There are many aspects of investigating a market. From a customer-problem-solution standpoint the best is observing the customer, the problem, and how it’s being solved now. If you cannot observe the next best thing, you can do is customer interviews. This is only a part of the puzzle. You still need to understand is what does the financial implications of this both the top-level big picture and at the ground level of the end users and purchasers.
There are several databases and services out there which aggregate market information such as statista. These could give you a quick overview and point you where to look for better insights. On the free front there is a lot of data from various government agencies both directly collected to study markets for example the US Department of Labor's Bureau of Labor Statistics collects data on pricing to monitor inflation and employment to look at job growth. There is also data on how these agencies spend funds which is also insightful (for example on average government spending can account for 30% - 40% of rebar consumption in the USA in any given year). You can also investigate data from trade groups like the Tilt Up Concrete Association or from groups that develop standards such as the Concrete Reinforcing Steel Institute as these groups will have information about their industry segment to help investigate the larger monetary picture.
Some free resources I have used are sites such as USAspending and SAM.gov . These sites have dual uses in how you can leverage them. The united nations, non-governmental organizations, and other groups also collect data on a wide range of industries from agriculture to health that is publicly available.
- Looking at who is winning awards and what that’s paying.
- USA spending lists the company name, point of contact, and how much they got for a contract.
- Get USA spending info such as project or award number and search for it on SAM to get more info on scope.
This can also help you understand who are your competitors (either direct or indirect).
- Get contacts for customers. (call or connections)
- Both sites list contact info for awardees, but on sam some projects have a sign in sheet for a webinar or site visit. This sign in sheet will typically have contact info for several groups looking to bid.
This is helpful for example. General Contractors and larger subs may go to a site visit. If you are trying to sell to construction, you will find a good list of GC contacts and through them their subs to call and try to connect with.
- Look at the total size of the awards under a program. If you're selling to that you can use that to look at market sizing.
- For non-contract data you can look at metrics within.
- The forest service for example collects data on the number of wildfires there are, their size, and location each year. You can use this to understand some statistics on the fires.
- The department of transportation maintains a database of all bridges in the US. Their size, age, condition rating, general location, etc. What is the current market for bridges over some sqft threshold which need replacement in the next 5 to 10 years?
These can help give you an understanding of the order of magnitude of your topic beyond your customer observations / interviews.
- The US Census does more than just collect data on how many people live where. There is also data on incomes, demographic make-up, etc.
If your product is consumer oriented you could use this to roughly understand the total population of people ages 30 to 45 who have income between 75k to 100k in different regions. If your widget needs the population of your target audience to be greater than some fraction of that which exists it might be good to revisit assumptions.
I've seen people get super into acronyms. For certain pitches it’s a fast and efficient way to communicate some high-level order of magnitude stuff. However, get caught up in what it means for you and your widget first.
You're trying to answer how big is the market that my widget matters to and how much of that market might even buy the thing. The second layer of that is what does that look like over the next 5 to 10 years.
This post from hubspot gives a good graphical walk through of the acronyms.
There are two parts to this for hardware:
- You always need to try to aim for what the market will pay.
- You need to understand if what the market will pay gives your product enough margin to be viable.
Some people call this top-down vs bottom-up pricing and will really focus on top down. For hardware you should do both but use #2 to sanity check #1.
There is A & B testing with a lot of software app demos and examples of this online. For hardware as you progress through calls with people over time, you’ll gather enough insights. You can start trying to sell or get people to prepurchase. Try one price if someone says no on the next call with a different contact try another price. You want to try to find an uncomfortable yes.
You will probably end up selling stuff below what the market will pay. Sometimes your customers will tell you this. Its fine your goal is to live to fight another day, be cash flow positive, or maybe if you are investment backed have something positive on the sales front to report and a better-informed route to being cash flow positive.
Early on you won’t have lots of technical info to get exact quotes for parts. If your product concept is a robot or drone you know at a high level it’s going to require some type of computer on it, some motors, some electronics etc. You can go on various vendors website like McMaster, mouser, Digi key, etc. and see what an upper and lower range for motor of X size might be. Use the upper range throw something like 20% on it to fudge shipping, do something similar with other major sub system components. Your goal is to try to wireframe up enough to have a good level of confidence.
I don’t have any golden rule for how much profit margin you should have at the start of this analysis that’s really going to vary depending on what you’re doing (is your market 10 robots a year or 10,000 robots a year). However, if you have less than 30% margin or your margin is negative you really need to take a good look at assumptions and your thesis on what you’re trying to achieve.
The analysis should evolve over time the more you find out about the customer. With robots I always aim for mediocrity or uniform functional crappiness across all systems. If you do this, you’ll have a working platform that can evolve and grow. Something is similarly true to this analysis too.
Another thing to remember is what is the product, is it a good or a service or both? You can wireframe up high-level service costs. Do you need 3 people each on site a day at the customer’s location? Does the entity buying your system use it like this? What does it look like for them to operate it.
I've seen companies have everything rolling along ok and then make the mistake that the customer is going to buy it the way they want because their widget is so good. Two key things to always think about:
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How does your customer buy?
- I've been in situations where a lot of people really wanted to push a subscription, but the customer wasn't able to buy a subscription they had money for tools / equipment and support services. The customers accounting system didn't understand the concept and they really wanted to buy but couldn't.
If you find out you need a yearly recurring revenue in the industrial space, your yearly support package is the subscription fee. You can do some rough analysis to make sure that the support package covers support costs + what your subscription revenue target is.
Other note: I have done projects for Fortune 500 companies specifically because I was outside their accounting system and my work showed up as monthly invoice the amount of time they had to spend to get approval to buy with a credit card or submit process exceptions was something they didn’t want to deal with. Their day to day was dealing with production-oriented topics not R&D which is what they needed my skill set for. I was able to move faster than them iterating on the widget they needed help with. Your champion at the customer might be able to come up with temporary work arounds to try out your widget, but they aren't going to change the accounting and procurement process they must use to buy you long term.
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How do others in your industry sell?
- To answer this, go to tradeshows and observe how others are selling. Literally watch how they interact with their customers in their booth and ask the salespeople after hours or during slow time gaps.