Problem 3 - Lack of Market understanding

Why companies' products have a dismal success rate

What is the problem & how big it is?

As discussed many times the number one reason (42%) for companies and product failure is lack of market need. The product itself is not deficient but the problem which is being tackled is not pressing enough for the customers to adopt the solution.

According to Harvard Business School professor Clayton Christensen, each year more than 30,000 new consumer products are launched and 95% of them fail. This is quite a staggering rate of failure. It’s a bit scary to hear the Nielsen statistic that more than 85% of new CPG products fail. Just imagine how much money and energy is wasted in these products.

Why does the problem exist?

The reasons for lack of market understanding are many from laziness to do research as it is a time-taking affair, to incorrect methods of assessing customer needs, to fear of being proven wrong, to the lack of customer empathy. Most of the time what happens (specially with first time founders) is that companies start building out the products much before they have articulated the exact need they want to fulfill and how they plan to fulfill it better than anyone else.

The focus is on the product specifications, design and development which overshadows the basic understanding of the market, analysis of segmenting and choosing the sweet spot. The philosophy of “build and they will come” which means if you are able to build a product, you will be successful is rampant. But the fundamental question, “Is such a product even needed at all?” is never asked.

Some founders also think that research is a waste of time, and only way to learn is to launch and iterate. They are overconfident with their understanding of the market because of being in the market for long time or they believe in their abilities to face any challenge. This is a very blind approach and often leads to dejection and waste of effort and time.


What are the current solutions?

The traditional tools of doing surveys and customer interviews are still the best. Just having open-ended conversations with the customers can give a lot of insights. The problem comes when you don’t have a large enough base of customers . Also these are time taking processes, as there is a lot of operational work involved.

One caveat with surveys is that they contain the questions which you already know so in a way are limiting in uncovering the unknown needs of the customers. Most people conduct surveys to validate a business idea hence they miss out on the hundreds of potentially bigger opportunities which are present out there.

Other solution is to track the latest companies and news in your market. Though this doesn’t give direct insights into the customers, but still is a proxy to the demands of the customers in the market. Of course this is to be taken with a grain of salt as the competitor companies themselves might have not performed market surveys or possess deep customer knowledge.

Listening to the experts in the market is also another way to gauge the pulse of the market and the future course it will take. But in the past disruption has been rarely done by the bigger companies but by the smaller companies as they have an open mind and have no bias in their thinking. In a way being expert in a field may sometimes be a bane.


What is our proposed solution?

A market research firm that uses research oriented frameworks and models to clearly articulate the customer needs. Jobs-to-be-done framework or Product pyramid by Dan Olsen model provide good starting points.

You can have conversations with customers, collate all the data, and prepare market landscape reports. The conversation should be more about listening to the customers than trying to validate a business idea. The aim should be to identify the pain points of the customers, bucket them into themes and understand why the existing solutions are inadequate. There should be a sizeable number of customers(at least 100+) that you should talk to before a research is complete.

Analysis of the markets with mapping of the customer needs with the solutions provided by the existing companies can help you identify market gaps. This information is valued high by the companies thus will enhance your offering.

Business models can be based on selling these market research reports and also selling `Market research as a service`(MRAAS) to the companies. You can start with sharing free market reports so that companies understand your offering and recognize the value you are providing.

Conclusion

I firmly believe that if more companies and people start seeing market research as the starting point of any project the success rate will shoot up by a considerable degree. Fundamentally isn’t it that any company exist to serve the customers? Then why aren’t the primary “Stakeholders” in the business not given enough importance? Why market research isn’t on the radar of every founder? Why are founders sitting in their cabins having hypothetical discussions and not present on the ground?

As Richard Saulman says the solution lies in the problem hence a deep analysis of the customer needs is the first step in creating a worldclass solution and time has come to focus on it.