[mikeleeorg]

I sent this article to a few entrepreneurial-minded developer friends who tend to build first, research/think/plan/market later. And to be fair, that's how I used to be too. Startups need builders, but researchers/thinkers/planners/marketers are just as important, if not more so.

[pault]

How do you research a market from the outside? Especially in digital/saas products where the barrier to entry is already low, it seems to me that the successful people don't want to give up their competitive advantage by telling the world how to reproduce their business model (for good reason).

[icu]

Hi pault,

The way I would go about it is:

Start talking to potential customers. Find out how painful and valuable the problem is. Find out if they are currently using some other solution to the problem (your competitors).

Approach an industry organisation, if there is one, and talk to them about the problem, who has any existing or new solutions and find out if they have market research from their members.

Just a comment about the above two points, you don't have to pitch your specific solution to the problem but I would still leave the door open when you are talking to people and say something like, "if I were to come up with a solution that would do (insert features and benefits) would you be interested in talking further?" If the problem just isn't perceived by your customers to be painful or valuable then I would move on.

Now assuming the pain is sufficient and a solution is valuable then start looking at the economics of the business and start 'building the market.' What I mean by that is start with some assumptions about customer characteristics, for example demographics, and start putting some numbers together in terms of total market size. Try to do this from different angles and use different assumptions.

Then start playing around with what you think your cost and profit structure would look like with different business models. Think about what your cash burn rate will be and what sort of adoption you will need to hit a 'cash neutral' and break even scenario.

Then start applying this to your 'whole of market' model that you did before and start thinking if it makes sense. Do you need 1% or 0.0001% of the market to start adopting your solution? What might it cost to acquire those customers in terms of time and money? Start thinking about how that relates to hitting your 'cash neutral' and break even scenario.

Take a step back. Does this make sense? How much work is involved? How much capital are you going to need to achieve this? Then multiply that by say 4-5 times to give you a margin for error.

Now start thinking about post 'cash neutral' scenarios where you are capturing different rates of the market. How much do your costs ramp up? What is your marginal profitability? What does this equate to in terms of return on capital? If the returns are low then forget it. Investors want you to return their capital plus a big fat profit. If you don't think you can grow a big enough pie so you can get a slice of it that will satisfy you then forget it and find another opportunity.

If things look like they are stacking up well and you got a good story to sell to investors then good luck. Raising money is a bitch. Assuming you manage to get enough then things get harder because you will now have to execute within the cash 'runway' you have been given and well the rest at that point is up to you, your team and luck.

[kristapsmors]

I agree with this 100%, I started as a developer myself, so it took a while for me to change attitude about "build first, think later" approach.