is going to become more and more important, but making sure that you understand your market potential is really important in validating your idea.
So I’ll pause there. TAM, SAM, and SOM can be a little complex and a little confusing. Does anyone have any questions on the importance of this or how we calculate it, or how it might be specific to you even?
Nicole
So Andrea, could you back up one slide? This is such a science, how to calculate what percentage of the market that you’re going to get in and it is very subjective and you’re going to your venture capitalist or whatever with these numbers. Like, how can you be sure of your numbers?
Andrea
Yeah, that is such a great question, and it really is an art. So, not only what we always recommend is, this is definitely the stage, all of these stages, you definitely need to be intellectually honest with yourself, but there’s a lot of respect given to those that are honest in their market size, not trying to just elevate it to have the biggest number possible, or being really realistic as to who you’re actually targeting. So, what we recommend is trying to find as much research as realistically you can find in a given amount of time. If you’re looking at it over a few days period trying to really understand what a couple of different reports are saying about a market, you’re probably gonna be finding different numbers. So how do you normalize that number or average it or otherwise to come to something that feels realistic, right? You can approach it from a couple of different methods. I’m sure it depends on the market itself, but how can you look at it and feel as though you’re not blowing out of proportion and you’re being pretty honest with those largest numbers and then from there, it’s being realistic with who is related to your product enough and how do you find those that are really, truly your key constituents to boil down to your SAM and SOM and if those are too small, then really rethinking, “maybe my products a little bit too targeted.” How do I bring my offering to make it really applicable to another market segment to make my SAM or SOM more approachable and more viable in market size? So it’s definitely taking a couple of those things into account and it is an art form.
Another thing that we recommend is as you’re looking at building your own out, maybe look at some of your competitors and look to see how they are talking about their market. Can you find one of their previous pitch decks or presentations or otherwise to see how are they looking at it? How are they speaking about it and how is it approaching it? Because they’ve likely already been through a couple of reps of getting buy-in and validation from some of those venture capitalists or other partners or Angel Investors or early customers that have validated that concept. So, unfortunately, there isn’t one clear-cut, this is exactly how you do it every single time but there’s a lot of frameworks and mindsets to be energy approach this work to give yourself your best bet or your best foot forward. Is that helpful?
Nicole
Is it, yes. What is unreasonable, clearly not like “I’m gonna capture 90% of this market.” Like what kind of numbers are really reasonable?
Andrea
Yeah. That’s a great question. So, when you’re thinking about your TAM, you literally want that to be, What is the overall market size? So you want to start there, which is understanding how big is the market itself? How much are people spending on pharmaceuticals in a year, right? How much are people spending on shoes in a year? Whatever it might be, but when you boil it down and you’re really thinking about how much market share you can capture, your SOM is likely going to top 10 percent of the market and that’s really where you want to think about it. That’s also when I’m talking more so about this small percentage of a large market, right? Thinking about it like that, it’s probably going to be 5 to 10%. And the reason why that is is if you are creating a product that is applicable to very large market size. You are likely having to change some behaviors with them accepting a new product. There’s going to be either them going to a new platform, having to behave in some different ways and that change, behavior change is super challenging and that’s what you really want to be realistic with that probably five to 10%.
It is going to be a large percent of a small market that’s where you can get 40 to 60% of the market share, and potentially even more. So when you think about maybe someone coming out with it’s a product that already has a lot of market penetration. So maybe it’s Microsoft Outlook. They already own X percent of the market for corporations using their products. If they’re rolling out a new product offering and it’s directly rated related to their resource, Apple would be another great example of this, they’re coming out with a new smartwatch. You can imagine that because they already have such a large market share of something that they might be able to again, get a large market share of something else. That’s not gonna be the case for these early-stage companies. So, you need to be really realistic with the size of the market that you can get but there are those examples where you might be able to get a large percentage of that small market or again, that small percentage of that small market that can make a big impact.
Nicole
Thank you.
Andrea
Yeah, absolutely. A really great question TAM, SAM, SOM? It’s kind of a convoluted complicated blurry theory that we’re all working on. Okay. Let me know, we can always come back.
