If you have an entrepreneurial spirit, you’ve likely had ideas – perhaps hundreds or even thousands of them. They pop into your mind and the probability of success makes you want to act.
But before breathing life into your thoughts, there’s some due-diligence you must perform - this process is more commonly known as market research.
So why is market research important before starting a new endeavor?
From a basic standpoint, market research helps you understand if there is a demand for your product or service. But there’s more to it than that.
Market research helps founders bypass educated guesses and put data to work.
Why is market research important?
Market research is the process of understanding existing market conditions and determining how they’ll impact your product or service.
Let’s say you have a friend who’s a plumber. He has been telling you how difficult it is to keep up with clients. He’s even lost thousands of dollars in work because of these challenges.
As a result, you’re now considering the potential of a new software service (SaaS) that helps plumbers organize their schedules, stay in touch with their clients, etc. You plan to charge $49 per month since this is what your friend believes its worth and because the competition has a similar price point.
So why is market research important in this instance?
First off, going from ideation to final product could take longer than expected. At this point, you’ve only learned what one plumber thinks.
Numerous variables could come into play here – and many could or should discourage you from setting out on this venture. From competitors doing it better and cheaper to a lack of market demand, there’s a lot you will need to dig into before making a decision. We have analyzed the first steps in this article.
The setup will look slightly different depending on your goals, audience, and type of service or product.
Purpose of market research
Every first-time startup founder wonders if and why is market research important. In a world where profit and speed are of the essence, such preliminary activities can quickly be overlooked and replaced with passion and unrealistic expectations. But it’s the veteran startup founders who have first-hand experience with the significance of market research for startup products.
The objectives of market research are several, and help you understand the following:
- The level of existing demand for your product.
- How (and if) are existing solutions solving the problem.
- If there are potentially new markets that your product could thrive in.
- How you should price the solution, what type of expectations you will need to set, and who you should target.
- The potential of your product on a local and (eventually) international level.
- Gather feedback from potential customers and apply the information to building a useful MVP.
- Examining external variables that could impact your startup is also valuable. These include government policies and regulations, new products and substitutes, and a plethora of others.
Primary vs Secondary market research
Primary research involves acquiring information directly from the source. This typically means reaching out to prospective customers in your target market. You’ll also need to ask the right questions to gather valuable information. For this, you will need to have a good understanding of the audience you are looking to sell to and the type of information that will help your business grow and thrive.
Since primary research is usually expensive and time-intensive, it’s best to use it when you need to address issues or explore topics specific to your product.
Secondary research (also known as a meta-analysis) involves the gathering and analysis of information that’s already been published elsewhere. This type of research can include reports, surveys, studies, and academic papers created by industry-relevant businesses or professionals.
With secondary research offering an inexpensive way to acquire information, it’s usually the go-to for startups that don’t have the funding or time to invest in primary research. However, it is not the type of research that will lead to innovative “breakthrough” understandings that offer new opportunities in the market.
Benefits of market research
Some advantages of market research include helping founders:
- Better understand their target audience. While market research is enhanced depending on your level of understanding of the audience, the process also deepens the information you can gather. As such, it is a great step before delving into the creation of a new product.
- Find a product-market fit. Determining where your product fits in the market and how strong the market demand can guarantee your success. This usually starts on a local or national level and only later expands internationally.
- Make data-backed assumptions. Without data, you lack insight. But when you have this information and analyze it correctly, it contributes to and facilitates strategic planning.
- Explore market trends. Achieving success usually means banking on existing or emerging trends. To spot these you will need to have in-depth knowledge of your industry and refer to different tools and publications that offer insights.
- Effective budget allocation. Oftentimes, a large part of a startup’s budget is spent on researching and testing the market, concept, idea, or product. Performing market research ensures your money is spent as effectively and efficiently as possible.
Limitations of market research
While you can set clear market research objectives, you will need to keep in mind that limitations will always be present. Keep the following in mind and try to use additional methods to create a better overview when market research lacks clarity:
- Everyone has their own needs, desires, and opinions. While you might know your target market, you need to keep in mind that you only get a generalized overview of the total. The audience will eventually need to be split into different subgroups depending on individual preferences or background.
- The available resources. Time and money are pretty much your only resources. And these can limit the broadness of your research. Small research samples won’t always reflect the views of the market segment you’ve targeted. So it’s best to keep in mind that the fewer resources allocated towards your market research, the more vague the results will be.
