158 IP and Commercialization | Commercialization & Managing Intellectual | Validation

Market Validation

In slightly more detail, here are 12 commonly used questions that entrepreneurs ask to initially assess a new market opportunity or the attractiveness of a new commercial product.

  • What is the unmet market need (the Pain)?
  • What is your solution (Pain Relief), and does it work?
  • Is it protectable?
  • Can you obtain required regulatory approvals? Who are the customers, now and in the future?
  • What is your competitive advantage?
  • Which companies are already in this space and who will likely enter in the future?
  • What is the market potential?
  • Is it scalable?
  • Can you produce/manufacture it?
  • Can you sell it and …convince new customers to try it?
  • Can you make a profit?

The commercialization process starts with validating market demand. It is imperative that you can obtain data to validate that real customers have an unmet need (often called a market gap) that a hypothetical new product can satisfy. This is an experimental process, and it is not linear, as you hypothesize, test, reformulate, test again until you converge on a validated understanding of what product will satisfy the customer. It is imperative to confirm that customers have a real problem they want solved, preferably an urgent big problem, and that there is demand (market pull) for the new product being launched. Ideally you want to determine what customers are currently spending (time, money, or other resources) to solve or deal with their problem. This is pain you hope to remove from their life if they use your product. Sometimes customers don’t even realize they have a problem until it is described and quantified by someone else. Market research and customer discovery are the key pillars of any market validation process. Customers may not know exactly what they want, but they do know what problems they have experienced which need better solutions, and they are willing to pay to make those problems go away, thereby making their life happier, easier, cheaper, faster, or more convenient.

Many entrepreneurs make the mistake of building a product first and then they go looking for someone who needs it. This is called a technology or market push because customers did not ask for the product and consequently the entrepreneur now has an uphill battle to convince customers they need this new product, even though they are content currently living without it. The chances of success are much higher when you properly validate a customer’s problem and then design the product to best solve it. This is called a technology or market pull and is the basis of the common statement that “necessity is the mother of invention”.

Technical Validation

The next step is to validate the technical feasibility of your solution. Can you build a solution that will solve customer’s problems and keep them delighted? This is largely an engineering problem that never stops as the prototype or actual product is continually updated using feedback from potential and existing customers.

You must have a clear and detailed understanding about what customers want and then include these most important features into your potential product design – often called a Minimum Viable Product (MVP) or a Minimum Lovable Product (MLP). An MVP is not a finished product, but is more of a prototype or tool that you can use to test your hypotheses about customer’s wants and needs. All of this must be within your capabilities of engineering and production with a key focus on the level of Quality-Cost-Schedule that will delight customers but minimize production costs and maximize profit. If you can’t build it at a Quality-Cost-Schedule that generates repeat sales and profit – then you should consider pivoting your business to solve a different customer problem. If you don’t have an MVP yet or don’t understand the features you should place in your MVP then you need to backtrack and do more ideation, brainstorming, and design work that follows directly out of all the market research and customer discovery that you should have completed during the market validation phase. Once you have an MVP, then you should also start estimating what it will take to scale up manufacturing or production to the minimum level of production (units) that you predict the market can realistically absorb. Seeking examples of comparable products is one way to estimate costs and feasibility.

Next, every new product has to be accepted and integrated in a customer’s existing routine, processes, and technical systems, whatever they are. If a new product requires significant and costly changes to a customer’s existing equipment, then the new product will be difficult to sell. It can be cheaper and less painful to live with the problem than to adopt and integrate the new product. This resistance to change is common in large highly integrated industrial production systems. One small change can be very disruptive, so it is ideal to design products to work with existing systems, if required.

Product Development Process

Before embarking on product development ensure that you have fully validated the customer problem and the market opportunity. It is easy for scientists to migrate towards product development where they can use their strengths to design a solution. Avoid creating a solution too early because this can consume a lot of time – be sure you are creating something customers are asking for.

A general Product Development Process involves five main steps and can often loop back several times before reaching a final product design.

  • Conceptualize: Develop many concepts for new products and test as many as possible.
  • Engineer: Pick the best designs and fit these designs to your manufacturing and regulatory constraints, such as quality, cost, scalability, strength, life cycle, recyclability, safety, etc.
  • Prototype: Build pre-production prototypes (MVPs) and test them under simulated conditions and then show these to customers to get feedback to help you optimize a final design.
  • Manufacture: Set-up, test, and optimize your production and manufacturing processes.
  • Evaluate: Return to any of the previous steps as often as needed to find your final attractive technically validated product that you want to commercialize.

Anyone working through this process can encounter unexpected roadblocks that make a potential product unattractive. Therefore, this process almost always needs to be repeated several times and must incorporate feedback from customers, suppliers, and distributors to continually improve the design. Several iterations are often required as the process repeats from conceptualization to manufacturing, but this process cannot go on forever, so at some point a design must be selected that is reasonably close to the customer’s needs.

