Tse entrepreneurial market_research_2014

Entrepreneurial Market
Research
The Smart Entrepreneur

Entrepreneurial Market Research
• Now that you’ve plotted a value chain, it is time to test some of your assumptions
regarding your value chain and your target markets. However, in a new venture
you don’t have the time or the resources to do extensive research to prove your
initial assumptions.
• Entrepreneurial Market Research allows you to learn and discover enough
information to make reasonable assessments and take reasonable enough
decisions.
• You may research your downstream value chain, but you may also take this
opportunity to test your knowledge about your upstream Value Chain (see IE&D
Toolbox).
• You may find that some of your early assumptions were incorrect or incomplete,
and use research like this at any stage to re-shape your business concept.
Copyright of Bart Clarysse and Sabrina Kiefer

EMR is also known as “Discovery-based market research”
• Discover a lot in a short time
• Research to learn about your market in generic terms
• Entrepreneurial market research and business development are two sides of the
same coin: you can discover possible sales leads while researching customer
opinions/preferences
• This type of research falls between:
– exhaustive market research, which is expensive and sometimes impossible
for radical innovations
– going into the market blind, which is high risk!
• Therefore, this approach is especially suitable for entrepreneurial ventures
“Using preferred witnesses to learn and discover what
(NOT) to do”

Why do this exercise?
• Be more efficient by structuring your research, since you don’t have the means
or time to do extensive classical market research
• Form a realistic market assumption through analysis and synthesis
• Focus your approach, find a suitable niche
• Establish some balance with respect to market reports (which are only top-down
and reveal nothing about the market potential for your specific venture; a start-up
may not have the same market potential in a particular market as an incumbent)
• Take the first step on a continuous path of getting to know your market
• Establish a clear aim as to how, where and when you should enter the market

Entrepreneurial Marketing - steps
1. Start with your perception of the downstream value chain (or your value-
added network)
2. Identify possible market segments and product segments
» make a product/market matrix – (and sub-segment)
1. Collect qualitative information (from primary sources) about the market
segments
2. Collect quantitative information (from a mix of primary and secondary
sources)
3. Compare segments on qualitative and quantitative merits
4. Consolidate information to calculate the real market potential for your
specific venture
» Where is the best product/market fit, which is the most attractive
market segment and how big/valuable is it?

1. Start with your perceived Value chain
Technology Product
development
Manufacturing Marketing Distribution
Upstream downstream
design
End-
clients
N.B.: both these segments may be
clients in your market segmentation!
You are here
(you think)

• A product market matrix (P/M) is a combination of:
– Your product/service segmentation
– Your market segmentation
• It structures the questions:
– What exactly can we sell to whom?
– Where should we start?
• So, list your products/services and then list your possible markets
2. Make a product/market matrix
Market 1 Market 2 Market 3
Product A Product/market segment A1 A2 A3
Product B B1 …
What? – Why? – How? – Example – Conclusion

Factor Consumer markets Industrial markets
What are the
characteristics of the
customer?
Age, sex, race
Income
Family size
Life cycle stage
Location
Lifestyle
Vertical industry
Geographical location
Size of company
Technology
Profitability
Style/ culture of management
How will the customer
purchase/ use the product?
Size/ frequency of purchase
Issues with brand loyalty
Purpose of use
Purchasing behaviour
Importance of purchase
Source of purchase
Application of product
Importance of purchase
Volume of purchases
Frequency of purchase
Purchasing procedure
Distribution channel
What are the users’
specific needs, and
preferences
Similarity to existing purchases
Price elasticity
Brand preferences
Desired features
Quality
Performance requirements
Assistance from suppliers
Brand preferences
Desired features
Quality
Service requirements
2A. Possible ways to segment your market

• Large/small
• Core product/supporting services
• Versions/modules
• Components
• Stand alone/co-packaged/bundled
• Core technology/specific applications
2B. Possible ways to segment your product or service offering, e.g.:

P/M Example - Mobixx
• Mobixx is a firm commercialising a mobile internet transcoding technology
• At present, companies wanting a mobile internet presence have to code a
different mobile website for every type of handset
• With Mobixx:
– A desktop site is automatically transcoded
– To fit any given mobile device
– Benefit: better mobile internet experience, faster, …
• Mobixx P/M Matrix:
– Vertical axis: product and service components
– Horizontal axis: possible markets

/MP Example - Mobixx
Mobile
Network
Operators
Small web
designers
Large
webdesigners
Corporates -
travel
Corporates –
FMCG
Government
Cities…
Technology
Platform
(just licensing
Technology)
Integrated
solution
(design,
technology,
Implementation
…)
Hosted solution
(idem, but on
a Mobixx
Server)
Problem
Solving
(helping firms
developing an
inhouse
solution)
Product/
Service
compo-
nents
Market segments
Product/market segments

3. Collect qualitative information
Look for preferred witnesses
• “Preferred witnesses” or “representative witnesses” are experts or
people with experience in a certain product/market segment
Talk to them:
• This will help you understand the true needs of the players in a
product/market segment (they may only need a specific part of your
offering), and
• this will help you understand a lot of secondary circumstances, eg.
sales cycles, decision making power, budgets, urgency, … but also how
the Value Chain really works.

