When you're starting a business, it's hugely important to research the market beforehand. It's vital for establishing demand, ensuring your offering is what people actually want, and helps you hit the ground running. John Auckland is the founder of TribeFirst, an innovative crowdfunding agency that helps businesses reach their crowdfunding goals. Here’s how John researched his new business venture.
"TribeFirst is the first crowdfunding agency globally to provide campaign support for equity crowdfunding on a commission model, which we do for campaigns looking to raise over £200,000. Initially even I was unsure whether my model would work, so I spent a lot of time researching the marketplace and testing different business models to give my company the best possible chance of success. In the end I spent around six moths test trading and speaking to startups before I felt confident there was a market for my idea.
Most founders undervalue market research; it’s time-intensive, resource-sapping, often intangible, and most certainly difficult to know where to start. However, it’s probably the most important preparation you will undergo when bringing your proposition to market, and I wouldn’t be that surprised if poor effort in this area is contributing towards more than half of UK startups failing within their first five years.
Why is research so important? Firstly, it validates your idea and shows the market is big enough to operate your model within. Secondly, it’s almost impossible to get any funding without solid research to back up your financials. Also, failure to research doesn’t inspire confidence with a future investor or Virgin StartUp investment manager – if you can’t be bothered to properly test your market it suggests you’ll let other laborious but often-important tasks slide when your business is up and running. Thirdly, and perhaps most importantly, it will allow you to properly manage your own expectations, either by giving you more confidence in your idea, or in encouraging you to pursue something else entirely.
There are a number of different forms research can take, ranging from desk research right up to running a pilot that will help you to prove the concept. I’ll discuss a few of these here, and where relevant show how they helped my company receive funding.
Some people take a cynical view that the only thing a survey gives you is the opinion of people who like completing surveys. This is true in some respects. Use surveys wisely to emphasis a particular point, or to validate a missing piece of information. In my opinion you should never use them as a sole argument for starting a business in a new area. Remember, Henry Ford once said, “If I had asked people what they wanted, they would have said faster horses.” In my case I ran a survey with fourteen startups, without telling them it was a survey as such. I just sat down in an informal setting, had a chat and asked specific questions about crowdfunding in a non-specific order so it felt like I wasn’t interrogating them. You’re more likely to get the truth in open dialogue.
A natural extension of the survey, which is more akin to open dialogue, is the focus group. This is great if you have a tangible product to test. It’s not so good with concepts or ideas. You have to paint a clear picture because often a group will struggle to understand your vision in a short space of time, unless you have pictures, designs or prototypes to help you. Also be wary of holding one focus group with a large number of people. You’ll find someone has a dominating voice and they will sway the others in the room. Much better to hold multiple sessions so you can compare and contrast, or use a virtual focus group tool like Verbate - www.verbate.com. I personally didn’t feel the need to run any focus groups, but ran a lot of them in my previous marketing agency, so I know about the benefits and pitfalls.
This is where I spent most of my time, mainly because it’s easy to fit research time into evenings and weekends when all you need is a quiet space and a laptop. There is undoubtedly an abundance of stats about your market that will help you decide how lucrative it is, and you’ll find some competitors even if they’re operating a different model. In most instances you won’t be inventing a new market, just disrupting an established one. Even if you operate in a niche area, try to find comparable industries or similar ideas you can draw comparison with. If you struggle to find anything useful at all, it’s probably not a good sign. However, it’s worth bearing in mind that lack of data doesn’t mean there isn’t a market for your idea - it just means you’ll have to get away from the desk to prove it.
For example, my company was completely unique before I started. There were a couple of companies in the US supporting rewards campaigns (at the time, equity campaigns in the US weren’t legal), but nothing in the UK. I was able to draw on data from start-up and crowdfunding incubators, and combine them with more general crowdfunding market data. My competitors at the time were traditional PR and marketing agencies, and I was able to show relevance through comparison, even if their model was vastly different to mine. However, I wasn’t going to be able to truly prove my model worked unless I supported some successful campaigns, so for me it was essential I completed some test trading.
Not everyone will have the luxury of being able to test trade, or run a pilot of some kind, but where possible I highly recommend you do before you apply for funding, especially if you’re in the service industry. In my case I was lucky to have been able to operate something close to my current model through my old marketing agency. I then transitioned fully to my commission model by supporting a couple of campaigns in my spare time, and once the concept was proven I took the final leap. All of this undoubtedly helped me receive funding, because Virgin StartUp could see the effort I put into proving there was a market for my idea, and more importantly in my case, demonstrating I had the expertise to make a commission model work.
It’s worth noting that if you plan to apply for Virgin StartUp funding it’s essential that you have completed some of these types of research, with evidence to back it up. If you are unsure of how you can research your own idea, please speak to your business advisor and they will help you come up with some ideas.