Many growth companies make the mistake of launching new offers before they understand the market. They believe the value of their new offer will be so obvious to customers that all they need is a great engineering team and a predatory sales force and they can race their idea to market. This build it and they will come approach to product development is also known as technology in search of a market. It’s the business equivalent of oil well wildcatting — the high stakes search for oil in unchartered territory. As a business model, it’s terribly capital inefficient.
There are two arguments for building a product before validating a market.
- First-mover advantage: “If we don’t launch it now, someone else will emerge as the category leader.” This worked for Facebook but not for ESPN’s Mobile Phone, HP ‘s tablet computer, Solyndra’s solar panels, and countless other half-baked new offers. Furthermore, being the first mover guarantee does not guarantee success: consider Altair (first PC), Netscape (first browser), Wordstar (first word processor) and Excite (first search engine).
- Customers don’t know: Steve Jobs made clear, “We do no market research. Our goal is to design, develop and bring to market good products … we trust as a consequence that people will like them.” Similarly, Henry Ford once said, “If I’d asked customers what they wanted, they would have said ‘a faster horse’ ”. Every century we get a genius or two like Ford and Jobs. Unfortunately, most innovators are not as gifted, and there are many more examples of technology in search of a market that fail like the Segway transporter, Window Vista and HD Radio.
1) Who is the customer?
2) What business problem do we solve?
If a company cannot answer these questions, it may have a technology but not a market. The best use of seed funding is not to build and launch a first release, but instead to prototype with enough customers and ‘pivot’ until you find a big, unaddressed business problem.
One lesson growth companies can learn from baseball is that every team of 9 needs a manager to focus on the big picture. Similarly, every ‘new offer’ team needs at least one customer champion for every 9 developers to be sure to find their field of dreams.
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