The Risks of Ignoring Market Knowledge
Starting a business without first understanding the market poses significant risks, potentially creating an unstable foundation from the outset and jeopardizing operations. According to the Mexican Entrepreneurs Association (Asem), 19% of businesses fail due to insufficient market knowledge, and 20% fall victim to poor administrative management.
The Peril of Designing a Solution Without Identifying the Problem
A common mistake is designing a solution without first identifying the problem it aims to solve. Filippo Bonani, co-founder of OutHand Consulting, warns that entrepreneurs often become enamored with their solution and fail to consider market demand.
The Risk of Designing a Product Without Validating the Market
Clinging to a business idea without first understanding the market often leads entrepreneurs to operate blindly. David Dávila, partner and director of ACTION Coach Iberoamérica, shares that in some cases, even when the numbers indicate a non-profitable business model, entrepreneurs persist due to emotional attachment.
- For instance, a bakery might open due to its homemade recipes, but if it’s located in a low-demand area or faces high competition, sustainability becomes challenging.
The Business Plan
Asem’s data shows that one reason for entrepreneurship is spotting a potentially profitable business opportunity, according to 28% of Mexicans. Therefore, before investing in supplies, creating a business plan is crucial for financial projections.
David Dávila explains, “Within these financial projections, we must ensure that the product or service in question will indeed generate utility, profitability, and return on investment.”
How to Validate if an Idea is Good?
To determine the viability of an idea, it’s essential to analyze its market appeal, how the product or service addresses a problem, and what sets it apart.
For example, Waze was born from Uri Levine’s daily traffic frustration. He identified a problem affecting the population consistently.
Once the proposal is defined, according to Filippo Bonani, converse with potential customers to understand their perspective and willingness to purchase.
David Dávila advises that validation from individuals outside one’s social circle is a positive sign. He also recommends market segmentation for a more precise target audience definition.
Minimum Viable Product (MVP)
The Minimum Viable Product (MVP) is a method to test a product’s market performance.
“The market itself will provide indications and suggestions for modification and perfection. Often, in the initial stages, it’s more important to launch the product with a certain level of market needs to understand how you can improve it,” says Filippo Bonani.
What If the Idea Isn’t Viable?
If a business idea proves unviable, it can lead to disappointment. However, there are two options: make necessary modifications or discard the idea.
David Dávila advises, “Listen to the numbers before clinging to the business story.” He emphasizes rationality when numbers suggest otherwise.
Despite the difficulty of accepting this, both experts agree that being open to feedback and willing to make necessary adjustments are key to increasing entrepreneurial success.
Key Questions and Answers
- Question: What are the common risks when starting a business without market knowledge?
- Question: Why is it crucial to identify the problem before designing a solution?
- Question: How can entrepreneurs avoid the risk of designing a product without validating the market?
- Question: What is a Minimum Viable Product (MVP), and why is it important?
- Question: What should entrepreneurs do if their idea isn’t viable?
Answer: These risks include creating an unstable foundation, jeopardizing operations, and increasing the likelihood of failure. Asem reports that 19% of businesses fail due to insufficient market knowledge, and 20% fall victim to poor administrative management.
Answer: Failing to identify the problem can lead entrepreneurs to create solutions that don’t meet market needs, as warned by Filippo Bonani.
Answer: Entrepreneurs should conduct market research, test their product with a Minimum Viable Product (MVP), and gather feedback from potential customers, as suggested by the experts.
Answer: An MVP is a product with just enough features to satisfy early customers and provide feedback for future development. It’s crucial for testing a product’s market performance, as explained by Filippo Bonani.
Answer: Entrepreneurs should consider making necessary modifications or discarding the idea, always prioritizing data-driven decisions over emotional attachment, as advised by David Dávila.
