Does Silicon Valley Respect Market Research?

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Innovation Over Customers? Silicon Valley and the Fatal Lack of Market Research 

We love a success story, but it’s the tales of failure that really teach us something. And with Silicon Valley churning out superstar startups and corporate collapse at a breakneck pace, it’s all too easy to chalk up wins and losses to some special sauce: A combination of innovation, contacts, and dumb luck.

But what if it was less about a secret combination of success factors and more about the factors of failure that separated the Silcon Valley winners and losers? An in-depth analysis of 135 failed startups by CB Insights offers a new look at why in some cases, market research is more important than having the hottest technology or the newest innovation.

Great Idea, No Customers

Of the defunct companies surveyed, nearly half (42 percent) attributed their demise to a lack of market need. In short, they had great, innovative products–which no one really needed.

Had these companies done some preliminary market research and analysis, they could have saved themselves time, money, and heartbreak. By surveying individuals who fit the ideal customer profile, they could have decided whether or not consumers would clamor to buy. Take Segway, for example: While not technically bankrupt, the innovation touted as the future of personal transportation only sold 24,000 units in its first five years of operation, despite projections that Segway would sell 10K of the $5,000 machines each week.

Know Thy Enemy

Another major misstep that the failed startups made was by underestimating (or remaining oblivious to) the competition. Competitive analysis is a vital part of any startup’s initial market research. Knowing what similar products are currently available and how they’re doing offers insight on what customers like, what they don’t like, and what they’re willing to pay.

Learn from the epic fail of Wesabe, a personal finance website and app that shut down in 2010. Wesabe was meant to streamline customers’ bank accounts for better money management. If the premise sounds familiar, it’s probably because you use Mint, a site and app that was there first, offered more features, and was more user-friendly. Wesabe didn’t take Mint’s popularity and features into account when designing its user interface, and it was eventually edged out.

Silicon State of Mind

When “fail fast” is practically the motto for startups in Silicon Valley, fledgling companies start to see failure as a type of cheap–but often fatal–market research. Rather than take the time and money to analyze the current market conditions, prices and products, and current competition, startups are encouraged to close their eyes and take a giant leap of faith. Time and time again, innovators are told that if their idea is good enough, they can’t fail.

Of course, we recognize the flaw in this logic. Plenty of good ideas fail: Consider C2, a Coke brand that offered half the sugar and calories of regular Coke, with all the same flavor and marketed exclusively to men. On the surface, it seemed like a great idea. But Coca-Cola failed to realize that male Coke drinkers wanted all the calories or none at all, and C2 went belly-up soon after it was released in 2005.

Innovation may be one of the earmarks of success, but it’s not the only one. If Silicon Valley startup-style management has taught us anything, it’s that there’s no substitute for solid market research; something that should be addressed long before the next big thing goes to market.

One Comment on “Does Silicon Valley Respect Market Research?”

  1. Pingback: 3 Easy Market Research Tips for Startups - Upfront Analytics

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