Live Or Die By Testing Demand
It’s no secret that new businesses fail. I mean a LOT of new businesses fail. In Singapore, the Ministry of Trade and Industry estimates that between 70% and 80% of new businesses close within the same year.
Clearly starting a small business isn’t easy. So what can you do to put the odds of success squarely in your favor?
Look Before You Leap
Skydivers habitually check their gear before stepping foot on the plane. They’ve obsessively ingrained proactive steps that help ensure their safety before the jump even begins. Starting a new small business isn’t much different. There are some easy steps you can you can take reduce your chances of going splat!
The first preventative measure you can take before registering a business is to explore the type and depth of demand for your solution.
How Bad Are The Consequences?
As rational consumers we evaluate how much we are willing to pay relative to the perceived satisfaction of the purchase. So when you plan your new venture give some thought to how badly your target client base needs to ease or eliminate their problem. Does their problem HAVE to be solved? Or is your solution a cure for a minor annoyance? How deep is your prospects pain, and how well does your solution adequately address it?
If you are selling $10,000 backup generators your audience isn’t ‘everyone’. Some people don’t live in areas where expensive generators make economic sense. But for an emergency field hospital, the value of a backup generator is obvious – it could save many lives. In field conditions a backup generator isn’t ‘nice to have’. A backup generator is an absolute must because people will die if the main generator fails.
The point is, if your product or solution solves a deep problem (or potential problem) then your odds of success increase. You’ll be able to find buyers even during the worst of economic conditions.
Who’s Hunting Whom?
Wouldn’t be great if you had a solution that was in such demand that people were seeking you out to give you money? Sounds crazy, but it’s easy to achieve by following a two-step formula.
Step One: find what people want to spend money on.
Step Two: make the thing that people want to spend money on.
So how do you find what people are looking for? The tools you need vary a bit by country, but for most people Google and / or Ahrefs works well.
Make a List and Check it Twice
Start by brainstorming ALL the ways you think people might use Google to find your solution. This is a crucial step that creates a foundation for the steps that follow so spend some time thinking of as many ideas as possible. Imagine yourself as 10 unique buyers with different pains. What problem do they have, and how did they contact you to solve it?
Now review your competitors’ sites. What terminology are they using? Should you be using it too?
When you have your list, go to your local Google homepage. Begin typing in your keywords, one by one (no copy and paste!). As you do so, make note of Google’s suggestions for your keyword and add that word to the bottom of your list. When you get your search results scroll to the bottom of the Google results page. Make note of the suggestions at the bottom and add the ones that are applicable to your list.
Repeat this process as many times as necessary. There are faster ways to develop a larger keyword list, but this will cover your most relevant terms for demand research.
Show Me the Money
Now that you have a list of ways that people might find you in a search engine, separate commercial terms from the non-commercial terms. For example, the term “emergency generators” would go into the non-commercial list as it doesn’t doesn’t offer any insight into what the searcher is looking for. They might just like to look at photos of generators. You’ll need to use a bit of discretion. A term like “emergency generators Singapore” is a bit more commercial in nature. The inclusion of a city name implies the searcher may want to visit a store that sells generators.
How Big is the Pie?
Now let’s see how many people actually want to give you money. You’ll probably have competitors so the pie needs to be big enough for you to capture a healthy slice.
If you just need rough numbers then sign up for a Google Adwords account. Go to Tools —> Keyword Planner —> Get Search Volume Data and Trends. Paste your commercial keywords into the tool and get your results.
If your service is dependent upon proximity to your clients (like a physical location) then be sure to select the location that is applicable to where you live (ie Chicago).
In this fictitious example it looks like very few people are looking for emergency generators in Singapore! If you were going to produce emergency generators for the Singapore market you would want to plan your next steps very, very carefully.
Ahrefs Data = Better Decisions
It’s always a good idea to get the best data possible when you are developing business assumptions. With this in mind consider signing up for an account at ahrefs. They have a 7 day free trial, but honestly, ahrefs is essential to generate leads so you’ll probably become a paying client.
Just like with Google Adwords you can enter your keywords into the Keywords Explorer and get the data you need to determine whether there is enough demand to justify your new venture. Ahrefs search data is MUCH better than Google’s (Google deliberately obfuscates their results by combining similar search terms into a single keyword).
Ahrefs doesn’t split countries into smaller areas so if you are selling in a specific area (like New York) then Adwords may provide more relevant information.
Testing Demand to Save a 1000 Hours
If you could potentially avoid spending YEARS of your life on a solution that ultimately won’t work, would you do it? What if the cost was $300 to $400 in upfront investment? Would you still do it?
I really hope you answered “yes”.
