One of the highlights of my job as Director of the IGNITE Graduate Business Innovation Programme at University College Cork is that almost every day I meet young people with wonderful ideas for new products and services. Often they have a thorough understanding of a particular technology or area of research and have spotted an opportunity to develop a great new offering.
But, as all too many people have discovered, great product ideas do not necessarily make great businesses.
I often ask these young innovators to tell me about their business idea without referring to the product or service. Many struggle to come up with more than three or four sentences before saying something like: ‘our product is a.…’ or ‘the platform will…’.
But this is a really valuable exercise. It forces the aspiring entrepreneur to consider the business idea from the point of view of the customer and helps develop an understanding of the product-market fit, the relationship between the product or service and the customer. After all, it’s great product-market fit that makes for great businesses.
More often than not, I encourage these future business owners to consider five questions:
– Who is your customer?
– What is their problem?
– How does what you are offering solve their problem?
– What is the solution worth to them?
– How many customers are there?
Who is your customer?
The lazy answer is that everybody is a potential customer. But the wider the range of customers to please, the less relevant the product becomes to any one of them. It’s important to be able to describe one or more narrow groups of target customers.
Business customers can be described in terms of industry sector, size of company (turnover or employment level), age or phase of development of the business, location and more.
For consumer products, customers can be described in terms of demographics (age, gender, income levels), geographics (where they live or work) and psychographics (beliefs and values).
It is always worth remembering that business decisions are made by people, so who are they?
What is their problem?
A great question to consider is ‘what is it that keeps your customers awake at night?, literally! What are your customers so concerned about that it affects everything they do?
Business owners are concerned with getting new customers, keeping existing ones, managing costs, keeping cash flow under control or complying with regulations and legislation.
Parents are striving to provide the best for their children.
Teenagers want to fit in.
Every ideal target customer group shares a critical problem that needs a compelling solution.
How does what you are offering solve their problem?
The trick here is to adapt the original product or service idea so that it solves the customer’s problem. So a social media marketing company is really about helping a business increase sales while a cloud based health & safety training programme supports business owners comply with legislation. A nutrition advice website helps parents provide better for their children, and a social media application allows teenagers to interact, share with their friends and be part of the gang.
What is the solution worth to them?
The key factor here is how big a problem is it. If the problem is really keeping your customer awake at night, it’s a big problem. Sometimes the value of the solution can be quantified, especially if it can be shown to directly result in increased sales and higher profits. In other cases it’s more subjective, and often emotional- what would a parent pay to avoid the regret of not giving their child the best start they can? In general, the bigger the problem and the more compelling the solution, the more the customer will pay.
How many customers are there?
It’s really useful to define the market in terms of Total Available Market, Serviceable Available Market, and Serviceable Obtainable Market: TAM, SAM and SOM. TAM is the total number of customers anywhere in the world; for example, the total number of owner managed businesses or the total number of parents with young children worldwide. SAM is the proportion of these that you can reach given your specific product offering and distribution channels – the total number of owner managed businesses in Ireland, for example. While SOM is the percentage of these that can realistically be captured given the competitive nature of the market. What is the Serviceable Obtainable Market for your business?
This is an iterative process. It’s necessary to work through this sequence of five questions a number of times, fine tuning the answers as you go in order to develop a sustainable business model. Of course, this is just a first step towards starting a successful business, but what a great start it is.
Eamon Curtin is Director of the IGNITE Graduate Business Innovation Programme, UCC. http://ignite.ucc.ie