Reasons why online businesses fail. The Importance of Market Research — Founders Kitchen Sink

Piotr Pozniak
4 min readFeb 26, 2020

When in the past, people were facing a lot of problems and were missing the right tools. The challenge was in overcoming the technical obstacles and creating such tools. The market was open to new solutions. Currently, the market is stuffed with products and services, and customers are spending more time filtering offers. This situation makes us, founders, approach the market another way. We work on an idea that we think the market needs and then, we try to justify it is true, that this is something that would sell.

Some founders are that excited about their project that they skip the “justification” part. They think their product is something too good not to sell. Or they are biased, and they believe that if they buy it, other people will buy it also.

My project makes me think similar. The idea of the tool that would aid the quotation process seems good. The product is relatively easy to create. I would use it (and I will). There are thousands of software companies in the UK. Some of them have their product, but probably half of them are software agencies or software houses. For sure are doing the estimation of the cost before they start work. Also, I’ve seen some products similar to what I want to create, so it means there must be a market demand for such a tool.

Number of potential clients

This is just a set of ifs and assumptions. The truth is that I know nothing about the market I am going to enter. First, I do not know how many companies are out there. What is the accurate number? Are there 5000, 10000 or 100000 software companies in the UK? How many of these are delivering the custom software on demand? And this number is a key factor. Let’s assume that from my calculation, it will turn out I will need 500 clients to reach the break-even point. Without knowledge about the size of the market, I cannot tell whether I have to cover 5% of the market or 50%. If there are 100 000 potential clients, reaching 500 is possible, it means that my business may bring revenue. But if there are only 5000 potential clients, it means I would have to sell my product to every one out of ten.

Competition

Secondly, I am not alone in the market with my product. There is a competition, and they don’t sleep. Without knowledge about the other players on the market, I cannot say whether I’m able to reach my desired goal. I can only guess. Of course, I can try to convince people to use my tool instead of the tool of my competitors. Still, it’s not that easy when it comes to selling to business customers. When a business purchases a product or service, it will stick to it. My tool would have to be significantly cheaper from what my competitors are offering so it would allow my customer to reduce the cost while maintaining the same abilities. Or they would have to be unhappy about their current vendor.

Market research can reveal that I am wrong, and available tools are not that similar to what I want to create. It would mean that my product is something that companies don’t need at all, and they don’t want to spend the money on that.

Client profile

And finally, the last thing. Who is my client? I think that most of the founders who create a product or service for a business client omit this question. My client is not a “company”. A “company” does not decide whether to buy a product or not. A “company” is not going to use my tool. It is always a person or some people who are deciding on purchasing a product. And they may not be using the tool but their employees. So it is necessary to learn who is a decision-maker. It can be CEO, founder or employee. It is vital to know who that person is. It is as essential as the knowledge about the market.

Internet — unfulfilled expectations

You may think that when SaaS operates on the internet, a place where you have access to billions of people, statistics and probability are at your side. The truth is that it does not work that way that after you publish your product online, it will eventually sell after some time. First, the internet is flooded with products and websites. Every time I look at the spam folder at my mailbox, I have an impression that there is no more room for the next offer I’m not interested in but each day teaches me I am wrong. Second, after you launch your SaaS and you run neither marketing nor ads, nobody will come. So then you may have a thought: then I’ll start marketing and ads campaigns, and that’s it. Well, ok, running the marketing campaign is a must but to do that, you must know who is your target. When you open ads manager on Facebook or Google, you will stand in front of a form that will ask you precise questions. Without having accurate answers for these, your campaigns will fail.

So I hope I made it clear how important market research is. It is crucial.

This article is a part of Founders Kitchen Sink experiment, where I’m demonstrating a whole journey of creating Software as a Service. You may find more details at https://founderskitchensink.com

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Piotr Pozniak

Full-stack software architecture and development, project management and business process optimisation with bespoke software. Entrepreneur, SaaS co-founder.