If you take too long to technically validate your design, then you may be too late to be first to market and the competition may be first to satisfy customers and displace you. Being “first to market” can sometimes be an advantage that many innovative companies use to capture market share and keep customers loyal for a long time. However, being first is expensive and often has the steepest learning curve, so being second or third can also be advantageous as you can learn from the mistakes of the pioneer that launched first and avoid costly mistakes. It is important to capture new customers, but it is even more important to keep existing customers coming back and buying more products and services. If you have a long-term perspective, then your goal may be to develop the ability to innovate faster than your competition. So, where you start with your first product may be less important than how fast you can develop better successive products.

Now that you have a potential product that has been technically validated, we can move to the next step, economics! How will you monetize your product?

Economic Validation:

What is the business model you plan to use to make a profit repeatedly? You have identified a market gap and a product to fill it but how are you going to generate revenue and profits to sustain your business perpetually.

Common business models used by businesses today to sell products or services include:

  • Manufacturing: Make products from raw materials for use by other industrial customers up the supply chain. The production of auto parts depends on these.
  • Retailing: Sell products to customers, from a physical store. Visit any large mall and you will see almost nothing but retail stores.
  • Distribution model: Buy finished products in bulk from manufacturers or importers and deliver and sell them to retailers at a higher price.
  • Razor blades model: Sell break even or even money losing products to customers but then charge a high premium/profit to purchase consumable needed to reuse the product. Razor blades and laser printers are common examples.
  • Advertising model: Sell advertising space to other companies that want to be seen adjacent to your attractive enticing content. This is how Soap Opera TV shows operated.
  • Subscription model: Sell a service, for a regular monthly fee. Bell Telephone is an example.
  • Bundling model: Selling two or more products together as a unit. Many cable or internet packages are sold this way.
  • Freemium model: Give away limited free services but offer enhanced services much more valuable services for a fee. This is commonly used online with software-as-a-service (SaaS).
  • Leasing model: Sell customers the right to use a large expensive asset, but not purchase it. Commercial real estate and construction equipment are often leased.
  • Marketplace model: Create an easy-to-use place (physical or online) that brings buyers and sellers together and capture a small percentage of their sales transactions. This is often referred to as E-commerce. Amazon is an example.
  • Franchising model: Sell licenses to other entrepreneurs (other businesses) that want to operate their business using your trademark, brand name and products. Many fast-food chains, like Tim Hortons are examples.

Whatever business model you use, it needs to be tailored to fit with your company. A very useful free tool for developing your business model is the Business Model Canvas created by Strategyzer, which is freely available under a Creative Commons License.

The business model canvas is an organized and disciplined way to work through validating and invalidating all the hypotheses you have generated for your business and creating new ones along the way. It is an iterative process that lets you record what you have learned from testing your hypotheses so you can use evidence and data to move towards the most feasible and viable business model. It is a living document and not just a form to be completed at one point in time. All the content added to your Business Model Canvas must be validated by obtaining data and feedback from direct communication with customers, suppliers, and partners (face-to-face or virtual interviews are best). The business model canvas should be used, reviewed and changed regularly even after your business is established.

The Business Model Canvas enables you to see the big picture that includes the most critical elements that will make your product and company successful. Completing the Canvas forces the entrepreneur to be disciplined and detailed enough to ensure the most important components of their business are explicitly understood and visible which should help the entrepreneur make better business decisions.

The common critical elements of any business are described in the Business Model Canvas. These include Customer Segments, Customer Relationships, Channels, Value Proposition, Revenue Streams, Cost Structure, Key Activities, Key Resources, and Key Partnerships. Take some time to review the various categories (boxes) used in the Business Model Canvas.

What Comes Next

Now you need to put it all together and consider what to do next. Is it worth starting a new business or is it better to license your invention to another company that already has experience bringing similar products to market for similar customers? More often than not, academic inventions are licensed to other existing mature companies. This is why almost every university in North America has a Technology Transfer Office (TTO). The invention, new technology, or product may not support a viable business model that can sustain an entirely new company, at this time. So, working/cooperating with your current university, college, or research institute can often provide access to many useful resources trained to enable and transfer new technologies to industry partners who have a proven track record of bringing new products to market.

However, if you believe you have developed a viable business model and you can source the people, equipment, and funds to move forward, then the next task is to create your company (sole proprietorship, partnership, corporation, non-profit, B Corp or other legal entity) and most importantly fund it (self-funded or using investors). Then you must start the gigantic task of operating your start-up company by putting your business model in place.

Operating your start-up and executing to plan is well beyond the scope of this course but you are off to a good start now that you have validated the market, technology, and business model. But remember, to quote Steve Blank: “A startup is a temporary organization designed to search for a repeatable and scalable business model.” The goal of a start-up is to find that optimized business model that will enable it to grow and stay in business perpetually. As the start-up operates it will need to pivot many times until eventually creating the product that delights enough customers to generate repeat sales and profits. Once you have established repeatable sales and hopefully see continual growth in sales, then you can focus on becoming more efficient, and profitable.

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