How do you find the market fit?

After all the discussion around growing IoT businesses at IoT14, we asked our friends at Investable Projects to give us their views on some of the myths and realities of getting an IoT start-up off the ground. This week: finding the market fit.

‘Start-ups face many challenges: not least the initial hardships of getting started and developing the product or service that they plan to offer. But also right at the top of the list is analysing the size and accessibility of their chosen market and understanding the needs and expectations of their potential customers.

‘What users want is what you need to deliver’. This is time-proven advice, but the point that enterprises need to demonstrate the value of the solution that they are developing remains as valid as ever. Investable Projects continually advises its IoT clients that it is vital that they identify their competitive advantage and communicate this clearly to their customers. Too many businesses, particularly in the hardware sector, develop products without taking into account customer needs. Understanding those needs not only leads to the right product or service, it also helps the business to value the market opportunity and devise a strategy to enter that market.

Many IoT start-ups are based around hardware, but we encourage them to consider the service implications of their products. Not only can this offer the potential for additional revenue streams to offset the low margins, it also helps generate innovative customer-centric ideas across whole industries, leading to the development of completely new services. This is being further aided by the dramatic fall in the cost of chip sensors, allowing them to be attached to almost anything to collect and transmit enormous volumes of data. The opportunities that ‘big data’ combined with IoT presents for start-ups looking to capitalise on the emergence of IoT is impossible to overstate, however it is also vital to maintain the pace of innovation to keep that competitive advantage. Investable Projects encourages its companies to adopt a collaborative approach in order to maximise responsiveness to the changing behaviour of customers.

Companies like Investable Projects advise start-ups on how to fit a product or service to its market in order to achieve maximum growth. Passion does not always equate with profitability, and it’s important for a successful start-up to identify either an existing market problem and then set out to devise a solution, or a new technology and then find ways that it can be profitably used to improve on an existing situation.

With one of those achieved, it is then a question of going through a number of phases to ensure that the IoT start-up is in a position to monetise its ideas. Stage one is the verification phase: talking to potential customers and using their feedback to analyse their dissatisfaction with the current solution, and establish how could it can be improved and how much extra they are willing to pay. This process also improves the understanding of the true value of the offer.

Stage two requires researching direct and indirect competitors. Determining their strengths and weaknesses can help the start-up avoid mistakes of its own. It can also identify new targets by exploring their segments. Stage three is the identification and quantification of the company’s target market segments. Although professional market research can be expensive it is often a good investment and can help a company avoid wasting valuable resources and time by trying to sell to everyone.

Stage four is the development of sales projections, including proposals for how much of the target market the business will actually approach. Finally, in stage five, profit and loss projections need to be calculated. This includes estimates for production costs and costs of sales, and the analysis of income statements from similar companies in the industry to gain insights into gross margins, profits and overheads.

In short, a prerequisite for start-ups in the IoT is the need for their ideas, products or services to be carefully analysed and assessed before attempting to enter this fiercely competitive market. It does take time and investment, but devoting the necessary energy and resources to understand your future market is essential to success.’