If you have come up with an amazing idea for a product or service, congratulations. This could be the start of a great adventure.
But in order to start a business set up for success, don’t create that website or launch that prototype just yet.
We’re here to give everyone who’s thinking about founding a startup a piece of simple, yet powerful advice: take the time for proper market research. We know, it might not seem as exciting as elevator pitches and guerilla marketing campaigns. But read this guide on how to do market research for a startup and you’ll thank us later.
What we’ll cover in this article:
What is market research all about? It’s more than a formality. This step could determine how far you can take your business. We’ll tell you what good market research looks like, and what it can deliver.
Why market research for startups is as important as it is to every type of business.
How you conduct market research for startups in a way that’ll give you actionable data.
And we’ll finish off with some examples of how market research changed the course for several startups – ones you definitely know.
Ready to find out if your big shower idea is viable? Let’s get started.
What is market research?
Market research is about analysing the market you are in, or are about to enter. You look at market trends, industry trends, market dynamics, your target audience and other potential customers. You’ll do a competitor analysis to see your competitors’ offerings, and even to identify direct and indirect competitors
Based on your findings, you will make business decisions. That’s right: it’s isn’t about creating reports. It should influence your actions.
Market research has been around for decades, and companies got better at it over time, but the term has been used rather loosely. It shouldn’t be conducted to simply confirm that your idea is good. If you do that, you’ll steer it into a certain direction, and with a blurred vision and will look only at data that speaks in your favour.
Real, good market research is about listening to what’s happening in a market. What’s happening in the minds of consumers? That input could change the direction of your startup, or stop its journey altogether.
Why is market research important for a startup?
For a startup, research your market is crucial. It’s easy to get blinded by the potential of your big startup idea. Your product or service might seem great on paper or even as a prototype, but without proper research, it could flop rather quickly.
Startup founders should get as much detailed information on their potential market as soon as possible. Here are the two main reasons why:
Startup market research will help you test your ideas
There are several things you can and should find out about your product through research. The first question to answer: is there a demand for your product?
It’s not true that if you make something and promote it hard enough, people will eventually start buying it. At least, not enough people, and not at the price you need to break even.
It could very well be that the product you have in mind would be in demand if you chose a different target group. Often, timing also plays an important role.
That doesn’t mean you can’t produce anything that hasn’t been done before – you simply have to do it better. When Apple entered the market, there were computers already on the market. They just found a different spin to it.
Apart from the product and its features, you’ll also gather important information on prices and costs. This will help you determine whether you could keep this project alive in the long-run. And money is also what gets us to the second important reason market research for startups is a must.
Conducting market research is important for attracting investors
If you want to impress potential investors, you’ll need more than a shiny prototype. What investors really care about is how likely it is that they will make money out of this. And for that, they’ll need to see research that backs up your claims. A big part of your business plan should therefore be market research.
Investors and the business world love good market research. First of all, because it makes their decision-making process easier. If you have data that shows you’re very likely to make a good amount of money, that will put their minds at ease.
Furthermore, it shows how invested and committed you are as an entrepreneur. Market research isn’t the most fun, and it’s certainly less fun than creating the product itself. Demonstrating the fact that you take the time to do it properly and take it seriously will benefit you when it’s time to pitch.
Last but not least, it makes it easier and faster for investors to get on board. They’ll need to conduct a due diligence process, and you can take some of the work out of their hands with your research process.
Why startups fail
That all sounds pretty straightforward so far, right? Then why do startups still fail?
The top answers for this underline the importance of market research once again. Because at number 1 in the list of reasons why startups fail, we find ‘no market need’. In 42% of the cases, there’s simply not a big enough demand for a product or service – no matter how innovative it is.
Number 4 on that same list is being crushed by the competition. Competitor successes, or even worse, ignoring your competitors accounts for 19% of startup failure.
Of course, market research isn’t a crystal ball and can’t predict the future entirely, but when it’s done properly it’ll give you and your small business the tools you need to get a head start.
How to conduct market research for your startup – the right way
Market research isn’t a guessing game. There are plenty of tools and resources available, but it can be difficult to pick the right ones. We’ll help you get that head start. Here are some steps you shouldn’t miss to get the most out of your market research.
Find the right market research methods
Before you dive into your market, target audience and competitors, it’s good to freshen up on the types of research methods there are: primary research and secondary research.
Primary market research
The internet only knows so much. Some data you will have to get straight from the source, for instance from your target audience. That’s where primary data comes in the picture. This is research you do yourself, gathering information directly from the people you want to use your product or service.
A great way to do this is by using online surveys or working with focus groups to get a comprehensive understanding of what your future buyers and loyal customers need.
If you use research and data that already exists, you’re doing secondary market research and finding secondary data. This can be great for exploring market dynamics and spotting trends, for instance with Google Trends. You can find more tools in our blog with 6 great market research tools.
Secondary data is, of course, super useful, but because it’s external research that hasn’t been conducted with your business in mind, it will always lack that crucial link back to your offering.
Step 1: Find out what you need to know
You might have a general sense of what you want to learn from your market research: whether or not you should launch your startup idea. But to get the most actionable data, you’ll need to specify some research goals.
After your first exploratory primary research or secondary research, you will know where you have knowledge gaps. What isn’t clear about the market? What assumptions about your potential customers need to be verified?
You can split up the market research goals in different categories. This will also help you assign the right people to the right tasks.
For instance, let your finance people work on market research if its main goal is to secure funding. Your best marketers and sales reps need to be involved in researching buyer behaviour, and so on. That way, your market research will really come to life and be as useful as possible.