Feature Canvas
So the third component and really goes back to Nicole. I believe what you were asking about before, is there differentiation? So I kept this pretty high-level, but we encourage you to keep this as a living breathing piece of your research that you’re always working on. So building on a feature canvas is a really great way of organizing all of the features that you offer, all the things that you’re offering to your customer in comparison to all the things that your closest competitors are offering as well. This really helps you to not only identify where you stand apart or where you might need to build out your products as well and where, you know, if all of your competitors are offering something, it’s a great point of reflection for you to think about, you know, why are they offering that? Why am I not? Should I not or should I actually adopt that product offering as well to make sure that I can stay competitive? It also has a really great way for you to showcase this to your market in a really clean way.
So a great example of this is just looking at different robot vacuums as an example. You can see where this is specifically internally for a few of their different product offerings but imagine this as you know, three different SmartWatches compared to one another from three different companies. That could be Apple, Fitbit, and Garmin or something like that, where you have all these different features and you can see who has what and where you’re differentiated. For a lot of these cases too, you’re gonna have the status quo as one of your competitors and I really encourage you to think about that. You know, how are people solving the problem today? And are you able to showcase and compare yourself to them to really show how your product is driving that differentiated value? So feature canvas, this is something that’s always living and breathing, and we say that also because there are always new products that are coming on the market. Competition is a great thing to have. You having competition and you having a competitor in the market today will just showcase that the problem exists. It’s real. You are working on solving something that people are looking for a solution too and if you’ve identified and found a better, simpler, more efficient, maybe cheaper way to do that, that can be a huge value-added and can really be impactful in the market.
So, we encourage you to build one of these out, we encourage you to be honest about who your competition is. Thinking through how your customers are solving the same problem today. You know for a lot of different SAS products that are out there and different software that exists, a lot of people might just be using Excel. So think about maybe including that as one of your competitors. Being honest about even in the simplest form, people are just keeping a document running through Excel. That’s okay. How are you better than an Excel solution?
So again, keep an eye on that. Subscribe to newsletters, keep a pulse on what competitors are coming about. One way that you can seem really educated in these early-stage conversations, is by being really intellectually honest, and realistic about who your competitors are and how they’re solving the problem, and how you guys are different. So, there’s nothing wrong with being aware of that, showcasing that knowledge, and being able to speak to that as well.
So I’ll pause there. That was kind of the third component, being able to have your feature canvas to really help your customers, potential customers understand why you might be the best solution.
Validation
Okay, awesome. Well, I will just keep it moving then. So, the fourth component of really working through market validation is the validation itself. The first three components have been kind of the building blocks behind the scenes, right? So, how are you communicating it? How are you sizing it? How are you showcasing the differentiation? And this is actually talking to your market and better understanding what their needs are and how you can make sure that you’re meeting those needs.
So, in the earliest ages, you want to start asking yourself. How are you going to be asking these questions and how are you going to do that early is kind of a stage of solving for these knowable unknowns and that can be through conducting research, of course, and actually serving your potential target market. And this can be done in two different ways. Through quantitative or qualitative serving.
Quantitative are those surveys that you see that you would be asked to take online where you’re asking rate this feature from 1 to 10, how important is it from 1 to 10, or talking through your different behaviors in a written online survey where you’re able to collect very consistent accurate data and you’re able to get larger quantities of this as well. So with these, you’re hoping to get hundreds, if not thousands of responses, overtime at least even getting fifty to a hundred can give you some directional data, but It can really help you get some early directional feedback
Qualitative is the research that you’re doing when you’re having a discovery conversation with someone. This is something that you’re going to do where you’re going to get a lot of different feedback. You’re going to get a lot of different ideas, but it’s a really important place to start. So with that being said, both are super important, and if you are finding a concept that you’re going to continually work on and build you are a hundred percent going to be doing both types of these research formats and that is perfectly appropriate and encouraged.