- Not always effective for offering guidance to specific issues. Market research does not highlight most of the common problems your startup will eventually face. This needs to be kept in mind. Market research is simply one of the available tools in your arsenal and not a hedge against risks.
- Fast-moving markets. Consider your startup’s niche. Some evolve faster than others, which makes it essential to keep up to date (and speed). With this being the case, some industries may see little to no benefit from secondary market research.
Role of market research in early-stage companies
Startup founders should implement market research during each stage of growth. This is usually determined by their investment rounds, but bootstrapped companies can set milestones upon which they will focus more on the conditions of the market.
Overall, market research should start as early as your company is formed, during its ideation stage, and should continue even after reaching success and choosing to expand into different markets. This could mean expanding into different industries, or even in different cultures, where the audience will have vast differences with the ones you discovered in the earlier stages of your product development.
One example of successful market research implementation is Apple. The iPhone giant became a big name in tech after understanding the existing gaps in the market, and banking on the opportunities. It started as early as their first computers were created and focused on delivering not only excellent operability but also top-tier design. After dominating the US market, Apple products became best sellers on an international level as well. We can now see how Macbooks and iPhones are seen as the “standard” option for most people in developed countries.
What steps are involved in market research for startups
Performing market research involves several steps. Keep in mind that, in this article, we will not delve into the specific things you should research as we have done this here already. Instead, we will give an overview of the steps you need to follow to structure your efforts in order to execute them successfully.
Step 1: Defining your company’s objectives
In the early steps of your research, you will need to understand what the existing problems or limitations are, and how you plan to solve them. You should now have a better idea of the different things market research can help you with, so try to use these high-level goals as your starting point, and formulate them in a more detailed manner that suits your startup. To follow up on our previous example, the team behind a SaaS product for plumbers may need to understand:
- The relationship of the average plumber with technology, and how this relationship improves their work.
- What their average price-point is, and how many hours a month this SaaS product could save (to formulate a price-point).
- Determine whether the plumbers have enough work in the area you want to roll out the product first. If there is low demand due to a low need for plumbers, you might not find your ideal customers.
- And more...
Step 2: Planning your research
As you plan your research, highlight an appropriate market research method (focus group, survey, questionnaire, etc.).Think about who you will target, how and where you will find them, and other key characteristics.
This is where primary and secondary research also comes into play. The objectives of your research will determine what kind of methods will produce the best possible results.
List the methods you will use to arrive at conclusions and determine the reliability of the expected results. If the findings are not reliable, you will need to add more research methods to create a better overview.
Step 3: Detailing the execution process
Think about the execution process that will lead to the collection of reliable data. If you plan to use a questionnaire, you’ll need to write questions on a Google Form. If you choose to interview a focus group, you’ll need to prepare questions and materials for the moderator. Simply put, this is when you will begin to put your plan into action.
Step 4: Collecting data
Now that your system is ready, it’s time to collect the data. The information will come into different forms, and you will need to find a way to keep track of it. In most cases, a simple Excel sheet or Google sheet should do it. If that’s not the best way to go, indicate how you plan to gather data instead.
Step 5: Analyzing the big data
At this point, you should have collected a bulk of information, and it’s time to discover trends, patterns, and relationships. During this step, you will need to organize the information in a way that provides useful insights for your company. Check this article to get a better understanding of the process and how you can derive actionable conclusions that can be used by the team.
Step 6: Visualizing your data and communicating your results
Now that you have your data organized, it’s time to create a report or presentation to share the results. Usually, this means starting with the research objectives and startup problem you identified. Then, you’ll present your recommendations with the data to support your reasoning.
Market research helps you better prepare for the risky responsibility of creating a startup. This includes research performed prior to and during the growth of your company. You should now have a better understanding of why is market research important, and be able to create a plan for yourself as well.
This initial discovery process gives startups the opportunity to uncover valuable insight that can propel their business to success while avoiding tasks and undertakings that could stagnate or limit it. While one must spend time conducting such research, it’s well worth it when looking at the positive long-term potential.
To summarize the contents of this post, market research helps founders to:
- Gain an understanding of the target market.
- Determine whether the demand justifies the development of a new company.
- Use data-backed assumptions to make claims, adjust the product, or make decisions.
- Uncover untapped industry-related opportunities and market trends.
- Minimize the investment risk and spending the budget where it’s most needed.
- Stay ahead of the competition at all times.