Which witnesses?
Witnesses without prejudice (the more radical the innovation is
compared with your core business, the less likely that your existing
customers will be suitable witnesses), eg.:
• Common mistake: if you ask your existing salesforce to propose a radical innovation to
your existing customers, most likely your salespeople will come back saying “nobody
wants it”
Direct or indirect witnesses: witnesses can be, but are not necessarily
(working inside) target firms.
• They can be operating upstream or downstream in the value chain, they could be ex-
employees, government bodies, federations, consultants, …
• Direct witnesses: A selection of potential stakeholders within customer organisation
who are representative for each of your segments, e.g. Talk to Coca cola, Unilever and
Procter & Gamble when you want to discover the need for your innovation in FMCG
• Indirect witnesses: people who have regular contact with your customers, such as:
» Vendors, Retailers, Wholesalers, ...
» Professionals/practitioners, consultants, government bodies, federations, e.g.:
 For medical product – doctors, nurses, pharmacists, etc.
 For safety products – police, fire brigade, etc.
 And so on

Direct witness research is similar to ‘Strategic selling’
When approaching direct witnesses  you need to consider the
target organisation’s different decision levels:
– Economic buyer
– Technical buyer
– User buyer
• You can also use a “Coach” to obtain information or to help you open
doors! – see further ahead
• As with a good sales approach, you need to get to know your potential
customers and show that you want to understand and satisfy their
priorities.
Source: R. B. Miller and S.E. Heiman, 2005

Economic (Buyer) (EB)
Characteristics:
• Gives ‘go’ to buy (e.g. makes procurement
decisions)
What drives the EB’s decision/opinion?
• Bottom-line return or savings
Challenges
• Finding out which person has this role in a complex
organisation
• Getting this person’s attention
Is the EB always the general manager?
This depends on:
• the value of the deal
• the deal’s impact on the organisation : is this
product critical or on the fringe of operations?
• any former experience the organisation has with
your company
Don’t: just talk about the features of
the product, e.g. user friendliness,
without indicating clearly the impact
on the organisation (benefits: save
money, make more profit)

The User (Buyer) (UB)
Characteristics
• Will consider immediate effect on own job/life
• Can stop you or pass on incorrect information if feel
threatened
• Can help you if s/he faces a real problem that you
can solve
What drives the UB’s decision/opinion?
• Can it make my job easier, without undermining my
credibility?
Challenges:
• Most users are subjective and conservative
• You cannot pass them by, they will boycott
• Trying to convince them can slow down your process
Don’t: neglect them
‘because they have
nothing to say’

The Technical (Buyer) (TB)
Characteristics:
• Skeptical
What drives the TB’s decision/opinion?
• Only tangible and measurable criteria
Challenges:
• May VETO your proposal > if he says no,
his veto will not often be overruled by the
economic buyer; the economic buyer
tends to trust the TB’s negative judgment
more than his own positive one
• The ‘Not invented here’ syndrome Don’t: take his enthusiasm as
a “go” for the whole
organisation, because the
economic decision maker may
use different criteria

The Coach > can help you to get in the door!
Characteristics
• Someone who regards you highly
• Has credibility with the client
• Believes in you and wants you to be successful
Where do you find the Coach?
• Within the customer’s company
• Within your own company
• On your board of directors
• Consultant
• In some cases, the Technical or User Buyer
may become a Coach
Caveat/Challenge
• If you get help from a coach, make sure that
you handle the relationship with care:
informing them of the outcomes, keeping them
up to date, etc.
The coach is someone willing
to share information with you

Further considerations about market segments:
• The more that decision makers in a certain market segment overlap (e.g.
Economic and Technical Buyer could be the same person), the simpler (and
shorter and less expensive) the future sales process will be in that segment
• In the case of large international corporates with many decision makers or
decision centres (perhaps in different countries), or where there is a high manager
turnover, it is more difficult for a small firm to make a direct approach, identify
appropriate contacts and create momentum.
• If you can only meet or see certain decision makers, some
guesswork/interpretation of the information will be necessary!
– Eg. suppose you only get to talk to the technical person. If he is positive,
this means the opportunity still stands, but until you confirm this with an
Economic Buyer, you cannot be sure…