Qualitative Research
So with that again, diving a little bit deeper, qualitative research. This is super ideal for the earliest stages of your problem validation. Like I just mentioned, it really allows for that open-ended exploration, you’re able to ask one consistent question to multiple different people, but you’re able to dive in and get rich answers. I could leave you two different questions within every conversation. So this is really where you are exploring, you’re keeping an ear to the ground, you’re learning. I’ve heard three people now mention this specific component of the problem that I hadn’t even thought of before, or they all brought up a different competitor that I wasn’t aware of or, the list goes on, but it really does allow open-ended exploration.
It also is really helpful if you are working in a niche market. So, you know, if you’re working on trying to target a small business owner that has fifty to a hundred employees and works within the food industry, that’s going to be a pretty niche group of people. It might be hard to reach them or a large amount of them through an online survey so this is a great way to target that. So make sure that you’re really talking to the right people at the right time. It’s also really great for B2B, reaching senior executives or other hard to reach audiences, and it can cost nothing, which is awesome, because in these early stages of problem validation, understanding if your idea has legs, it’s best to save as much money and expend the least amount of resources and time as possible, and it’s a great way to have a couple really good in-depth conversations, spend no money, and learn a whole bunch.
Quantitative Research
Then on the opposite side, there’s quantitative research. So again, we do recommend doing this after you’ve had some qualitative conversation, but this is really, really great for getting a broader overview and a broader larger validation in the sense of a quantifiable metric saying you know, X percentage of those that we surveyed agreed that this was a problem for them and that can be really captivating, as you are trying to sell your product and trying to communicate that to others. So with that in mind, it’s really ideal for testing your different features out. It’s really ideal for, maybe trying to understand and validate if a specific feature is really important to include in your product offering or not. It’s great for anonymity. Keeping people’s responses anonymous and making sure that people aren’t feeling like they can’t answer honestly. It’s a really great way to get that unbiased, hopefully, feedback. It’s also really great for those consumer-facing products. So maybe it’s a SAS platform and you’re really trying to understand, should I include these three different features? This is great for getting a broader amount of feedback from the consumer market, but there are some drawbacks. This can be expensive. You know, if you’re trying to reach a really specific target market, it might be hard to reach them. So, things to keep in mind, when you’re considering what type of survey to conduct at what time.
There are a couple of core principles that we really want you to be aware of. Of course, keeping yourself really intellectually honest around this time period Is so important. You are gonna hear, probably a lot of maybes, a lot of “oh that’s really interesting”, without people actually saying, “yes, let me help you”. That basically is hearing no. Again, if you hear that, you know, 60% of your market or 70% of your market say that it’s somewhat interesting to them versus a hundred percent of your market saying, it’s extremely interesting to them, those mean, two very different things. So, understanding what that market validation means, and being really intellectually honest with how interested people really are in your product. And then also, it’s about seeking the truth about your validation and gaining real validation rather than just making an assumption and looking for your sumption to be validated to some extent. So, what I mean by that is we all come into this with a lot of passion behind an idea, a lot of passion behind our solution and we put so much of our time in ourselves into this that we want to be we want to hear that we’re right and that isn’t always the case. So be really honest with yourself as you are hearing the feedback. Know that the validation that you’re seeking might be different than your initial assumptions and that’s completely fine. That’s what you want to be hearing, this is what you want to be learning. So that’s the whole purpose of this.
So, we already covered that. We want to be really unbiased in this, but it’s really important to know that when people are really excited about a product, they’re gonna be passionate about it too and they’re gonna be communicating that they’re going to want it immediately. They’re going to be asking, “When can I get my hands on this?” Those that are really identifying the problem and solution that is relevant to the product are able to get early letters of intent for purchase and otherwise. So, instead of having to build and pay for everything on their own, they’re able to do that with existing customers before they even create the product in itself. So think about ways you can do that and, you know, if you’re gaining that extremely exciting validation, you might be onto something, but if you’re not, you might be close. Maybe something needs to be shifted. Maybe you’re missing a key component of how you’re solving a problem. And then, of course, it’s important to think the business model through this process too. What are people willing to pay? How much time are they willing to spend on implementing this inside of their company, or inside of, maybe just how they manage their lives or otherwise? Can you then generate revenue from it and make a profit? Are you able to grow it to scale? If that makes sense for this.