Step 2: Get to know your market, really, really well
In any market research, you’ll have to look at three important factors: the target market as a whole, your competitors and your potential customers. We’ll start with the market as a whole, because it’ll help you get more specific data along the way.
First, it’s crucial to figure out what market you fall into. That seems like an obvious one, but if you put some thought into it, you might find you’d perform better in a different market.
Aim for a market where you fit in, where there’s a large enough demand and where you could make a difference. Here’s how to find out what’s going on in a market.
Learn about your target market
Get to the bottom of what your potential customers want and expect from you
Talk to experts who’ve been working in that target market for years, and ask them about what they think the future will look like. Sure, they might just be speculations, but it’s better to hear them and address them than pretend they don’t exist. You can also pay attention to what’s happening in online communities revolving around your product idea.
Read the latest trend reports
There are plenty of target market reports and public market data available to find out what the latest trends are, and where the market is going. Another great way to get a clear view of trends in your market, is to keep track of relevant blogs and news. Try to get information from as many angles as possible.
Use target market research tools
With Google Alerts and Trends, you always have far-reaching, up-to-date data on trends and can spot changes in popularity for certain brands and products, by focussing on specific keywords. Find out what our favourite tools are in our blog with 8 smart market analysis tools.
Step 3: Get to know your target market, really, really well
Get ready to talk to real people. To really understand your target market, you need to look at more than numbers. It’s great to see some people are spending a lot on certain products, but you will need to learn why they do that. That will give you powerful insights to create a strong positioning and to make sure your marketing efforts hit exactly the right spot.
This is where primary research is most important. You can choose in-depth interviews, online surveys, focus groups, or a mix of those things – depending on what questions you really want to be answered.
We recommend you go beyond the standard demographics and really build buyer personas that have layers. By adding behavioural and attitudinal data to the mix, you will be able to create much more effective marketing campaigns and digital marketing strategies.
Step 4: Get to know your key competitors – indirect and direct
Next up: your competition. You don’t need to infiltrate their business to get to know them inside out, but it sure helps to take a look at their strategy, messaging, tactics and more importantly: what your target audience thinks of them.
Your target market probably knows who your competitors are better than anyone else. Find out what products they consider as alternatives to yours, and you’ll find out you have way more competition than you initially thought.
Look beyond the obvious direct competitors and also focus on other companies that could be catching up with you in a few years. Chances are you’re not the only one working on a new business idea!
Step 5: Be prepared to make big, but well-informed decisions
Once your market research is done and all the questions from step one are answered, it’s time to create a plan of action. Hopefully, you found out that it is actually a good idea to enter the market with, even if you need to tweak your ideas a little bit. Market research should be the foundation for any further decisions you take.
How startups you know have used market research
The success of any startup heavily depends on whether they’re willing to listen to their target market or not. Let’s look at examples of two tech giants who paved the way for tonnes of startups and set an example in conducting and using market research to transform their business.
Example 1: the board game maker that won big with market research
Before coming across Attest, Big Potato Games was cobbling together insights from social media and Google Analytics – not ideal when you want a comprehensive picture of your market.
The team needed to establish exactly who their customers were, and learn the behaviours and attitudes of their potential customers, so that they could more effectively target the right people in the right places with the right messaging.
Using market research to explore consumers’ attitudes towards board games and what motivates them to play helped them define key customer personas. Their research uncovered seven key customer types, all the way from casual, occasional players to the hardcore board gamers.
An example of what they uncovered through market research was that mums view board games as a way of getting the family together, while young adults saw it more as a way to socialise with friends.
They also found out the size and importance of each customer segment. While the hardcore gamers are a super important and dedicated segment, it’s still quite a small group. It turned out that the mums group was much bigger, so they gained a much better idea of segments like that where they sought to build awareness.
Example 2: when you can’t win from the competition
Ever heard of Odeo? It probably doesn’t ring a bell. It was created by Evan Williams and Biz Stone in 2005 as a platform for podcasts. They placed their bets on podcasts and guessed it would become a mainstream medium for news. They got it right, but now we know that their timing was off.
Instead of sitting around and waiting for podcasts to hit, they re-examined the market. They looked at user adoption rates, technology, and customer acquisition costs. At the time, Apple was their main competitor, and they knew they weren’t going to win. So, based on their market research, they pivoted.
They looked at other popular platforms where content was shared, such as Facebook. In their market research, they looked at what people didn’t like about those platforms: what tools they were missing, what annoyed people, for example.
Not long after, Twitter was born. The Facebook News Feed was too cluttered for many people, so they cleaned things up. And, as we know today, it was a success.
Example 3: The dating site that turned into a video platform
Over the years, a lot of dating sites and apps have come and gone. Tune In Hook Up is one of those that has gone rather quickly. Its creators saw that the website, which was a video dating site, didn’t get enough traffic to make the right matches.
They had this technology that made posting videos online easier than ever, but not enough people were jumping on it.
So, based on what they did have, they jumped back into research of their target market. What could they learn about the world of online videos?
Through their marketing research they found it was hard to find the videos you wanted, and websites that did offer them didn’t work very well. Sharing videos with others was a pain for users.
They broke up with the online dating market and focused on the video part of their business that already existed, based on what their research told them. They changed the name, the platform and their lives. You might have heard of it: they called it YouTube.
Market research made simple
Understand your market
Are you ready to transform your business and dive deep into the market to identify gaps and golden opportunities?