How to Do Market Research for a Startup? Why Unfortunately, a lot of people think that you can just create a business plan or a startup idea and expect it to succeed. People don’t realise how important research is when starting up a business. This is why I decided to write this article on how to do market research for a startup, so you can fully understand what I’m talking about in my previous post on how to build an online business.
In this article, I’m going to break down market research from the basics of what is market research to how to do market research. You can use a free tool or a paid tool to do it. Either way, don’t waste time and read on!
Table of Contents
Define the purpose of your marketing research
There are several reasons why market research becomes necessary. Roughly speaking, business owners do such research because it helps avoid issues and creates possibilities. It is like an investigation of past problems to reduce future risks, or you get a fix on past successes to set a strategy for getting future revenues.
Before diving into the market analysis, decide for yourself which market is worth entering with your product or idea. Will it be in demand considering the competition? What kind of competition is present? Once you find the answers to these questions, you can focus on the unique features of your future product. These will depend on unoccupied niches. You can also draw a parallel between another market and yours, to see if a similar product could be successful in your intended distribution area.
Depending on orientation, market research can be internal or external (or both). Internal goals may include increasing revenues or making business activities better. The focus of external research is the microenvironment, e.g. studying the economic development trends in which a startup exists or will exist. You can then use the data to draw up a business plan presentation for investors.
Study types of market research
Researching the market can be key in improving your product/service and overall business strategy. Choosing the right research approach can make a difference when setting your revenue targets.
Let’s review some types of market research based on your business goals.
Primary or secondary market research?
Roughly speaking, market research can be divided into two main categories — primary and secondary. They are sometimes also called field and desk research correspondingly.
Primary market research encompasses any information you collect yourself (or a person/organization you pay). It is about analyzing current sales volumes, metrics, and customers. It also takes into account the effectiveness of current business operations and the competition.
Secondary research is focused on data already prepared by third parties. It often includes reports and studies from other companies, government organizations, and other entities engaged in the industry.
Online versus offline research
Both offline and online research methodologies have their advantages, but the best market research strategies use a mix of both. That way, different types of information about your target market will be unveiled. Offline analysis provides access to primary sources of information and yields more in-depth results. The advantage of the online method is the possibility to get data inexpensively and fast.
Check industry trends (drivers and barriers)
When doing your market research, try to answer the question of what is the nature of the industry in which your startup will exist. Here, an industry description may be based on such criteria as trends, size, life cycle, and growth direction. During the whole process of market analysis, a solid description of the industry will guide a startup owner. Then the focus can be shifted to the target market. This is about finding out exactly who your product/service is designed for. You need to fully understand the nature of your customers and where they will come from.
What prevents startup founders from entering an industry is what allows the existing businesses to retain their market share. You should be ready to run into barriers to entry. The most typical ones encompass the need for extensive funding, extensive technical knowledge, high costs associated with entering the market, limited access to raw materials, exclusive or expensive distribution channels, restrictive government regulations, etc.
Compare your competitors
You need to know your competition to continue analyzing the market conditions. Prepare a list of the main competitors in your segment. Outline their strengths and weaknesses. Once you’ve identified those, you’ll be able to use the information to map the advantages and market position of your startup.
As an additional step, it will also be useful to determine who your direct and indirect competitors are. Direct opponents belong to the same price segment of goods/services, have similar target audiences and products, promotion and distribution channels. The key audience of indirect competitors is similar to yours, but the product/service is distinctly different. There may also be differences in pricing strategy, promotion, and distribution pipeline.
After the main opponents have been identified, continue with defining the key features of your product. Try to answer the question of what makes them unique and why potential clients would choose your product.
Create your ideal customer profile (ICP)
The hard truth is that not every person will be a potential customer. Conversely, not every potential client will be of interest to your business. There are customers on whom companies use more resources than receive revenues. That is why it is crucial to focus on the most profitable target market. The goal is to get loyal customers who will keep returning to purchase your product. For that reason, you need to have a clear view of your target audience. At the same time, pay attention to the size, trends, and growth of your potential market.
As mentioned, your research should outline a clear picture of your potential clients. Look at things like age, location, income, gender, occupation, marital or family status, etc. Once you’ve optimized your list, explore the personalities, interests, needs, and demographics of your clients. Afterwards, a profile of your typical customers can be created.
As your startup progresses, your customer base may grow or change. Re-visit the profiling data regularly, to ensure that the business stays focused on fulfilling the needs and wants of your actual client base. You may find that there is an opportunity waiting for you by creating a secondary ICP.
Choose your market research method/methods
According to the type of data collection, the following market research methods can be distinguished:
- Surveys — A method of gathering information through questioning the target audience. Surveys are tremendously versatile and the most commonly used, thanks to the range of possible question formats and options.
- Interviews — This market research method is more personal, it helps delve into the matter more deeply and allows for extensive communication and clarification.
- Focus groups — This usually involves a group of people in a room discussing a given topic. There is also an organizer, who controls the discussion according to the checklist questions, who tries to gain some insights from it. This is a simple concept but it can be hard to conduct effectively.
- Social media listening — This method is especially useful, because of the immense amount of information available on social media. You can be sure that such information reflects exactly what a person cares about, since it’s unfiltered and spontaneous.
- Observation — This research method has a great reputation. It is about observing representatives of the target audience in their natural environment (for example, video recording in a shop).
Most startup owners focus on one or more research options. Here, the choice of a method will depend on your budget and time resources.
Check if there is secondary market research available
Secondary market research is based on information that has previously been gathered either inside or outside the company. