Not every business plan needs to have rigorous market research; plans related to seeking investment almost always do, plans related to bank loans usually do, and with other plans, it depends on how confident you — the entrepreneur — are about your market.
That thought brings me to what some readers suggested as an immediate follow-up: So, if you have to prove that there is a market, what proves it? What kind of information, what kind of documentation, do you need to support your market?
This is a particularly difficult problem when you have something entirely new, so you are going to create a brand new market.
This can be a tough problem. Ironically, although we talk a lot about first-mover advantage, it can be less of an advantage if you need investment capital and you don’t have a proven market to point to. I think it was a former CEO of IBM who suggested that the total market for computers would be 12 in the entire U.S. He was wrong, but how do you prove that he’s wrong and you’re right?
Say you’ve got some magic beans that nobody else has ever heard of, that you say will create a new market for themselves. This is going to be the greatest thing since sliced bread.
Your investors want to believe in your new business, and your market, but on the other hand, they’ve heard this claim before. What does it take to convince them?
If the benefit is something that anybody can understand, then show and tell works great. Demonstrate the benefits right in front of them, so they can see it themselves. That means they can taste the magic bean themselves, or see it grow the beanstalk, or something like that. If it’s a product, bring a prototype. If it’s too big, bring a video. Prove that it works.
Produce eager buyers: show orders from the channel, letters and testimonials from large companies that want more of what you’re selling.
Show that people are already spending a lot of money, time, or effort on solving the problem that this new thing solves.
Show numbers. Bring demographics to connect the numbers to the needs and wants. If your magic beans grow left-handed corncobs, bring numbers to show how many people would want left-handed corn cobs.
Point to some other market that took off very quickly at similar price points, offering similar benefits.
There’s no specific formula or right or wrong or guarantee with this, but if you put yourself in the investors’ place, and think about what they’re thinking, that helps a lot.
Ask yourself: What would convince me that it’s going to take off?