Commercial Viability – Market Demand
Market demand is essential for any business. Test your assumptions, find some die-hard fans and time it right!
Coming up with ideas is fun, but what really matters, and what people often ask us about, is whether an idea is commercially viable – that is, whether it’s worth pursuing.
I thought it might be useful to share what we’ve learnt about commercial viability in a short series of blogs. I’d like to use each blog to outline a different aspect of viability I’ve identified, which are:
- Market demand
- A strong value proposition
- A profitable business model
- The necessary resources
I’ll start at the beginning, with market demand.
Testing your assumptions
The level of demand from customers is ultimately what determines the success or failure of a product and the business responsible for it. For startups, with their small initial product offering, it’s even more crucial: a recent study into unsuccessful startups found almost half failed because the market simply didn’t want what they had to sell.
What can you do to avoid this pitfall? A simple and increasingly popular solution is the lean startup method. Simply put, businesses can avoid wasting time by building a basic expression of their offer, or minimum viable product (MVP), measuring real customer responses to that MVP, and then using what they learn to inform the development of their product.
For me, the fundamental skill behind lean startup’s success is testing assumptions. Businesses run on a whole set of assumptions about their offer and the demand for that offer; by testing those assumptions early and effectively, a business can decide whether a venture is worth the effort before that effort is made. Some of the key texts we refer to in the Activate programme, like Value Proposition Design by Strategyzer, also emphasise the importance of identifying and testing key assumptions, and changing your plans if what you’re planning doesn’t fit!
To get actionable and useful feedback about your offer, you need to find customers willing to go with you on your assumption-testing journey. This won’t be most people: according to the theory of innovation diffusion, only 1 in 6 people are likely to be early adopters, open to the change your new idea represents. However, if you sell the vision of your product to them, they’ll provide the engagement you need to develop products that fit your market, promote your product to others, and stick with you through the speedbumps.
Many of the innovators we’ve spoken to have found their early customers through their existing networks, but don’t worry if your network isn’t that extensive: there are plenty of networking opportunities and tools available that we can direct you to.
The importance of timing
Finally, one of the most important things to consider is that markets change constantly. New ideas displace old ones and the technological conditions and other trends that influence a market can be markedly different in a short space of time.
That’s why when serial entrepreneur and investor Bill Gross investigated the cause of startups’ success or failure, he found that timing was the most important factor. Companies with very similar business models and level of investment had very different outcomes, due to the time they reached their target market. It isn’t easy to know when the right time has come to launch a business or new product, but that’s another set of assumptions you can test.