How many witnesses?
Interview as many witnesses as needed:
• Until you learn nothing new;
• Until you can explain the reasons behind any and all contradictory information
received from different witnesses within a segment.
• E.g.: If witnesses at four different pharmaceutical companies tell you that sales
cycles for new packaging standards are 2 to 3 years because the sector aims for a
unified solution, there is no reason to contact 15 other pharmaceutical companies.
• If three witnesses give you similar answers to a question but a fourth tells you
something different, you need to continue interviewing until you can explain the
reasons for differences in this segment (thus identifying further sub-segments).

How do you find Witnesses?
Look at your product/market segmentation
• Ignore segments in which you see no benefit for obvious natural reasons ( e.g. they
can’t afford that product or application or it doesn’t pertain to their business…)
• Do desktop research to identify companies in segments presumed relevant and
suitable witnesses within these companies.
• Can you indicate segments where you have spoken to preferred witnesses already?
• Can you indicate segments where you could make contact from your own personal
network (organisations, people)?
• Brainstorm: how to obtain contacts in the other segments? Use your network, family,
friends, LinkedIn, peers/colleagues, etc.
• Try to find at least 3 to 5 possible organisations + contacts per segment.
• Use anyone with credibility as a coach!

Example - Mobixx
Operators Small web
designers
Large
webdesigners
Corporates -
travel
Corp - FMCG Government
Cities…
Technology
Platform
Vodaphone NO BENEFIT The Reference
…
KLM
British Railways
…
- -
Integrated solution +/- NO BENEFIT +/- Inbev
Coca cola
P&G
Unilever
Hosted solution - 400 in Belgium
??
+/-
…
Talk to a former colleagueGo via Linked In
Talk to a former client
Look in yellow pages
Use a
board
member
Ask
your dad
if
necessary!

Be persistent...
Explore all your resources and do what it takes to
obtain the necessary information!!

What do you need to discover from your witnesses and how to interpret?
1. What level of Need and Urgency for your offering?
• Witnesses who have an urgent problem
=> the first one proposing a solution wins the customer (so you
may get a deal while just doing research!)
• Your solution means a real possibility for growth for the
target segment
=> there may be competition in this segment > you will need a
competitive strategy
• There is a growth possibility or problem in the future
=> manage the time you invest with this segment; they have no
urgency to decide
=> the sale could slide now > this may be a segment to take on
later
• Witnesses who don’t realise they have a problem
=> how can you make your client see he has a problem, or he is
missing out on possible growth? > beware you don’t become a
Don Quixote in this segment, preaching forever but never making
business

What do you need to discover... cont.
2. Can you establish a Win/win proposition? :
• Win for a Company: ROI, lower cost, image building, …
• Personal win for decision makers: for the EB, UB and TB individually >
think about that! If it makes your interface person redundant…
• Example: When a person shows both a personal and a company interest, the
chance of doing business with this P/M segment is bigger.
» E.g.: when you talk to 5 facility managers in large firms about
implementing a facility management software solution, the best attitude to
encounter is: ‘I have to realise the same objectives with half of the
manpower; having a software solution would enable me to do that. I would
realise my personal objectives and this would be great for my company
too’.
» A worse scenario would be: ‘this might be great for the company, but
when as a result my team shrinks, I will look like a less important
manager myself…’
» Worst-case scenario: “I just bought one.”

What do you need to discover... cont.
3. Also consider:
• the decision making structure and parties involved,
eg.: To get a sale at one company, you would need to make sure to be in the
next official budget and you need to talk at least 5 times to different
departments. Or you might talk to an SME owner who can decide right here
and right now.
• Compatibility and flexibility: are potential customers willing to make related
investments to adopt your product or service? E.g.: will they change a
production line, or train people in a new process?

How to prepare well?
• Important: don’t waste time asking questions to
which you can find answers by other means (such
as the company website, press articles …)
• Prepare well and try to show that you have
prepared professionally
• Ask the right questions to the right person: a
technical person or a financial person do not speak
the same language! A direct or an indirect witness
also requires an adapted approach.
• Structure your interviews clearly and consistently,
so you can benchmark and compare
Tip:
Meetings can be the most
interesting format, but
also the most time consuming for
both parties.
So Qualify your witness first
(i.e. gauge their interest in and
relevance to your proposal) by
telephone!

