One major phenomenon we experience as entrepreneurs starting and growing ventures is the problem of accurately forecasting demand. We see lots of people very excited about the possibilities of their businesses, usually very excited and highly motivated about it, which by the way is very great. I remember a particular client I saved a lot of money recently by helping her to appropriately forecast the realities about the business venture she wanted to delve into before she did. When we were done she realized she had inaccurately projected about the business and about the market. The first thing I’d like you to think about when you’re forecasting demand as an entrepreneur for your new product or service is that the problem of projection bias is ubiquitous in demand forecasting.

There are several risks a business faces, but the risk of miss-forecasting or misunderstanding what potential demand there is for the product or service is a huge one.

There are other risks that we might have in execution, but if we get this one wrong in the way that we think about the total addressable market, this is potentially catastrophic; not just for the business, but for valuation, for investors, for-profit projections, the whole Value-chain. The first thing I’d like you to think about when you’re forecasting demand as an entrepreneur for your new product or service is that the problem of projection bias is ubiquitous in demand forecasting. This is the idea that we’re all thinking about demand from our own vantage point and our own experience and sometimes, we need to step back and step away from that.

A very apt example to consider is McDonald’s in China. McDonald’s is obviously a very successful corporation, but when they went into China they completely misunderstood the Value-chain. way people would use
McDonald’s as a product and a service. They projected based on their experience In the United States where people tend to come and go pretty quickly, preferring to drive through, sort of getting in and getting out. In China, there is a place for families to sit and relax and friends and colleagues to enjoy each other’s company. Projecting the American experience onto what they thought was going to happen in China led to a large problem in terms of the McDonald’s being way too small and not really conducive to what customers wanted. Does it have better functionality? Better value, finer aesthetics? Does it have symbolic value to customers? And is it easier for customers to use?. One way we can debias or get around this idea of projection bias is to try and literally put ourselves in the shoes of the customer.
This is not a forecast per se, but it helps us think about all of the things that might facilitate or retard the potential demand that we’re going to realize.

So, the first thing you should do as the entrepreneur is list as many things as you possibly can that are the relevant advantages of this product or service that you’re bringing to market over the status quo.
the Golden Rule of forecasting which is to be conservative. I.e. ensure to always use worst case scenarios. if I’m introducing a new product, like a new sweetener for coffee, people are already used to putting sweeteners in their coffee. I just put another one out there. I’m not asking you to change your behaviour. Does it have better functionality? Better value, finer aesthetics? Does it have symbolic value to customers? And is it easier for customers to use? The third thing you should think about is; is this product easy to understand or is it a complex product to communicate in terms of the benefit? This greatly affects a lot of factors in the customer acquisition experience. If it’s an easy product to understand, your financial reserves for marketing don’t need to be as large as if it’s for a product that isn’t easy to understand.
You can start this demand forecasting process using qualitative low-cost research.
What do I mean by that?

• I mean by doing a few simple interviews with potential and existing customers.
• Looking into online forums about what people are saying about the product category, overall what the level of sentiment is.
• Running some very early focus groups, even if they’re just selected by convenience, where you have people physically experience the product and kind of talk and communicate about it.
• Are we able to do any simple surveys through the Internet? Very, very low cost to administer via email and other channels.
• And then finally, can we go onto online communities and just look and seeSo this requires really a minimal investment in terms of the financial outlay
  There is something I must mention here though, and it is what we call the Golden Rule of forecasting which is to be conservative. I.e. ensure to always use worst case scenarios.