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Start-ups Need Help with Research Before Funding

Billions of $, £ and € are wasted every year by governments, investment funds, charities and individuals on business start-ups that fail or under-perform at best. I believe that if a professional accredited market research phase is completed before funding is agreed, it would:
  1. Ensure start-ups have a better chance of survival. Around half of all start-ups fail within their first 5 years. Around 20% fail in the first year. But virtually all will under-perform against plan in the early years. Success is always harder than anyone ever imagines.
  2. Prevent businesses from starting, and funders wasting their money, if propositions don't realistically hold water.
  3. Professionalise the owners of those businesses faster than if they learned all their lessons 'the hard way'. So if they do fail, they'll stand a better chance of success next time.
  4. The people who perform the market research might become a recruitment resource for the start-ups.
  5. The project can be funded by taking a long-term view by clients paying for their research when they can afford it.
I have started many companies over the years. It costs very little to register an URL and even to incorporate a company. A few thrived, some tried and died, the majority never got going in the first place. And the reason they never got going was because despite my originally believing they were good ideas, when I researched deeper, it eventually became clear to me that I would be taking too great a risk - or that my ideas had been plain daft. Had I researched all of my start-ups as thoroughly as I should, then the 'tried and dieds' might also never have seen the light of day - but learning lessons pays dividends in the end, so I never look at these with regret. However, they could have been avoided or at least reduced in cost. It is a very painful process to lose a business. It's not only a financial disaster, it knocks your pride and can have repercussions for your family and community let alone everyone else involved in the business including its creditors.

These days I am involved in mentoring or 'advising' people who are thinking about starting up a business. Virtually every start-up business plan I see is full of wishful thinking backed up by varying degrees of evidence for its potential success. But often that evidence is designed to support 'the right answer'. Very rarely will a start-up seek to research why their business idea might be a bad one. Rose-coloured specs are a wonderful and dangerous thing. "Do you want cheaper eggs?". Yes 100%. No 0%. But "Do you want cheaper eggs from Albania laid by cruelly farmed chickens fed on animal waste"... ?

I must at this point, doff my cap to Tim Harford who argues in his book Adapt - Why success always starts with failure - that we emerge stronger if we're given the opportunity and even encouraged to make mistakes. It is certainly better to learn from your own errors, and better ideas emerge the more errors we make. Darwin would agree. But it's also a vicious way to learn on a personal level. It can destroy lives. So he's right macroscopically, but strangling bad ideas at birth is still better. What's important is to have those ideas in the first place. So a willingness to fail and to keep trying again is an essential entrepreneurial characteristic.

The first thing advisers suggest to an aspiring business is to complete a SWOT analysis of their idea (Strengths, Weaknesses, Opportunities, Threats). Most Business Plan templates include one of these, although they don't often explain that these are the names given to the four quadrants of this matrix:

File:SWOT en.svg

Normally SWOTs demonstrate how light most people are on what all businesses need to know (and not just start-ups), namely:
  • What do people really want to buy that you think you can supply?
  • What's their Profile?..... Who are they; How can you reach them; How many of them are there; etc?
  • What are your best routes to market including where to trade from, and should you trade direct or indirect?
  • Who are your competitors and what do they offer in terms of product comparisons, price, service etc?
  • How do you compare against your competitors? What are your Unique Selling Propositions and are they what people want? What is a competitive price for your products or services?
  • Who might be your best suppliers?
  • What else might your customers want from you?
So the success of any new business depends on the extent and accuracy to which the principal can answer all of these questions. This in turn depends on how much experience s/he has gained either as a supplier or a customer for the intended proposition. The deeper that personal experience - in terms of both length and breadth of experience - the more valid their proposition will be. They'll be 'doing what they know'.

The problem is that most people who want to start businesses do not have enough or the right experience to answer these questions adequately, either because they haven't had enough time to acquire it or the relevance and depth of their experience has been insufficient. In addition, some people simply don't know how to ask the right questions, let alone to whom, where and when. And all hate making cold calls or standing in the street with a clipboard.

Another problem, counter-intuitively perhaps, is where start-ups are given excessive funding. Quite apart from the old adage, 'keep 'em lean, keep 'em keen', if you don't force start-ups to do the basics right in the first place, they end up spending their money chasing shadows and buying unimportant stuff like offices and expensive websites. I develop this issue in more detail here.

So it all boils down to the need for good Market Research at the outset which can be performed, depending on the type of business, in a number of ways. But virtually all of these require speaking to strangers. And this is something most people lack confidence to do, especially when they're not sure of their ground - which if they were, would mitigate the need for the research in the first place.

