Tuesday, April 2, 2013

Market Feedback is Critical to Early-Stage Companies

The local Boise angels like to invest in “Seed-Stage” companies. A seed-stage company has a workable product or service in the market place and is beginning to generate some revenue. It needs to test the market and learn which customers will find the offering most attractive, how those customers can be reached and what product features are of most interest.

Often what happens is the entrepreneurs will learn that they need to make changes to the product and/or their original market is not the most interesting market.  Many years ago the company I co-founded, Learned-Mahn brought a computer-based accounting system to the market.  Our hypothesis was that most small businesses would find this attractive.  At the time most did their books by hand.

Our market tests helped us learn that our product cost too much for small businesses, and there was no efficient way to reach the target market.  But as we attempted to sell the system, we learned there was a niche with certain large companies that we could profitably reach and who needed what we had to offer. We went on to license the software to AT&T, Campbell Soup and the 1984 Olympics to name a few.

Good entrepreneurs know that almost never will the first version of a product be what the customer will pay for and that frequently the initial target market will not be most productive market.  The most important step for them to take is to bring something to the market as quickly and inexpensively as possible so that they can start to get feedback from real customers. 

We have learned that no matter how much you know about a market, you need to get out of the office and talk to that market.  And the best way to talk to a market is to ask it to actually purchase something. When you do, you get real information about real consumer behavior.

Steve Jobs knew this better than most.  His entire career he brought out less than fully featured products and got instant market-based feedback. Think of the changes that have been made to the iPhone since the first one was released, or the iPad.  Apple is superb at learning from the market place and then releasing a new version of a product that captures a much larger market.

An example of a local company who has brought an early service to the market and learned from its experience is Social Good Network.  Both the Statesman’s reporters and I have written about Social Good Network before.

The Boise Angel Alliance has invested in Social Good Network through its two angel funds. (Full disclosure, I am an investor in those funds.) The purpose of our funding was to enable the company to test its services in the market.

The company provides an on-line fund raising community for charities.  It offers several services:
  •       Consumers can shop on line merchants through the community.  When they do, Social Good Network earns a commission. The consumer can then designate 50% of that commission to a charity of his or her choice.  
  •        The consumer can make a direct donation to the charity through the on line community. 
  •        Charities can install unique patent pending software directly on their web sites, which allows contributors to make donations without leaving the charities’ sites.

The November/December time frame was a perfect time to test these services, both shopping as well as contributions.  Their theory was that they were a consumer centric community focused primarily on shopping.  They learned that the charities were more excited about the donation services.

Armed with this information, the company now knows where to focus its valuable resources. It is changing its software road map and marketing to respond to the information it gained from taking the initial product to the market place.

Kevin Learned is the Director of Venture College at Boise State University, and the co-founder of two angel funds which invest in early stage companies in the Boise, Idaho area.

No comments:

Post a Comment