Questionnaire tips
• I am …
• You are …, responsible for …
• “x” said I should call you because …
• Product specification (positive and negative!)
• Verify your assumptions about the upstream and
downstream value chain: ‘Is it true that…?’
• Do you experience certain problems?/ How do you
deal with this today?
• How much do you spend in this field today?
• Are you satisfied with the solution?
• If this or that solution would be possible, do you see
profitable applications in your business?
• When evaluating an alternative, what are your
criteria and standards? E.g. price, quality, speed,
shape, compatibility, just-in-time delivery? Anything
else?
• Would you consider working with a small company?
Determine:
• Who would be involved in the
decision making process?
• What is the decision cycle?
• Compatibility problems? Can
existing installation and
processes remain unchanged,
and if not, how flexible is the
client or partner in changing
these?
• List of competing solutions (also
simple substitutes)
If you are talking to an indirect witness, such
as a ‘Coach’, you will adapt the questions
accordingly

4. Collect quantitative data
• You have validated your VAC
• You now have qualitative info on the
product/market segments you defined
• You have a clearer perception of the
segments that offer better prospects or a
better fit with your venture
Now what do you do next?
Find some quantitative information
about the more attractive markets
and segments you identified, via
desktop research, reports, etc. …

Quantitative data: Secondary sources include:
• Journals/ publications
• National press
• Websites
• Databases – including gov’t and NGO open data sites
• Analysts’ reports
• Patent searches
• www.google.co.uk
(Check resources in ‘Further Reading and Links’ section of Trend Analysis
Tool in the IE&D Toolbox)

Example: Mobixx
Mobile Network
Operators
Small web
designers
Large
webdesigners
Corporates -
travel
Corp - FMCG Government
Cities…
Technology
Platform
Vodaphone
Orange…
NO BENEFIT The Reference
…
KLM
British Railways
…
- NO BENEFIT
Integrated
solution
+/- NO BENEFIT +/- Inbev
Coca cola
P&G
Unilever
Hosted solution - 400 in Belgium
??
+/-
…
There are 100 European cities of over 300,000 residents–
See wikipedia
5 operators and 14 virtual ones in the UK
See Wikipedia too > subscribers included

5. Compare segments
Question: what are the most attractive segments for us?
How big is each market segment > see quantitative data
Can customers be identified easily > did you manage to draw up a contact list?
Is the segment growing? > see trend analysis
Is there an unmet market need? How many players in the segment could be
estimated to have a substantial interest in this type of solution, in view of the
answers in the qualitative research? > see preferred witnesses
How many would go for your solution, service or product? > idem
How strong are competitors or competing solutions? > Refer back to info from
preferred witnesses and see Activity on ‘Competitive analysis’
Compatibility? > refer back to preferred witnesses
Standards and regulations: do they help or work against us? > desktop research
+ witnesses
What is the Decision cycle and micro-value chain in this segment? > witnesses
Now make a final selection of best segments
• Using judgment based on all your research findings

6. Calculate real market potential
• Now only look at the relevant segments you selected
• Consolidate the market potential
Is this method 100% error proof? No!
But… when you consolidate the relevant
segments in this way, the market
potential will be much more accurate and
your focus much clearer.

Market calculation Example – Brand protection with conductive ink
• Product: an application of Conductive ink technology to be printed on packaging
• Based on an innovative polymer, the ink can conduct electronic signals
• The conductive ink is transparent, but can be detected using an electronic
reading device
• Among other applications, the technology can work like RFID, enabling you to
distinguish authentic products from counterfeited ones

Segmentation based on
several articles and reports
about sectors that suffer
most from counterfeiting
Segment the brand protection market
Brand protection
Tobacco
Music & film
Industrial parts
Apparel
Pharma
Cosmetics
ICT
Food & beverages
Toys

Insights from interviews
Interviews with: Scapa, Esprit, Levi’s, Mexx, Procter & Gamble, Coca-cola, UCB, J&J,
Philip Morris, HP…
• Apparel: not a lot of interest detected, they do not see the problem and count on
customs and reactive legal action
• Pharma: are discovering the problem, will shop for a solution, sales cycle takes 2
years
• Cosmetics: interest/benefit depends on product value
• Tobacco: a likely lead user, but already developing an in-house solution;
secretive, unlikely to co-develop a product. Too late to approach this segment.
• Food & beverages: intends to integrate brand protection as an add-on when
developing future new supply chain with RFID: too low product value for stand-
alone solution, too long lead time (~10 years)
Other qualitative information from indirect witnesses: HP, Microsoft, Sony
• ICT segment: constantly looking for protection (mostly interested in a solution
that is also visible to the end user)
• Video/audio: intensive co-development, e.g. Sony-Philips

