You may think of yourself as someone who trusts your gut; you’re intuitive and, when you have a “hunch” about something, you are right more often than not. So why not start a company based on intuition or a hunch?
The problem with this way of thinking is that it could get you in a lot of trouble, cause you and others to lose money, and prove to be a losing proposition for you. As an entrepreneur, it’s smarter to try to reduce your risk of failure as much as humanly possible. This is why the path to success as a startup founder or co-founder is the use of data.
Data-driven research and data-driven approaches will give you a firmer foundation on which to build a business model for your future startup. Data grounds you in reality, provides trending information, delivers fact-checks without bias, and brings an objectivity to business analysis and strategy formation.
It is important to use market data to build your business model. Let’s look at a few examples:
- You may have a hunch that an emerging market segment for cryptocurrencies is worth $10 billion dollars because you’ve read a few reports and you “feel” it is going to be big, but the data for the past two years shows that the market size is only $200 million worldwide, growing at less than 2% a year, with 90% of startups failing because of high barriers of entry.
- You may have a hunch that customers will pay $100 a year for a new digital service, but the data shows that there have only been 856 new sign ups for a particular type of digital service in the last six months – a sign that it’s not a very good market.
- You have a hunch that blockchain will be huge and you only need 1% of the market to become a billionaire, but the data shows that the average cost to enter this particular segment of the blockchain market is $500 million and it also shows that there are 340 startups already tackling this market with at least a one-year head-start.
- You may have a hunch that there are “millions of people” doing something and you can sell a new product to all of them. However, the data shows that there are fewer than 2,500 people doing what you thought. This data shows that the market is too small, which means investors will ignore you or even run for the hills when they see you coming with your startup idea.
The data tells you a story about the market and the opportunity that you are thinking about tackling in a startup endeavor. It also tells the success and failure rates of other startups in the same segment. You can use the data to inform your decisions and deepen your thinking. The data alone is not the thing: it’s the application of the data to decision-making that makes it so valuable.
When you are building your business model, data-driven research will give you a real-world picture of what you are looking to address and what you will be up against.
Last but not least, investors love to see data. It validates many things for them. So, if you start using data at the beginning of your entrepreneurial journey, it will be easier later in your startup development to naturally incorporate data into the way you talk about your startup and the market opportunity.