Q & A
So that’s all that I had put together with the validation portion and with the presentation, overall. I pause here and ask for what’s questions. What can we dive into to help you guys?
Matt
This is Matt from Cultivate and yeah, I’ve got to go through like your learning labs a couple of times and I feel these presentations and you just seem like when you have like a new idea that you’re trying to, you know, develop into a product and into a business, just so many- like you cover that one of that very first slide you had all those different kinds of things that you look at it or help businesses with but, when it comes to these, these things like that the TAM, SAM, and SOM. a problem and solution, how does that weigh into the kinds of companies that Rev1 decides to work with, and that really have been fit for you guys to work with?
Andrea
Yeah. That’s a really great question. SoRev1 specifically focuses on high-tech high-growth companies. Through our charter and relationship with the state of Ohio, this is very specifically drawn out for us. So what this means is that we’re looking at those companies that have some sort of technological component, some that’s unique IP or differentiated technologically and that also has a viable and large enough market scale. So, being high-growth goes back to that TAM, SAM, and SOM being able to take a small portion of a large market and large portion of a small market where a small portion of a small market, but being able to make sure that is able to grow and scale to the point where it’s not just a viable business, but it can scale where you don’t need to bring on more resources necessary to get it to a point where it’s much larger than a typical business could grow to. So, what that could mean is that you have an Enterprise software that you’re creating, to be able to scale it to a hundred companies versus a thousand companies could maybe take around the same or similar amount of resources physically to be able to scale it to that stage, versus a company that might not be a fit. It could be maybe something that’s very labor-intensive, something that’s very customized for every single customer that they would serve. So, maybe a consulting business because it is so specific. With that being said, that does not mean that it’s not a viable business to create or build. There are hundreds of thousands of incredibly successful businesses that exist that do not venture fundable, because of that high growth component or high temp component, It isn’t necessarily relevant to them. So, I always want to provide that cover yet just because it may not be a fit for Rev1 or Venture Capital, does not mean that it’s not a viable business at all.
That’s a great question. What else can I answer for those that might be on here with start-up samcells, I’m happy to answer any questions specific to their company or otherwise.
Ron
Hey Andrea. This is Ron, good morning. One question as it relates to the feedback, giving feedback. Is there a specific number? Like for instance. If you go out and say, I surveyed two potential customers there, both ecstatic about it. Is that still too much of a statistical anomaly, if you know. Is there some sort of general advice or feedback you need to survey 10 potential customers or 20 customers? What’s the right number of surveys that, you know, that you are statistically accurate?
Andrea
Yeah. That’s a great question, Ron. This is going to be dependent on the type of company that you’re building. So going back to that kind of like that small percentage of a small market. If you’re working on something that is, maybe a medical device and it’s super specific to a specific type of heart condition and you talk to five of the top heart surgeons that are specifically dealing with this and they all think it’s incredible, that might be statistically significant enough to validate it to the point of starting to have legs and really starting to work on it, right? Because you’re working with creating going for a very niche market.
If you’re creating something though, as a social media platform, that would be applicable to hundreds of millions of people, and you only get feedback from 5, that’s going to look really different. Right. So the more people that you believe this idea or concept could apply to the more people that you’re able to gather feedback from, it’s going to be more statistically significant, and it’s going to really showcase that validation more. So I always recommend if you’re working on something that’s broadly applicable, start with getting a survey out and getting fifty to a hundred, if not two hundred responses initially, learn from that, maybe then create a follow-up or renewed survey with what you’ve learned and try to then expel that to a larger subset of the population and as you continue to grow in fine your product, that’s when you can try to target more and more of that target as a target market as well, and gain amount of feedback because in the earliest, it’s going to be directional and that’s just a fact and you’re not going to know what you don’t know. So, getting that directional feedback and help you build better surveys. So I definitely don’t recommend creating one survey and trying to get a thousand or 2,000 or 5,000 people to take it. Start a little bit smaller, a little bit more focused, and then as you start to get that directional data, think about building a broadly reaching survey.
