The best—and the worst—way of learning about market demand is to ask the customer.
It’s the best way because potential customers can answer this question better than any self-proclaimed marketing experts can with their fancy reports, focus groups and all.
It’s the worst because customers really don’t really know what they want. They know what their problems are, what they like, and what they don’t need. But they don’t know what you can develop for them that they reallywant. Don’t believe them if they tell you; they have less imagination than you do.
The best way of determining customer demand is to build a prototype of the product—what startup guru Eric Reis calls the “minimum viable product.” Get this into the hands of the customer as fast as you can. Don’t worry about the completeness of the product or its polish. Ask customers what they like and what they dislike and what features they would like to see in it. Then ask the most important question: If you had all the features that you asked for, what would you pay for it?
Yes, I know that conventional wisdom in Silicon Valley is that you don’t need to focus on revenue; that building market share is all that matters. But this only works in rare circumstances—when you get lucky and a product goes viral. The majority of products need to have a real business model—a way of building a profitable business. So you need to match the price that the customer is prepared to pay with your cost of developing, selling, delivering and supporting the product. If you revenue exceeds total cost, then you’re on to something.
And you can’t ask the customer just once. Customer validation needs to be an iterative process. You have to repeatedly build, gain feedback and improve until customers say that they must have your product. This takes a lot of time and is really hard. But it is the most effective way of building a successful business.