Validating the Market
There's no point building a product if nobody will buy it when you're done!
Once you've spoken to users and validated that the problem exists, you need to make sure there is a large enough market to justify taking the idea further.
Where will your users come from and how much revenue might lie in the market opportunity?
This can be tricky. You'll need to research existing and sibling markets to analyze their volumes and gauge potential demand for your idea.
By gathering as much information as you can about the potential market, you'll be able to make an educated guess as to the size of your target audience and the number of customers you can acquire. It'll also help you to figure out potential pricing for your product, which will be valuable as you start to make other financial projections.
How large should the market be?
That depends on your aspirations for your product and business.
There's no shame in aiming to build a modest lifestyle business if that's your chosen path. If you're looking to support yourself on your product, even a micro-market offering a return of just a few thousand dollars a month might be enough to meet your needs.
But if you have big ambitions for your product, want to make billions from it and become the next unicorn startup, you'll need to make sure a big market exists for you to target.
But I'm going to create my own market!
It's true, sometimes a truly innovative product creates an entirely new market. Before Whole Foods existed for example, the organic grocery market was significantly smaller than it is now. Uber created an entirely new on-demand transportation service by connecting technology and people with cars.
While this is possible, you should be extremely careful about assuming your own idea will experience a similar fate. Be sure to look deep to understand and forecast the market. After all, for your product to be a success, you're going to have to find a market for it eventually. Proceed with caution!
Let's take a look at a couple of tools you might use to validate the market for your product.
Google Trends allows you to compare the relative search volume for different terms. It shows you how the demand changed for each term over the last 12 months.
In this example, we're looking to gauge interest in the search term “slack bot” and “slackbot”. As the screenshot shows, there's a growing search volume on both terms. If we're developing our own Slack bot, this could be a promising sign.
The problem here is that while we can see a trend, we don't have any figures to show the actual volume of searches. To get a better idea of the search popularity, let’s add in another comparison term for HipChat (one of Slack's competitors):
We can now see that the search volume for slackbot-related terms is still much lower than that for "hipchat".
Data from Google Trends may be very crude and hard to contextualise, but it's very easy to generate. It's a useful starting point and supplementary tool to help understand market demand over time.
Google Adwords Planner
Google Adwords Keyword Planner reveals the average monthly searches on a given keyword. It also gives you an estimate for competitors and suggested bids.
Using this data, you can estimate how much traffic you can drive to your website by using Google Adwords paid ads or by reaching the top of the search engine result page.
The best way to understand the market is to research it deeply. In reality, you'll almost certainly have to do this before you can pass this validation stage. There's no point in building a product if you don't have a proper understanding of the market.
Deep competitor research allows you to understand how your future competitors are trying to solve the same problem. This alone can educate us more about the market for the product.
The easiest starting point is to begin hunting for competitors on Google. In the process of researching your product, you've probably stumbled upon a few of them already.
If you're focusing on a small market and only have a few competitors, finding 1 of them might be enough. But, if you're focusing on a bigger market, you should aim to search for more: at least 3 or so. Ultimately, this decision comes down to you--but we're assuming that you want to learn as much as you can, right?
We'd recommend searching not just for direct competitors but also for similar products and solutions. If you're considering developing a Slack bot to help improve emotional health in teams, don't only search for emotional health Slackbots. You should be hunting for all sorts of products and services that are working in the area of team building and also personal emotional health.
Once you find some, you'll want to find out as much as possible about them. Crawl their profiles, read their blogs, look for media coverage. You'll want to look up information like the size of their team, pricing structure, finances and product features. Tools like Moz can even help you to run content audits on competitor websites to see how they rank for keywords and see which of their content is most widely shared. All of this will be valuable information to hold further down the line.
What if I can't find any competitors
If you can’t find any competitors at all, then you've most likely missed something during your research or you’re working on a problem which doesn't really exist.
There's an exception, however. If you're trying to start up a very small niche business, there's a chance that you don't have any competition... yet.
An example of this is StoreMapper, a micro SaaS company that allows brands to display their stores on a Google Map. According to founder Tyler Tringas, the company became successful, but it took several years to take off because he was focusing on such a niche market.
Another area to look at when conducting competitor analysis is companies that might attempt to move quickly into a new product or service area when competition arises in their market. While this isn’t of immediate concern, it pays to roughly identify fast followers who might step up to offer a similar product to yours to win the market. This will help you to prepare and come up with a plan to handle the situation should it arise.
Once you've validated the market, you're ready to move on to the fun part: validating your product!