By Sabrina Kiefer (Author, The Smart Entrepreneur)
Innovative businesses are typically surrounded by uncertainty. You can’t be entirely certain if your new idea will attract users and customers until you launch it.

If you are a web start-up aiming at the consumer market, your risk is somewhat lower than for other businesses, because your main investment in the early days will be programming time; you and your associates may be able to moonlight on the project while doing other work, put the product out, test it in the real market… and see what happens, then scale and really invest if the thing works.

Your launch doesn’t necessarily have to be expensive, and virtual distribution over the web is cheap. If the idea doesn’t fly, you can often reuse what you have and iterate to create a modified product which will be more appealing to your prospective customers. The worst you can lose is probably time, and you are likely to learn something in the process anyway.

That’s how a number of web brands we know today — such as Hotmail, Delicious and Craigslist -– started.

The initial idea was intuitive, and market research began at market entry with product development evolving from there. Ease and speed of product testing and modification is a great advantage of software entrepreneurship as opposed to sectors such as biotech or engineering. With software product distribution becoming even easier through channels such as app stores, this can be a good way to start an initial, small business to cut your teeth on, and see what happens.

As our lives progressively move online, consumers today are faced with an increasing amount of choice -– and consequently, noise –- on the web, as more competing products and services are released online. So if you are aiming for high growth, you would benefit from cultivating a good understanding of your specific target customers from the start of product development rather than at market entry, coupled with an ability to adapt as new developments and competitors emerge and customers shift their priorities.

In particular, if you want to develop a product for business customers, this will take more up-front investment, not only to build the product but also to develop the competencies business customers demand from their suppliers and to do the prototyping needed to test and prove your idea.

Increasingly, services for business are going online and being offered over the web in SAAS form, but acquiring business customers this way is more difficult than acquiring individual consumers.

Getting into Customer Insights, Customer Development

Fundamentally, how do you gain customer insight with business customers so you can develop a product or service they will really want to buy? If you or your co-founder(s) have already worked in the sector, you aim to serve and have firsthand knowledge of its needs, that will be a very good start. Otherwise, talk to “key witnesses” in your potential user and customer populations. This doesn’t mean calling them up and selling your idea off the bat — talk to them to understand their business, what sort of problems they experience in the business area which you hope to serve, and what improvements they would like you to offer.

Business managers will be more willing to talk to you if you ask how you can help rather than selling something because you think they need it. You will have to talk to several different decision-makers at a company in your prospective target market to understand their combined needs, not just to the technology managers. Operations managers and financial managers also have a say in new product adoption, and their varied priorities will influence decisions.

Technical entrepreneurs often believe they have found a technical solution to a problem, only to discover later that the solution is not appealing to customers because there are other factors in customer adoption which were not known or considered, so take the time to get a full picture of the customer.

Customer Interviews

Here are some things to look for during your interviews:

  • See if the problems described by your prospective customers fit the offering you plan to develop.
  • See if you have to adjust your product/service idea to satisfy other priorities.
  • Paper prototypes can help you to demonstrate your idea and get better informed feedback.
  • Don’t just listen, watch too — Ask to spend some hours just observing workflow in the division of their business your product idea will address to spot other problems or root causes which they have come to take for granted and didn’t mention, but which you might configure your product to solve.

The point is to get an understanding of your customers as good or better than they have of themselves, and to begin to build a relationship with that target group. Having sounded them out early, they will be more willing to sample any alpha and beta prototypes you bring to them later on, and may become early reference customers.

Time invested this way will pay off if you decide you need to raise investment to grow your business, as investors will look for a company which not only has a clever technology product but has a correspondingly excellent grasp of its market.

About the guest blogger: Sabrina Kiefer is co-author of The Smart Entrepreneur. Sabrina is a Venture Coach in the Entrepreneurship Hub at Imperial College Business School, assisting teams of MBA students, engineers and industrial designers developing entrepreneurial businesses through the school’s Innovation, Entrepreneurship and Design program, on which the book is based. Previously, she worked for the Associated Press, Business Week and Financial Times. Follow her on Twitter at @sabkiefer.