When it comes to researching a new business idea, health-care entrepreneur John DeHart doesn’t cut corners. Even long after he launches a business, the co-founder of the successful Nurse Next Door franchise, whose latest venture is Live Well Exercise Clinics, continues to analyze the market and his competition to find new products and services that will help the business grow.
“I do a lot of research before I do anything. It’s a constant process for me,” says Vancouver-based Mr. DeHart. He checks out the competition, both online and in person, pores over industry research and drills into market data. He also tests products on a small number of potential customers by using the latest online data-analytics tools.
“It’s about doing enough research to be comfortable taking the jump – and actually doing something with it,” Mr. DeHart says. “I think research is paramount. It’s about knowing who your customer is, and maybe who it isn’t.”
Too often, early-stage entrepreneurs become so excited about their idea that they don’t try to figure out whether it’s already being done or how to make it different, says Hussam Ayyad, senior director, programs and partnerships at Ryerson University’s Digital Media Zone (DMZ), a business incubator.
One research method used by Michele Romanow of Dragon's Den is A/B testing, a randomized experiment with two variants that many companies use to find out which products work best.Handout
“When people tell me it’s not out there, it’s not in the market, usually, my first reaction is, ‘Are you sure? Have you done the research?' ” says Mr. Ayyad, who has held a variety of business leadership roles within the banking and IT sector. “The era of originality is over. Chances are what you’re building has been built somewhere else. You have to ask yourself: What’s the value proposition here and how does it stack up against the competition?"
Mr. Ayyad adds: “People tend to start selling their product before they understand if there’s an opportunity for it or not. They end up with a hammer, just looking for nails.”
The consequence of not doing enough research is that the business is forced to pivot, or worse, it fails. “If you’re lucky, you pivot,” says Mr. Ayyad, but adds that the new direction also needs to be backed up with research.
Check out the competition
When Mr. DeHart wants to launch a new product or business, he starts by doing days of online research about the competition including what products and services they offer, what makes them unique and where there might be a gap that his company could fill.
An example is Live Well, which offers physician-prescribed fitness care at its locations in British Columbia and Ontario. Mr. DeHart and his business partner Sara Hodson visited a number of different types of fitness venues to see what worked, and what didn’t. For instance, they visited Soul Cycle, a popular indoor cycling franchise, and noticed that the instructors would crank up the music when the ride became more difficult, to inspire its members to work a bit harder.
John DeHart mines the internet for analyst reports, looking for information such as customer acquisition costs, sales per square foot and other financial metrics in his industry.
Live Well now does the same when its workouts get a bit more intense. Instructors were also hired on their ability to inspire customers, which motivated Live Well to name certain employees “Joy Masters,” with a goal to bring joy to their own clients. “By doing all of this research, we were able to formulate what our product should look like,” Mr. DeHart says.
When it comes to market research, Mr. DeHart mines the internet for analyst reports, looking for information such as customer acquisition costs, sales per square foot and other financial metrics in his industry. He also listens to public company earnings calls in the health-care space to hear what executives are saying about market trends and other factors affecting their businesses.
“It gives me industry data and trends and allows me to benchmark numbers,” Mr. DeHart says. “From there, I can start to model how to make money doing what I want to do.”
Figure out what the customer wants
Mr. DeHart also researches what the customer needs and wants, including their motivations for buying, what they’re willing to pay and consumption habits. He’ll do this by playing host to focus groups, sometimes over a dinner party, or by conducting online surveys using free classified sites such as Craigslist.
“There are so many ways to get people to give you information to drive your decision on who your customer is and if they’re willing to buy your product or service,” Mr. DeHart says.
It was through these types of customer research that Live Well discovered a new target market for the business: baby boomers who don’t like to work out in traditional gyms. Since then, the company has focused some of its marketing on this key demographic.
Live Well also uses online tools such as Facebook to test new products. An example is a new online program, tentatively called “7 Healthy Habits,” separate from the gym membership, which helps people to improve their daily habits to live a healthier life. The company is spending $5,000 on Facebook advertising to promote the product, giving consumers the opportunity to try it out for free.
“With the data we get back, we will know quickly things like how many people are interested in it, how many will convert to the actual product and how long they will spend using it,” he says.
The information will help Live Well determine whether it should build out the product, make changes, or go back to the drawing board. “Today, with Facebook and Google Ads you don’t have to spend a lot of money to see if you have a minimum viable product,” Mr. DeHart says.
As a venture capitalist, Michele Romanow looks at research that a prospective company has undertaken before deciding whether to make an investment.Michelle Siu/The Globe and Mail
Advice from a founder and investor
Facebook can be a critical tool for entrepreneurs looking to test their products, says venture capitalist and entrepreneur Michele Romanow, whose latest venture is Clearbanc, which provides revenue-based financing for entrepreneurs. She also uses other types of data analytics, including A/B testing, which is a randomized experiment with two variants that many companies use to find out which products work best.
When it comes to customer feedback, Ms. Romanow believes some surveys can be misleading and prefers instead to rely on online engagement metrics such as comments, video views or product sign-ups.
As a venture capitalist, Ms. Romanow also looks at research that a prospective company has undertaken before deciding whether to make an investment. She looks for traction in areas such as sales from both paid advertising and repeat buyers, as well as online engagement through social media.
“There’s something about when early data is really exciting. It’s a big indication for what’s to come,” says Ms. Romanow, who also appears on CBC’s Dragons’ Den. “It doesn’t always prove true, but I still think you’re better off having exciting early data than unexciting.”
Take it to market
While pre-product launch research is critical, Mr. Ayyad cautions investors not to spend too much time studying. At some point, it’s time to take it to market to see what potential customers think.
“The most precious asset we have is time. The more time you spend on research, the less time you’re spending outside talking to potential customers. At the end of the day, you have to use your judgment,” Mr. Ayyad says.
“You can learn a lot by doing and from errors,” he adds, encouraging entrepreneurs to heed the well-known adage to fail fast, then move on to solving the next problem.