Market Risk

As to whether anyone will buy your product, we turn once again to Steve Blank, who famously said, “No business plan survives first contact with the customer.” Historically, one had to first commission classic market research, fully build the product or service, hire an expensive salesforce, and then spend time and money marketing the idea—all before ever really knowing the answer to the question: Will it sell? 

The Internet took a giant bite out of that paradigm, and the emergence of social media took another. Starting in the 2000s, startups could test the market ahead of time like never before. They did so by leveraging A/B testing, Google AdWords campaigns, social media, and landing pages. Suddenly, an idea could be largely validated before product engineering even began. 

Newer concepts, such as Minimum Viable Product and Product/Market Fit, furthered decreased Market Risk. 

Today, the epitome of market validation is crowdfunding. Fundraising sites such as Kickstarter and Indiegogo allow users to pre-purchase a product. If enough people pre-purchase, the website releases money to the developer. This democratization of the fundraising process makes crowdfunding very compelling.