It just makes sense to validate your solution BEFORE you build it. Why not find out how many people are willing to plunk down cold hard cash for your solution before you invest 100’s or 1000’s of man hours into a project?
There are several easy ways to test your market demand. Here are a couple:
Platforms like Kickstarter and Indigogo are crowd funding solutions that have evolved into an amazing way for nascent solutions to validate their ideas by asking people to finance their future production. If you want to make a new type of watch ask people to buy in advance and see if there are enough people willing to pay for your combination of style and pricing.
These sites don’t work well for every type of new business, but if you have something tangible make a video and pitch for cash. Run some ads on Facebook to drive product impressions. The market will very quickly tell you if they think you’ve got a winner on your hands (or not).
Just remember, if you take pre-sales money be SURE you can deliver an amazing customer experience.
Test Your Assumptions
Crowd funding platforms don’t work for everyone. For everything else there is live testing.
Most new businesses don’t start marketing their solution until it is 100% ready to go to market. This makes sense, but they’d be better off if they started selling their solution, and THEN built it.
Setting up any kind of business is a big, big investment. So avoid investing in product or infrastructure until you find out if people are buying.
These days, to test the viability of an idea all you need to do is follow 5 easy steps:
1. Buy a site domain and set up hosting and an email addresses.
2. Install WordPress on your domain and purchase a WordPress theme. Divi Theme from Elegant Themes makes it very easy to design, edit and manage a great website. If you’ve never built a website before there is a bit of a learning curve, but you’ll figure out the basics pretty quickly.
3. Create a small website that highlights the amazing benefits and features your solution offers. Be sure your site is designed to accomplish the real goals of your business. If you sell a service then you’ll want to collect leads from potential buyers. When users click ‘Submit’ on the lead form they are taken to a Thank You page.
4. Set up an Adwords account. Make a ‘Search Only’ campaign. Use the keywords you prepared to measure demand, and develop multiple ads to appeal to searchers.
5. In your Adwords campaign run “Conversions Tracking” and see how many people visit your “Thank You” page compared with the number of visitors you receive. This will help you fine-tune your messaging.
For a nominal investment of around $300 you can:
a) Begin testing your product messaging.
b) Capture leads and see EXACTLY how many people are searching for your service.
c) Speak with future buyers. What better way to find out EXACTLY what buyers want or expect.
That’s the best $300 you will EVER spend.
Not all demand generates specific search intent. There are lots of things that people buy without a visit to Google (gasp!).
Some products have ‘known’ demand, and it can be hard to separate general interest from the potential demand for your solution. For example, we all know there is broad demand for coffee. But that doesn’t mean consumers will trade their existing coffee brand for your coffee (though I’m sure it is delightful).
Some businesses use focus groups and friendly feedback, but these don’t always work. When someone offers a free cup of coffee in exchange for an opinion, they typically get encouraging feedback. And praise from potential customers may not translate into them seeking ways to pay for it in the future.
When you are selling a product for which there is generalized demand there is one easy way to quantify how popular your solution might be in the marketplace. That is, simply redefine your audience.
In the coffee example, if you redefine your customer from coffee drinkers to coffee buyers then your focus shifts. You’ll move away from people who buy small servings of coffee to those who buy coffee in bulk. You could visit hotels, small supermarkets, and other places that coffee is sold in quantity. Find out from the owners of these establishments how you can add value to their operations, and what they need from you to make an order.
What if your prospective buyers have no way of knowing they should be searching for your solution?
If your target buyer is very specific then you’ll probably be able to identify and connect with them. For example, if you develop erp software that is specific to life insurance companies you can identify the decision makers in those firms and outreach to them directly. Since the number of life insurance companies is limited, the number of people whom you need to contact is small.
And the principle of evaluating demand in advance holds true! Using the example above, you could pre-vet your solution with the life companies. They can collaborate with you on the features they want, and you can get ongoing buy-in into your solution. And if no one is interested then you know you’ve saved yourself a ton of development time.
The Take Aways
Knowing how to quantify demand is essential to success as a business owner. Building demand for a solution is usually an expensive process and hard to finance. But if you can identify and tap into existing demand, your odds of success increase exponentially.
Here are the take aways from the above
- Lots of businesses fail. Before you invest in company infrastructure, find out whether people are willing to pay for your solution.
- Check the interest for your solution using ahrefs or Google adwords.
- For most accurate data build a small website and test conversions with Adwords
- For just $300 you can test your messaging, see the depth of interest for your solution, and connect with buyers.
- If your solution is for ‘everyone’ then redefine your best buyer until you have a niche with whom you can connect and evaluate demand.
- If you know exactly who your buyers will be (ie B2B solutions) then get your buyers involved in the development process. If they tell you they aren’t interested then you’ve saved a lot of time and money.