Originally Posted on July 27, 2020
Last Update on August 3, 2020

Hi.

When in doubt, you should validate your ideas in market.

There are many ways to do market research, but the simplest and easiest way to do is directly talking to your users, partners and customers.

It’s better to talk to users first, then analyze numbers. Not vice versa.

Why?

Often times you don’t find a gem from broad observations. First you need a depth and then width later on.

Many successful products aren’t born out of great market research. They were results of great understanding of users.

Let’s say you want to open up a travel agency – before building a brand-new website or hiring a first employee, you must make sure there are demands for it.

Without a customer buying your product, you will fail. No matter how smart you are. 

So talk to potential customers. Friends who often travel are great starting point.

Don’t share you ideas first because that’d give your friends a bias.

Instead, ask detailed questions about how they travel to understand every aspect of the existing problems.

Next tell them your ideas. What does she like about your idea? Or not? How much would she pay for it? Etc.  

Or even better, you yourself can be the first customer. Many successful entrepreneurs say “scratching own itch” as a great starting point and it’s true. 

Once you figure out the detailed problem and how to fix it, move on to the market research.

Don’t spend too much time on this step – execution is much more important. 

Step 1. Define target customers

What is the size of your target customers? Is it for consumers or for businesses? What are the age groups? What do they want to get out of it? What are jobs to be done using your services?

Quickly go through these questions so you can have a rough idea around your target customers.

Step 2. Estimate the number of target customers

There are multiple online resources to filter out by your criteria. Find the number of estimated customers.

Step 3. Penetration rate

What is your estimate around the penetration of your service in a given market? Why do customers choose you over competitors?

How are you planning to distribute your service to potential customers? How many of them do you think would respond?

Step 4. Market size and growth

How much each customers would pay for your services?

Also understanding a CAGR (Cumulative Annual Growth Rate) of a specific market is important. Generally speaking, the faster growing market, the better.

Step 5. Summarize

Average Annual Revenue * Number of Customers = Potential Revenue

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