Good research is the secret weapon of startup concepts, potentially shaving months or even years off of a new product launch. In this phase, we’re going to focus on building a super-efficient Research Plan specifically designed for evaluating new startup concepts quickly.
A Research Plan consists of a series of checks and validation exercises that you can run through to make sure you’ve got a good feel for the market you’re heading into. The last thing you want is to be pitching a “revolutionary new idea” to an investor only to have them tell you it’s been done 20 times before.
You also don’t want to give up on your idea just because you saw a Google Ad with a similar sounding company. We’ll give you the tools to figure out who’s out there and how to evaluate them properly.
To avoid going into a black hole of research exercises, you’ll want to focus on specific questions that will help you determine the feasibility of your idea.
There are a number of well-known sources for getting quick answers. We’ll point you to those that are the best fit for your product.
Once you’ve collected your research we’ll walk through a checklist of how to evaluate your findings.
Take your time on these.
While we want to be “quick and efficient,” we also want to be as accurate as possible. Even a small discovery at this stage could save an enormous amount of time and expense in the near future.
Start with a well defined problem your solution aims to solve and conduct an analysis of your market and competitive landscape.
We don’t want to spend the rest of our lives researching so we’re going to focus on three important questions in our research:
Take a look around at the products and services you are currently using and surrounded by. Why are they there? Well, it’s because they are solving a problem or filling a need you would otherwise be experiencing.
This is how all great inventions and startup businesses are born – from a problem or need. From electricity, to the telephone, to the Internet, and more recently to Google and Facebook, great businesses are built on big problems.
Consider this the first question on your startup litmus test: “What problem does my startup or idea solve, and how painful is that problem?” Think critically about this question, as an honest assessment may save hours, days, weeks, months, or years of your time.
Here are some examples of companies and the problems they solve.
Whether it’s lack of sleep, long days, or hard work, people run low on energy over the course of the day.
Panty hose traditionally covered the entire foot, including toes, which is not ideal for some shoe types. If the hose is cut, it rolls up the leg.
Buying books was constrained to finding a bookstore, having the correct book in stock, and traveling to that bookstore.
In determining who is affected by the problem and to what extent, you are essentially figuring out exactly what the size of the market is for your solution. Market size is one of the most important aspects of vetting a startup idea and must be calculated carefully.
Start with your Total Addressable Market (TAM) by defining the industry you are operating in. Then you segment that industry number down to the segment within the industry you are working in, keeping in mind competitors’ numbers for benchmarking comparisons.
Too often entrepreneurs simply get an industry number and say the dreaded, “If we capture just 1% of this market…” This strategy is lazy and could cost you later on. Do your homework and avoid the blanket 1% top-down approach.
Now that you’ve determined that you have a market worth pursuing, it’s time to figure out who you’ll be competing with.
If you’ve identified a problem that is experienced by a lot of people, odds are someone else has too. Find out who else is approaching the problem and how. Even though there may be other companies trying to solve the same problem as you, they may be going about it in a completely different way. Competition can be a roadblock, but it can also be a good indication that you’ve found a problem worth trying to solve.
Once you’ve identified some of the key players, the next step is to perform a SWOT analysis of those competitors. Identify the Strengths, Weaknesses, Opportunities and Threats associated with each one.
You may think your idea is unique and no one has ever thought to solve the particular problem you are working on, but that doesn’t mean you are off the hook here. Identify what people are currently doing to address the problem. It may not be a solution that perfectly addresses the problem like you aim to, but a customer’s existing behavior can be difficult to replace if it adequately addresses their needs. Whatever solution customers are currently using to alleviate the pain caused by the problem is competition for you and should be approached as such.
The Dropbox founders once approached Google for investment. Google’s Chris Sacca said Google was already working on a similar, cloud-based software and that the Dropbox founders shouldn’t bother. In fact, he claimed Google would “crush them.” The Dropbox team pushed forward regardless because they felt like they had a different, unique, and better solution. They are a billion dollar company now and won over substantial market-share.
There are always competitors and just because someone else is doing something similar to what you want to do, doesn’t mean you should stop or be discouraged. It simply means that you will have to do it better than them. Markets are often large and accessible for multiple players to survive.
Knowing what to look for is one thing, but you also need to know where to look.
Answers to these questions are likely to have surfaced in a handful of major search indexes and databases. Chances are you’ve found a few answers in these searches already, but for the sake of being thorough, we’re going to do a more comprehensive search to be sure we didn’t miss anything.
While a Google search may uncover many of the potential competitors you’d want to discover, that’s usually just the first pass. The second pass is to dig into industry-specific sources where your competitors are likely to be selling similar products, from marketplaces to crowdfunding sites to industry associations.
Once you’ve figured out who some of the competition is, you’ll want to size them up.
One quick way to do that is to see if they are listed as a funded company. While getting angel or venture funding doesn’t meant the company is a certain success, it does mean it was vetted through professional channels to have made it through a funding process. As such, you’ll want to know which of your competitors may be more qualified and in some cases this may lead to some discovery of tangential competitors.
Once you’ve compiled all of your research, we’ll want to put a really critical eye on what we’ve found. Evaluating your research is actually harder than the research itself because it requires you to “zoom out” and be very pragmatic about the competitive landscape.
It’s harder to sell a vitamin than it is to sell a painkiller. You have to convince someone they need a vitamin, whereas consumers are well aware they must buy a painkiller when they need it. The more of a “painkiller” than a “vitamin” your concept is, the more likely you are to have a niche customer base you can engage with. Figure out if your solution is a vitamin or a painkiller.
Startup founders can often find themselves working on an idea that sounds plausible, but does not provide a solution to a problem people care about in a meaningful way. Y Combinator founder and investor Paul Graham says that often, these startups are born from individuals who are simply “trying to think of startup ideas” and not looking for problems.
Graham calls these ideas “made-up” or “sitcom” startup ideas, as they sound like something a writer for a television sitcom would come up with when creating a script for a character that had a business idea. The idea seems possible, even though in reality it is bad and no one would use or buy it.
“The verb you want to be using with respect to startup ideas is not ‘think up’ but ‘notice.’ At YC we call ideas that grow naturally out of the founders' own experiences ‘organic’ startup ideas. The most successful startups almost all begin this way.”
Sometimes an opportunity exists, but it's not quite big enough to build a meaningful business out of. If there are three other pizza places in the neighborhood you want to open up your pizza shop, you may still be the best, but there are still a fixed number of people buying pizza and splitting your income across three other incumbents could still be challenging.
Some businesses are not huge opportunities. Some entrepreneurs are happy with starting lifestyle businesses that they can own and operate, while providing a comfortable income. If that is you, that is just fine! You can keep that in mind as you define your own metric of success. Everyone’s business size goals are different so we’ll evaluate whether the market looks big enough to move forward.
Compiling a good competitive analysis will allow you to properly stack up your potential features with what’s currently in market. You may find that some of the features you had in mind are simply “table stakes” that everyone has to have, and in order for you to win customers you’ll have to double down on a very specific feature. These decisions will become paramount when you enter the next phase when determining feasibility.