Ron
Yeah, we’ve also gone through the customer learning lab, one of the market research firms that were discussed there was qualities. We’ve used them before and we reached out to them to do a survey for the idea that we were incubating right now. The challenge was the cost associated was like, 25 grand for like right around 250individual so we’re trying to do it more grassroots, so I don’t know if that’s common round in other market research firms.
Andrea
Yeah. So, we actually don’t see a lot of early-stage startups leverage professional survey services early on because it’s super cost-prohibitive. What we actually encourage is if you can find maybe like a target demographic group through a Facebook group or Reddit Wall or maybe it through another specialized network that you can get the email list for. You know, build maybe some relationships in association with the group that you’re trying to reach that might have access to these broader networks that could help you to expel a survey to gather a broad subset of research. Honestly, we’re not seeing a lot of companies use their resources to build out or have a survey completed to that extent until much later on until they have a lot more capital until they’re gaining a lot more revenue, and it might be to build out you know, there VII or VIII of their overall product after it’s been in the market for a year or two. Yeah, Ron, I think you’re on the right page. I’m glad that you saw that as being an unnecessary investment especially for that number of respondents. So yeah, I definitely encourage you to get creative and try to find some other people that you might be able to leverage their network for.
Ron
It’s interesting that you mention we just read an article manual a few weeks ago, that a lot of organizations are trying to use Reddit. You know, go to the specific Reddit group because Reddit groups are so specific, so unique, that if you can get traction with it, it’s your target market. The question is will they limit spamming because they’ve got rules and stuff. So we’re trying to figure out a way to fit within the code of conduct within some of these Reddit groups, but still see if we can post some of these surveys or just send out a question and say, hey, get us back some feedback.
Andrea
Absolutely, virtualmeetups.com that congregates groups of a similar mindset, kind of similar to Reddit, but also Facebook and other- even like Twitter and things like that. You could also maybe leverage very similarly to how you’re thinking about Reddit to be able to reach like more target demographic, than Ron. I’m really happy that you guys are looking at that.
Ron
Thanks!
Andrea
These are great questions, any other questions, even if it seemed like I said, specific to your company, that’s totally fine.
Nicole
How do you handle regular market research from a consultant’s point of view?
Andrea
Can you expand on that a little bit more?
Nicole
Well, how do you determine more of the TAM and the SAM? How do you build a solution offering for an existing market today?
Andrea
Okay. So, if you’re looking at building a consulting service, you’re likely trying to build a solution offering for an existing market today. So you can look at, you know, how people are currently solving that problem. So as an example, there might be an environmental consulting service that companies are leveraging to adopt more environmentally friendly solutions to offer their customers, right? You can think through the size of the market would be where it’s like, how much would it save them? or How much are they currently spending on? You know, maybe it’s fines that they’re paying, maybe it’s other efforts that are already investing in today. Maybe you can think about the staffing that they have for those positions, you know there’s likely some market overall industry metrics around that exists. I’m just gonna get creative around, what solution is your consulting service and providing, and then looking tracing back to that problem-solution statement in the market and then filtering down from there and that really might also be, you might be filtering down to your specific niche offering, and the SAM/SOM stage might be a much bigger problem in the market that you’re solving at a smaller portion for. With that as well, you might have a much more targeted group of people that you need to be getting feedback from. So that qualitative survey approach might be really best for you, Nicole. If you’re thinking about- there are probably two decision-makers in a company for what I’m working on, how do you get a hold of one of them to talk through how they are approaching solving that problem? And how could your product be the most relevant and helpful for them?
Nicole
Thank you for that information.
Andrea
Yeah. Awesome. Well, thanks to everyone for your time. I really appreciate all the questions and you know, feel free to reach out to me or anyone at Rev1. We’re here as a resource and happy to help. So this has been just really great getting to speak with all of you.
Matt
Thanks, again, everyone and thanks, Andrea. I will get this as a video together and post this on our website. I’ll email that to everybody that registered for the workshop. So you’ll get a copy of this. It might be a day or two but again, thank you for joining. and I would just invite you to any of our other workshops or events that we have coming up. We have one on Twitter for business next week that is a live stream, and then we have our process on how to continually add new customers by developing the trust-building process in September. So thanks for joining us and have a great day.
Andrea
Thanks, everyone.