In the late 1990s, during the dot com boom, Louis Borders had spent weeks brainstorming a brilliant business idea. Finally, it all came together- grocery delivery it was. The Webvan Company was born.
Webvan raised $393.6 million in its IPO and promised to revolutionize how people shopped for groceries. You could order groceries online, and Webvan would deliver them to your doorstep within 30 minutes.
However, without proper market research and forecasting, the company made losses and permanently closed its doors in 2001. Customers didn’t come as expected!
Conducting thorough market research for your startup can help you avoid a similar outcome. And in this guide, we show you a step-by-step process to help ascertain if your business idea can stand the test of time. You might also enjoy reading: 7 Passive Income Ideas with Little Money.
What Is Market Research For Startups?
Market research for startups involves collecting, evaluating, and interpreting information on specific customer markets of industries before launching a business. The data will help startups determine the viability of new products and the profitability of certain courses of action.
Your startup market research may focus on the following information:
- Target market: Who are the potential customers of the startup, and what are their demographics, interests, and behaviors?
- Competitors: Who are they, and what are their strengths and weaknesses?
- Trends and opportunities: What current trends can you take advantage of? What are the opportunities for growth and expansion?
- Customer needs: What are your target customers’ needs and pain points that you can address?
- Pricing and positioning: How can you position yourself in the market to stand out from its competitors in terms of pricing?
- Marketing and promotion: What are your startup’s most effective marketing and promotion channels?
- Risks and challenges: What potential risks and challenges may you face in the market, and how can you mitigate them?
Market research is a business strategy that enables your startup to make data-based decisions, thus minimizing the chances of failure.
Importance Of Market Research For Startups
Some entrepreneurs fall in love with their business idea and turn a blind eye to expensive market research. But that is like aimlessly flying a brand-new Boeing and hoping to land in Disney land!
Market research helps to ensure the time, energy, and money invested in a startup is worth it.
Market research is essential for startups for several reasons:
- It helps identify target customers to allow you to create products or services that meet their needs.
- Market research helps startups assess the competition to know how to differentiate themselves in the market.
- It helps startups to develop effective marketing strategies
- Data showing the potential profitability of your venture can help you entice investors.
- With market research, you’ll understand the demand for your product or service and identify potential roadblocks to success, thus minimizing the risk of failure.
- Market research can help entrepreneurs to determine the optimal pricing for their product or service based on customer demand and competition.
How To Do Market Research For Startups
Market research for startups isn’t one daily affair and requires planning and investment. You can research yourself or hire professionals to collect and analyze data for you. Regardless of your chosen method, here is the step-by-step formula for conducting market research.
Step 1. Define Your Research Goals
Before you commit resources to market research for startups, write down specific questions you intend to answer through your market research. Knowing why you are doing the research will help you choose the ideal subjects, develop relevant questions, and test the right product designs.
Some noble market research goals for startups include:
- Identifying your target audience
- Understanding market trends
- Evaluating the competition.
- Identifying whether your product meets consumer pain points
- Tracking relevant industry trends
- Knowing your target customers spending ability and behaviors.
Step 2. Identify And Study Your Target Customer And Competitor
Look at the demographics, psychographics, and other relevant factors to determine your potential customers. It is essential to understand the following about potential clients:
- Age group
- Purchasing power
- Pain points
- Purchasing behavior
Creating a buyer persona will help you tailor your product or service to their needs. It is also vital that you study your competitors (those providing similar products) to know their strengths and weaknesses. Competitive analysis for startups will help you to:
- Identify existing market gaps
- Set competitive prices for your products
- Identify successful marketing strategies.
- Establish benchmarks for your business
- Determine your “why.”
But the question is, how do you find your competitors?
Here is how:
- Talk to potential customers: See what names come to their minds when they hear your business idea.
- Do keyword research: Tools like SEMRush and SimilarWeb can help you analyze keywords to draw competitors. If you need free tools, you can explore our article on unique ways to do keywords without tools, although this may not be as effective as paid tools.
- Be a consumer yourself: Walk in your target consumers’ shoes and establish which companies you would turn to address the problem you want your startup to solve.
Step 3. Choose The Right Market Research Type And Method
You can choose either primary or secondary methods to conduct your market research. Your choice may depend on your goals.
Primary market research involves gathering information directly from customers and suppliers. This data helps you determine a startup idea’s viability, understand the market trends, identify potential customers, and assess the demand for the product or service.
- Primary market research is suitable when you want to clarify specific details on customer preferences, needs, and behaviors. Here you can formulate questions concerning competitors’ products and the challenges customers face with them.
- On the other hand, secondary market research involves studying online sources, industry reports, and other available data to gather information about your target market and competition. This type of research is ideal for a broad-scope industry view where primary research won’t be conclusive.
Step 4. Conduct Your Research
You have settled for an ideal research method; now it is time to get into action. Choose a neutral person to do the interviews to avoid potential bias. If you conduct the interviews yourself, you may skew the results to your preferred outcome.
Ensure your survey has non-leading language or questions to prevent biased research questions. For instance, if you want to know which products to develop, ask customers what they need instead of asking for their reaction to your product. Understand their needs before you start developing a product.
Analyze existing data to know what products sell and how you can improve them to catch your customers’ attention.
Step 5. Analyze Your Findings
Research allows you to collect relevant volumes of data. Organize this data and determine its trends and patterns to guide your business strategy.
While you are looking for quantitative data, some will be qualitative. However, you can still make sense of it from the response patterns. Once you’ve analyzed data and established emerging trends, determine your action points.
Your action items could include the following:
- Test your questions with other groups.
- Discuss the best ways to improve your business.
- Improve your pricing strategy and propositions.
- Change the product to what addresses consumer needs.
A perfect example of the benefits of analyzing market research is YouTube. The inventors launched it as Tune In Hook Up- an online video dating site.
However, because it wasn’t generating much traffic, they conducted and analyzed market research, and they renamed the startup YouTube to allow customers to share videos.
Step 6. Develop And Implement Strategies
Once you have data-based information, build an action plan detailing how you’ll launch your product and services. Your action plan should also include strategies to build brand awareness.
Moreover, you could implement strategies to gain customer attention and front your product as a solution to their problems.
Look at the data and report to discover what prevents your audience from switching to your product. Address these objections and motivate them to buy.
- 6 Expectations Vs. The Reality of Growing a Start-up!
- How to Overcome the Fear of Failure as an Entrepreneur?
- 13 Advantages and Disadvantages of Owning Your Own Business
Continue With Market Research
Market research is something you’ll continue to do regularly. The initial research before launching a startup is inconclusive because market dynamics and consumer preference change constantly.
Your competitors also study your strategies and adapt. Ongoing market research will help you address your audience’s pain points and stay ahead of the competitive curve.