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Why too much Googling may not be good for you

You’re on trial. And those Ivy League guys with the Stanford and Harvard MBAs areyour judge, jury, and executioners. The good news is that you won’t be spending big bucks on legal fees, because in this court the defendants must represent themselves.Welcome to the venture capitalist pitch meeting.Unlike the U.S. courts, you are guilty until proven innocent. What are the charges? Theymay vary depending on your business, but here are some common ones:

Your market is too small and not growing.Your product is nice too have, not need to have.There is absolutely nothing unique about your product.You are unable to define your customer and why they would buy your product.Your value proposition is valueless.You have no idea how to acquire customers.You can’t define who your competitors are.Your business model is unworkable.You are totally dependent on your partners for your success.

Your sales process is so lengthy and complicated you’ll never close enough business before your cash runs out.If found guilty of any of these charges, you will be to be sentenced to serve your time asan entrepreneur without venture capital. If you are lucky you may get to retry your case before another jury of VCs. If so, you will need to present a stronger case.Ok, what is going on? Venture capitalists, having heard hundreds, it not thousands of pitches, tend to be very skeptical. They are likely to assume the worst, rather than the bestabout you and your business proposition. So if you want investors to buy your equity for a price you can live with, you are going to have to present compelling evidence to themthat none of these charges are true. And the charges against you may vary, for instanceyour product may be “me too” or you don’t know “what problem it is you are solving andfor whom.” Whatever the case, you are going to have to prove these charges to be false if you want to convince investors to invest in you.So how do you do it? Traditionally entrepreneurs defend themselves by presenting business plans, and often those business plans are too weak to prove your innocence.There are many reasons why these presentations fail to land an investment – see my post,Why the VCs might "pass" on your deal for a laundry list.

The charge: No market opportunity

I’m going to focus on just one charge: the charge of no market opportunity, as that is avery common charge. VCs want to see a market that is big and growing fast. One wherethere may be competitors – because often the saying “no competition, no market” is true, but not too many, and none that dominate. And you need to make a credible claim thatyou will become a market leader. Because market leaders in large and growing marketsusually make money for their investors.I’m not going to try to provide you with a defense to all these charges, but the principleof how to defend this charge applies to all of the rest: present the evidence and the factsthat force the jury to the inexorable conclusion that you are innocent of the charge. Andthat, in our topsy-turvy court system, means that instead of being punished for beingguilty you are going to be rewarded for being found innocent, rewarded with aninvestment in your company.

Why you may be convicted

One reason you may fail to be acquitted of the charge that your market opportunity isn’tone, is an over reliance on secondary market research. You may remember from your college days that there are two types of research: primary and secondary. A simple butworkable definition of research is “fact finding”. Primary market research means that youare finding out facts about your market directly, from the marketplace itself. Secondarymarket research means that you are finding facts from others who have conducted marketresearch themselves and published their findings. Unfortunately market research reportsmay well be rife with conjecture, speculation, inference, faulty analysis and unsupportedconclusions. If you are going to hang yourself, you might as well do it with your ownrope.If a market research reports has been published, Google can find it. And therein lies the problem. Many business plans that I have seen rely far too much on cutting and pastingsnippets of reports from Forrester Research and Jupiter Research – note well their surnames. Now I have the greatest respect for Forrester and the rigor of their primaryresearch and the insights and conclusions they draw. And every business plan should present secondary market research from that supports its business concepts, from sourcesrespected by venture capitalists. No startup has anywhere near the resources to conductthe type, depth and scope of the research done by Forrester, Jupiter or a host of other market research firms. Entrepreneurs need leverage, so leverage yourself by finding and presenting those elements from market research reports that bolster your case. A business plan without any secondary research may be just as unsuccessful as one with no primarymarket research data.But the problem is that Googling for market research is just too easy, and it is just tootempting to rely on what you can find with Google to bolster your case. And if your business has anything to do with technology or the Internet you will easily find reams of market research reports that touch upon your business. Because Google searching is soseductive, many first time entrepreneurs rely to heavily on second hand information to present their market opportunity, instead of working hard to engage with the market andlearn about it firsthand.

How to prove your innocence

What investors usually find more compelling is primary research. Research you haveconducted, or that has been conducted on your behalf, directly into the market where you plan to seize an opportunity. The reason: because primary research, if well done, is goingto be very specific to your product, your company and your business proposition. In fact,good venture capitalists are actually great market researchers. The process of duediligence – simply put, checking the facts in your plan, including your background – conducted by VCs is by definition primary research. And they are constantly studying themarkets where they make their investments to understand their potential and marketdynamics, as you must as well.

How to collect evidence

So what is the “market” after all? And how do you research it? A market can be definedas the potential buyers for a product or service, or where buyers and sellers meet toexchange goods and service for money. Either way, markets are composed of people, allwith different roles: buyers, product decision makers, economic decision makers,influencers, potential partners, competitors, investors, and suppliers. Of course, there aremany other ingredients in a marketplace, such as raw materials, production processes, products, services, government regulations, etc., but customers by far the most important.As Peter Drucker has stated:

"There is only one valid definition of business purpose:to create a customer."

Therefore the best way understand a market opportunity is toconduct market research with potential customers and those that influence them. At theend of the day as an entrepreneur your goal is to get people to change their behavior by buying your product or service and thus becoming your customer.

Primary market research methods include:

- surveys: paper, email, phone, in-person- focus groups- interviews- observation Now I can hear the protests that “I don’t have the money to conduct a focus group, theycost thousands” or “I don’t have the time or expertise to conduct a survey.” Butinterviewing and observing prospective customers for your product doesn’t have to take alot of cash, just effort.The purpose of this article is to convince you of the “why” of conducting primary marketresearch – because it will help you make your case – and recommend the “who” – thetypes of players in the market, listed above. It is not a treatise on the “how.”Here are a couple of low cost examples of primary market research if you have a productat the beta stage: if you are conducting a beta test, survey your testers. Figure out what itis you want to learn and create a simple way to ask them questions and get answers.Conduct a usability test – watch your prospective customers actually try to use your product. You may be quite surprised what you learn.