No one likes the idea of pouring precious time and effort into creating a product or product functionality that bombs in market.
To build, market, and sell products that have the highest chance of success, you should have a deep understanding of your market and its pressing problems. Even if you come up with a great solution before you're well aware of the exact need, do your homework to confirm that there’s a real need out there and that your market is willing to pay to address.
Validation is critical to product success, especially when you have more great ideas than time and resources to implement them. Validation helps you determine if there's sufficient demand for new functionality before you invest time and money to build it. Yet, research shows that most product managers don’t do it.
Need some help? In this article, we share some best practices to identify and validate potential features with your market.
Start with, and validate, market needs
Before going too far down the path of building a new product or major new functionality, validate that there's a market for it and determine whether that market is big enough to be worth your investment. As many experienced entrepreneurs will tell you, even if your trusted colleagues, friends, and mom tell you your ideas are brilliant, you have to “get out of the building” and get more data!
The question is not "Can this product be built?" Instead, the questions are "Should this product be built?" and "Can we build a sustainable business around this set of products and services?" -- Eric Reis, Lean Startup
To collect ideas and market insights:
- Perform in-depth interviews, ideally one-on-one, with your target market--both current customers (if you have them) and non-customers (your market). Interviews take time but give you deep insights into market needs and the value of potential solutions.
- Gather customer and non-customer input with surveys. Surveys are a great way to validate market needs and solutions at scale.
- Consult with analysts and industry experts.
- If you have product in-market, review customer support tickets and interview customer-facing teams, such as Sales Engineers and Customer Success.
For additional ideas, competitive research is a great way to identify untapped opportunities. Social media and online reviews can uncover opportunities to address issues and market needs that your competitors aren't meeting. Reviewing industry blogs, compiling research from internal market research teams and third-party research providers, and attending conferences can help you make predictions for your market, your industry, and your customers.
Note that these are not one-time activities. Keep your finger on the pulse of your target market so that you’re continuously identifying opportunities and validating their viability.
Determine your total addressable market (TAM)
Now that you’ve collected market insights and identified needs, it’s time to quantify your market. Your total addressable market, or TAM, shows whether the opportunity of addressing these needs is big enough to pursue in the first place. Calculate your TAM by using a method below.
- Top-down: A top-down analysis us great as a guide point if your solution fits nicely in an existing category or market. First, start at the largest possible market your solution will address using publicly available data from industry analysts, market reports, and competitors. From there, narrow down your segment based on criteria of your target buyers.
- Bottom-up: A bottom-up TAM analysis is calculated by multiplying the price of your solution by the number of target users or purchasers of your product. Let’s say you are considering building a software product for customer service agents who work in telecommunications companies with over $500M in annual revenue. Start by identifying how many companies meet that profile and then use employment statistics to calculate roughly how many agents each company has. Then, take that number and multiply it by your price to get your TAM.
- Value-theory: A value-theory TAM analysis helps you identify which particular features of your product your target users will find valuable and how much you can capture with product pricing. It should answer how much a user would be willing to pay to get the value of your service compared to their alternatives. Value-theory analyses are often used when introducing new products and cross-selling products with existing customers.
You have solutions to market needs, now what?
Once you become familiar with the solutions your target market wants and values, map out features that may be beneficial to your audience. As you document feature requirements, you should include enough information to explain to everyone involved in the product planning process (we’re not talking old-school, multi-chapter Marketing Requirements documents, but you do need to communicate):
- The problem, solution, and whom the solution is for.
- How the feature meets needs.
- High-level technical requirements and scope to help engineering provide cost estimates.
You should also determine the following:
- Whether the need (or problem) is big enough and worth solving.
- What solution solves the problem best.
- If the market would buy the solution and if so, for how much.
Prioritizing feature candidates will help you identify and rank the features that your market wants and will pay for, and that are aligned with your product strategy and budget for maximum impact (return on investment). To assign feature value, you can run a preference survey to your stakeholders. Using techniques such as Best-Worst Scaling and MaxDiff, you can run an online survey to your market, customers, and/or internal teams to calibrate how much each audience values a set of features.
For more information on product planning and product validation, get our essential guide on the product planning process.