Market Research (MR) is generally carried out using one or more of the following methods:
  • On the web (previously in libraries) - both actively (Googling) and passively (surveys in sites)
  • On the phone
  • By email eg Survey Monkey
  • Increasingly by monitoring the blogosphere and social networks
  • On the street
  • In groups 
  • By observing individuals either in-store etc, or in laboratories
Most sensible MR experts no longer use postal questionnaires. It's both lazy and usually ineffective. Emails are even worse. They're too easy to delete or ignore and will probably be filtered into junk mail anyway.

Striking up a conversation with strangers in any of the last three situations requires a level of confidence born from habit, character and, most importantly, dispassionate determination to seek the truth and not a self-fulfilling justification for a previously held view. Business start-ups often believe they know the answers and are determined to defend those beliefs by manufacturing or manipulating data to support them. This might ensure some wacky ideas do see the light of day, but more often than not the truth will out in the end, and usually by killing the business - destroying capital and entrepreneurial confidence.

So start-ups would benefit from professional MR help, in varying degrees, to:
  • Define what they should be researching
  • Decide how to do it
  • Provide trained researchers to conduct the research
  • Analyse the results
  • Perform additional research if initial surveys suggest new lines of enquiry might be necessary
  • Develop a possible early-adopter prospect list. The subjects of the research might be important early customers for the resulting products or services, especially if the research is for a local business
  • Provide a recruitment resource from the people used to conduct the research (now experienced in the product and, more importantly, an understanding of what the market wants).
Having argued for professional MR assistance, there is a strong argument that start-ups need to do the research for themselves. There is no better way of finding things out from the horse's mouth and believing the results heard with your own ears. In addition it's often the throwaway comments or unspoken gestures which convey vital truths or stimulate further ideas. However, it is important start-ups don't waste their time, and probably money, researching the wrong things. There is also a value in third parties validating the findings to ensure the research isn't unwittingly (or deliberately) trying to justify a plan that the start-up desperately wants to be a winner.

So the start-ups themselves also need to be engaged in the research which in turn needs to have been professionally constructed and supported, if necessary, with additional researchers; the tools of the trade (eg. monitoring cameras; ready-made twitter and SurveyMonkey accounts; phone recording equipment; even waterproof clipboards), and the skills to analyse and make conclusions from the results. These might include carrying out further research if the initial activity revealed new opportunities or uncertainties had emerged.

All of this boils down to three requirements:
  1. A proportion of the funds intended to support start-ups being allocated to this preparatory phase. Think of it as an insurance to reduce the risk of losing the whole amount. With the right far-sighted seed-funding, this idea might recuperate costs by issuing post-dated invoices (3-years?) to start-ups. Much easier to budget and commit to payments from distantly anticipated profits (like Student Loans).
  2. The creation of a set of guidelines which can be used to validate whether the necessary research has been adequately designed and performed. This ought to form the basis for an official accreditation to standardise such research throughout the UK, and provide confidence to funders. One might imagine that various levels of accreditation might be required depending on the nature of the business and the depth and complexity of research required.
  3. A nationwide network of accredited MR agencies.
One more idea along this theme of helping start-ups research their products, is pop-up research pods for high streets and perhaps coffee shops. These would be branded something like Dragon's Den (or People's Den perhaps) where passing members of the public could comment on new ideas. They could be standardised as a compact size - Chair + Pop-up display (plenty of lightweight systems around) + Table - so coffee shops and local councils could assess whether they might be able to accommodate them. Professionally trained graphics experts would be provided to create the display message (few start-ups have the skills to design concise eye-catching graphics). I'm sure Mr Cable could twist the Starbucks arm!

Which brings me to the final opportunity emerging from this proposal. We have alarmingly growing numbers of unemployed graduates in the UK. Theoretically these are well educated, socially confident, articulate, enthusiastic, energetic people prepared to man phones, walk the streets and Facebook/Tweet research etc, while they await their careers to develop. The perfect people to train for this work. Hopefully a number will graduate to the consultancy and training levels required to operate the full extent of this start-up support programme. In addition, successful start-ups eventually require staff. Who better to recruit than the people involved in researching the original ideas, especially for sales roles? It wouldn't be difficult to use social networking to enable researchers and the businesses they helped to establish, to stay in touch.

So not only will start-ups stand a better chance of returning loans to their funders, or returns to early stage investors, they will also stand a better chance of providing much needed employment and tax revenues. In addition, we will have found a way of providing gainful employment to an army of out-of-work graduates who will also be learning about business in the real world.


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