9 Ways to gauge market demand for your startup
9 Ways to gauge market demand for your startup
And what happens when you skip that step
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(If you just here for the 9 ways and want to skip the delightful personal story, scroll to the divider.)
When you build without understanding market demand
“I'm shutting down the website right now,” I wrote to my friend Peter in August 2010, “because I'm tired of paying Engine Yard.”
I was shutting down Global Quiver, the surfboard sharing app that I created to be the Couch Surfing of, well, surfing.
(note: Engine Yard was a pre-AWS platform as a service for Ruby on Rails apps, and Couch Surfing was a pre-Airbnb way of staying with people and earning an online reputation as a good guest.)
Global Quiver was my first real attempt at starting a business. I gave it my very best shot including making spreadsheets of how much money we would make, disagreeing with Boulder, Colo investor Rawleigh Ralls about the wisdom of starting a surf-focused business during a pacing, sweaty palmed phone call, and building an MVP with friend and fellow software developer Mike Gehard.
What I got wrong building Global Quiver makes me want to bury it rather than write a public post about it, but since I just caught myself explaining it to another promising young entrepreneur, I don’t think it can be said enough times. I, embarrassingly, did not validate the existence of market demand.
If present day me was to argue with 2010 me, young me would have said that I had indeed validated market demand, and that the fact that I was building the software for a problem that I myself was experiencing was the best proof. Young me was wrong.
Here’s what young me saw incorrectly as market demand: I had personal experience of how much it sucked to travel with surfboards on planes. The airlines would charge as much as $200 each way. Publications like Surfer magazine published angry articles below which equally angry commentors had agreed that these board fees were highway robbery.
Taking these signs of outrage incorrectly as signs of a market, I devised a solution. I was going to organize the available boards of rental shops and the extra boards of surfers into an online Airbnb-like interface where you could search by location, view available boards, and reserve them. This market would have two sides: the demand side would be surfers that want to travel without paying airline board fees, and the supply side would be surf shops with rental inventory and surfers with extra boards. Therefore, my job in unearthing market demand should have included finding proof of demand on both sides of that market.
I did not look for demand on the supply side. I needed to find people asking on forums what they could do with their extra surfboards, or surf shop ads on travel sites promising high quality rental surfboards for tourists. Instead, during one phone call to a shop in San Diego’s Mission Bay a gruff shop owner asked me why he would do any more work to rent surfboards when all he has to do is set them up outside the shop.
And without this demand my business eventually died. I didn’t even really understand this for many years after I shut it down. To me, everything felt like progress until it didn’t. Here’s what I mean. Building the product felt like progress. We made something! Then after the product was built, a few people, particularly in early-adopting San Francisco, thought it was a cool idea, and they signed up. Progress, right!? And finally, I drove up the coast of California with a one page Global Quiver contract signing up surf shops. People were kind. “Yeah dude, this is a great idea!” But then after I left town, signed “contract” in hand, crickets. Why? Because there was no demand.
For years I explained my failure as a cat herding problem because it was so hard to keep surf shop owners engaged. But Southern California surf shop owners are not lazy. They live and work in one of the most expensive places on the planet, and they prioritize their time ruthlessly. Using their incredible intuition for the demands in their market, they gave Global Quiver as much time as they felt it deserved: zero.
When the demand is not there, the business won’t work. After I had shut down, another company came along called Awayco. They had support from professional surfer Ace Buchan, and even convinced a naïve investor to sign on. At one point, surfers could rent surfboards on the Awayco home page from surf shops all over the country. I rented a board in Jacksonville, Florida in 2020 just before the pandemic and loved it! My Global Quiver dream had come true! Well, looking at Awayco now, it seems like they’ve pivoted to being being a rental market SaaS, and their website doesn’t look very active. If they’re alive at all, they’re out there looking for product market fit.
9 ways to gauge market demand
How can you avoid making a Global Quiver style mistake?
Finding evidence of demand is not easy because there’s not a set methodology that works in all cases.
Here are a few ways to know your business is responding to existing demand:
Your product addresses some kind of universal demand: being famous, finding love, getting rich, avoiding taxes, living longer. If your product does something plausibly useful in one of these areas, you can proceed to the next step of your entrepreneurial journey.
Google keywords: This is one of the most cited ways of finding evidence of demand. Are people searching “how to <solve the problem your product solves>” in large numbers? Then you’ve got good evidence of market demand, and you can then start figuring out whether your product can compete against the other products that show up in the same search.
Reddit and forums: Are lots of people asking about how to do something in forums? And are other people saying they also wish they could solve that problem? This could be a sign of demand, but it could also be a red herring. Maybe people want a solution but won’t pay for it.
A thriving freelancer economy: Does your product solve a problem that people advertise on Upwork? Good sign of demand.
Customer interviews: Some people swear by doing customer driven development where they interview a bunch of potential customers, and if they’re all talking about a specific problem that makes their businesses more difficult to operate, maybe that’s an opportunity for a new business. I’m skeptical that this works with regularity. My skepticism is mostly because businesses will complain loudly about a lot of things but won’t pay when presented with solutions. Still, better than nothing.
Product categories: Does your product solve the same problem as an existing, but less useful product? For example maybe it cleans teeth but it’s not a toothbrush? The existence of toothbrushes can be your proof of market demand as long as you can get your product in the same place that people go when they are in the mood to buy a toothbrush.
I was talking to an entrepreneur this week who’s building a product to make online tutorials, and he was frustrated that people kept trying to put his company in a box like “video hosting” or “learning management systems.” “Why is that a bad thing?” I asked, telling him they’re just trying to imagine where they would go looking if they were in a position to want to buy his product. Associating it with a product category would help them remember and recommend it.
Existing businesses: This might be the absolute best way. If you see one or two products just beginning to get some buzz in a market, and you’re in a position to be a fast-follower, you can jump in and execute better by avoiding any mistakes you see the front runner make. Lyft was founded three years after Uber.
One of my very favorite businesses of the moment is one called LendTable. They noticed that a lot of people don’t max out their 401K matching because they can’t afford it, so they made a product that will loan them the money to maximize that matching. It’s brilliant because it’s a very low risk way to help people wring more money out of their employers. It’s also brand new, so there’s no reason someone couldn’t start a very similar company and execute better.
Response to advertising: In the 4 Hour Work Week Tim Ferris suggested making a fake sales page for your product complete with a “buy” button. Then when customers click “buy,” they are told that they’ve been placed on a waiting list. I like this technique, but… If you have an existing audience, that audience might be such fans that you can gather 1000-5000 people in a waiting list, but they aren’t your real target market. Nevertheless, I recommend this approach to many entrepreneurs.
Kickstarter: For certain types of consumer facing products, Kickstarter is a similar but slightly better version of the 4 Hour Work Week approach in number 8. A successful Kickstarter is an excellent signal of market demand, and it even produces operating capital. The only slight skepticism I have is that it suffers from the same problem as number 8 where Kickstarter users are likely a small subset of your target market with way more tolerance to trying new products than the average consumer.
This is not an exhaustive list! All it is is an odd numbered list. What other ways do you use to gauge market demand?
Thanks for being here, reading, and signaling to me that even though there are other startup newsletters out there, there was room in the market for one more😉.
See you next week!
—Jon Christensen