Cre8tive Capital wants to ensure startup tech and tech enabled companies are well managed and stable. We are writing this blog to help you with essential questions that we often see clients struggle with. Welcome to Part 1 of How Do You Know It’s a Good Idea?
The beginning of many great startups are inspired by a product. An amazing and useful product that an entrepreneur sees a use for in the world. But an innovator and engineer might not think about the business side of things. They are often completely caught up with product development and leave no time to think about things like the market and pricing.
So what’s more important? Building your product or understanding your market? History tells us that focusing too much on the product or technology leads to impractical solutions that the majority of potential consumers do not want. There needs to be a thorough understanding of the consumer market and what they want. Additionally, balancing customer discovery with product development is important to make sure that you are producing a product that customers want to buy at a fair price. Spending too much time on one or the other can cause a founder to lose focus of the other.
Here are some techniques for customer discovery to ensure that you understand your market:
- Conduct direct interviews and questionnaires/surveys of your potential consumers.
- Utilize partnerships with others. Don’t reinvent the wheel; leverage
the relationships and expertise of others for the good of your business.
- Evaluate where you fit within your relevant ecosystem to understand what levers you need to pull in order to stay relevant. You can do this by using things like the Business Model Canvas, a one-page business model summary.
Ideas and the technology that they are born from come and go. Many times inventors fall in love with these ideas and technology but fail to remember that they are not the only customer. They swear that their idea will succeed only to see it fail because of too much of a focus on the product. The inventor sometimes proclaims that the technology was ahead of its time or that the market was not ready. This only proves a fundamental mistake in understanding the market and its needs. This is best shown through the story of Dean.
Dean was always an inventor. He remembers back to when he was five years old and made his first invention. It was device that helped him make his bed every day, and it would not be the last of his inventions.
Dean was able to make money off of his inventions by the time he was in high school, and he was making money per year as an inventor than his parents were making combined at the time of his graduation.
Dean decided to attend Worcester Polytechnic Institute but showed he was more interested in inventing than attending classes. During his first few years at Worcester, Dean developed the first of his many medical breakthroughs, the AutoSyringe. Barton, Dean’s older brother and a medical student, inspired Dean to create the AutoSyringe by telling him about patients that were made to come into the hospital for treatment due to their constant need for medication. Dean would drop out to pursue AutoSyringe full time.
AutoSyringe was a major success, and Dean sold the company to become a millionaire. He would not stop there. Dean had a new idea that he was ready to go forward with, and he got plenty of early investors including prominent venture capitalist John Doerr (early investor in Google, Amazon, and Intuit among others) who went on to say that Dean’s new idea would be the fastest to reach one billion dollars in sales. With so many backers, Dean’s new idea was able to raise an estimated $176 million in initial investments.
This new product was launched in 2001 to much hype with Dean himself saying that this product would “be to the car what the car was to the horse and buggy.” This new product in its first year had an annual sales target of 40,000 units but expected annual sales to be anywhere from 50,000 to 100,000 units. By 2003, only three thousand units had been sold, and only thirty thousand units had been sold by the end of 2007. Sales continued to decline, and the company was sold to a British millionaire. The company would be bought and sold by different corporations before landing with a China-based technology firm. In 2018, this product has still failed to become profitable; this product was Segway and Dean is Dean Kamen.
The shortfall of Segway was that it did not have mass market appeal. The average price of a Segway was $4,500 which priced out many potential consumers. At that price point, it was competing with scooters and cars which were more efficient and longer-lasting. Ronald Bills, chief executive of Segway, admitted to the Economist that all of the focus was on the machine’s technology, not its value. Segway was also a disaster from a public relations standpoint. The initial products underwent mass recalls due to programming errors which caused several injuries including those to George W. Bush and Jimi Heselden.
Segway, like many great tech ideas, is just innovative technology with tons of bells and whistles but no market traction and no application to real world problems. It is Impractical for everyday use and did not find a market as a toy or as a useful transportation vehicle. From this case study, it is clear that the product failed because there was a lack of understanding of the market. You should never exclusively focus on building a product before you understand your market.
Stay tuned for Part 2 of How Do You Know It’s a Good Idea? where we will talk about where you can enter the market.