Relevant segments
Sector's interest in brand
protection
Sector's fit with Newco's
ink solution
tobacco High interest generally, but in-house development
music & film Medium interest, but co-developement already established
industrial parts Low interest overall
apparel Low interest overall
pharma High interest, but long-term and complex
cosmetics Product Value too low
ICT High interest and open for new solutions
food & bev Medium interest as part of Supply Chain innovation, so too long term
toys Low interest overall
High attraction
Medium attraction
Low attraction

Brand protection - Calculation of market potential
Quantitative top down information – desktop research
General Trends:
• About 5% or more of the world’s economy is traded in counterfeit goods
(B. Kaiser, CTO, KeyMaster Technologies, Inc. in press release on 20 May 2002)
• Losses by firms and governments from counterfeiting and diversion are estimated at
between $300 billion and $1 trillion annually (source: UK Counterfeit Intelligence
Bureau)
Actual Market size for brand protection:
• about $25 billion for documents and products, or 5% to 6% of total estimated losses
due to counterfeiting (Security Solution Consultancy, 1999);
Brand protection consumes 1% - 5% of sales and marketing budgets of large firms
(Harley Lewin - expert).

Quantitative vs. qualitative calculations
SEGMENTATION (PM/Matrix) Order USA year
estimated budget
brand protection
number of
companies
in top 500
total budget
counterfeiting top
500
Most counterfeited products fortune 500 exemples mkg & sales budget 5%
tobacco 38% RJ Reynolds Tobacco holdings inc 345.000.000 2002 17.250.000 2,00 34.500.000
music & film 30% Integrity Media inc 13.897.000 2002 694.850 4,00 2.779.400
industrial 10% harley davidson 213.000.000 2002 10.650.000 42,00 447.300.000
apperal 9% levi's 307.100.000 2002 15.355.000 4,00 61.420.000
pharma 6% Pfizer 6.474.600.000 2002 323.730.000 10,00 3.237.300.000
cosmetics 5% estee lauder 1.425.600.000 2003 71.280.000 4,00 285.120.000
ICT 5% oracle 2.072.000.000 103.600.000 19,00 1.968.400.000
food & bev 1% the coca cola company 3.200.000.000 2002 160.000.000 21,00 3.360.000.000
toys 1% Matell 553.000.000 2001 27.650.000 2,00 55.300.000
730.209.850 108,00 9.452.119.400
Preferred
Witness
% of segment
likely to w ant
% likely to
w ant % price ink EU+US = 1,82*US
brand
protection
New co ink
solution?
in total
solution ratio for total
Philip Morris 100% 10.0% 2.0% 125,580
Sony 50% 0.1% 2.0% 51
caterpillar 20% 5.0% 2.0% 162,817
Scapa, Mexx, … 5% 5.0% 2.0% 5,589
johnson & johnson, UCB 100% 5.0% 2.0% 5,891,886
P&G 5% 5.0% 2.0% 25,946
HP, microsoft 100% 5.0% 2.0% 3,582,488
Coca Cola 50% 0.1% 2.0% 61,152
Mattel 20% 5.0% 2.0% 20,129
9,875,638
Information from reports
Top 500 companies – examples
from relevant industries
Information from company yearly accounts = public info
% applied from expert info
=Quanti-
tative
Data
= quali-
tative
data
Interpretation of qualitative info from interviews Copyright of Bart Clarysse and Sabrina Kiefer

Comparison of data
Conclusion: if you want to sell a lot of
conductive ink…
Brand protection is not your market –
the value is too small
If you compare the estimate from your quantitative research with
the refined result of your qualitative research:
€ 9 bn vs € 9 mn
 Big difference!

Conclusions and deliverables
Through your market research you have:
• Tested your assumptions about target markets and industries
• Possibly reshaped your initial concept or approach
• Narrowed your market focus down to the more promising segments for your
venture
This gives you a clear focus for:
• Market testing in specific segments
» Prototyping, lead users, focus groups
It will also provide input for:
• Marketing/sales plan: which customers to approach, how and when;
• Operational Plan: the exact features, applications, versions needed for your
product/service, and the people and competences needed;
(see Roadmap in IE&D Toolbox)
• Input for your Financial assumptions: size of market, price points, sales lead
time and its effect on cash flow, etc.
(See ‘Financial Viability’ in Business Model tool and Financial Planning tool)

Sources and suggested further reading
• Clarysse, B. and Kiefer, S., 2011. The Smart Entrepreneur.
London: Elliot & Thompson, Ch. 4.
• Miller, R.B. and Heiman, S.E., 2005. The New Strategic Selling.
New York: Grand Central Publishing (Hachette USA).

Tse entrepreneurial market_research_2014

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