The biggest reason new businesses fail is lack of market need. Put simply, this means no one wants or needs your product or service – or at least, not enough to pay for it!
When it comes to building a viable entrepreneurial business strategy, the number one thing you need to do is identify a gap in the market. But how do you spot a gap – and more importantly, how do prove the market need is really there – before you start spending your time and money?
What is a gap in the market and how do I find one?
A gap in the market is a group of customers whose needs are not currently being met. There are many options for tapping into a new market and each one is based around fulfilling people's latent needs in some way.
A gap in the market has one of the following attributes:
- It is something completely new;
- It already exists, but it could be improved;
- It exists, but could also appeal to a new, untapped market.
Maslow's hierarchy of needs is a good place to start when categorising the types of areas you can look to innovate in. Made up of basic, psychological and self-fulfillment needs, it gives us a framework for understanding human motivation and what we need to feel satisfied. The model comprises of five levels, in which people must have their needs met in each tier before moving up to the next.
Identifying new business opportunities often links in to one of these tiers, for example meeting basic needs, such as food, shelter, safety or security. Psychological needs are next, which are focused on relationships and belonging, along with self-esteem needs, where people are motivated by feeling good about themselves and their accomplishments.
The top tier of needs has a vast amount of room for innovation; self-fulfillment needs. This is an area concerned with fulfilling your potential, including creativity. There are plenty of areas in this sphere where people are looking for products and services that can improve their lives at work, enhance their leisure time and nurture their interests.
Netflix is an often-cited example of a company that continually harnesses gaps in the market, from starting life in the 90s as a website-based movie rental service, to the streaming and content producing giant it is today. We have also seen huge innovations in the health, wellness and ethical consumerism space in recent years as people become more environmentally and socially aware. Utilising the latest technology and being acutely aware of current affairs, trends and lifestyle choices can help you to tap into the next big thing – or adapt something that already exists to be even more appealing to the current audience.
There are many innovations in more niche spaces too, especially in the B2B arena. For example, Pennman, a specialist design firm who – when realising the quality of much of our food is dependent on the air quality and air conditioning during its manufacture - now install ventilation and air conditioning units for a diverse clientele from bakeries to ice cream manufacturers. This is a great example of a B2B business that solved a customer's pain point via the latest technology.
Keeping up to date on changes in legislation can also be a good way to identify potential new markets. Industries can go through major changes when new legislation comes into play. For example, the GDPR data protection legislation that came into force in May 2018 led to a major shakeup for organisations throughout Europe and in turn was the catalyst for several innovative solutions which helped companies streamline their response and ensure compliance.
It is also a good idea to look at your strengths and interests and how they are aligned to any potential market gaps. A fundamental part of the growth mindset is having a clear vision and purpose for what you hope to achieve – without it, you may not have the drive to see your vision through, or the passion to inspire others.
So, ask yourself; am I passionate about this industry or idea? Can I provide a service to people in a new or different way? Can my product make someone's life easier? A process quicker? Automated? Cheaper? More fun? Relaxing? Healthier?
If you can meet one (or more) of these needs, you could have the beginnings of a great new start-up on your hands.
How do I validate my ideas?
Unfortunately, spotting a potential gap in the market isn’t a guarantee of a successful product or service.
Validation is a really important step, because no matter how sure you are, or how wonderful you feel your new product or service is – you must back this up with market research.
It is not just start-ups who can fail to properly identify customer needs for their product. From Amazon’s Fire Phone, to Facebook Home and Pepsi’s failed morning pick-me-up drink Pepsi AM – even major corporations can fail in their market analysis.
There are different techniques you can use to ensure that you have properly analysed the market and there is a genuine customer base for your venture. Market research is the key to really understanding your audience and ensuring your product or service meets customer expectations. It can also help you decide on other elements of your go-to-market strategy, including pricing and marketing activities.
Market research can take a range of forms, from commissioned research, publicly available statistics and analysis, data analytics, surveys and focus groups.
It is important to use this information to segment your target audience and really drill down into your ideal customer. This ensures you can design and market your venture to meet the exact requirements of the customers who are most likely to buy from you.
One way to do this is through psychographic segmentation, which allows you to position your products so that the right customers find them. This goes hand in hand with demographic segmentation. Psychographic segmentation is a type of consumer psychology that provides qualitative data on the motivations behind customer behaviour, such as beliefs, values, lifestyle, social status, opinions and activities.
Demographics – quantitative data such as age, sex, job title and location – tell you who your customer is, while psychographics tell you why they buy.
Once you have determined your customers’ demo and psychographics, you can then develop different customer personas. Personas are used widely in marketing and detail the exact characteristics that define your target customers. This then enables you to tailor your offering and market effectively to each customer profile for maximum return on investment (ROI).
However, establishing a gap in the market and validating your products with customer research is just one part of a successful entrepreneurial journey. Making your business idea a reality is dependent on a variety of skills and a wealth of knowledge that enables you to take an idea through from conception to a viable business.
Our Entrepreneurship Management and Innovation online MSc provides budding entrepreneurs with the tools they need to identify and nurture a successful business opportunity. Covering topics including Entrepreneurial Strategy, Finance and Funding, Marketing, Business Operations and Organisational Design, our MSc can help you to unlock your entrepreneurial potential. For more information fill out the form below and speak to a member of our admissions team.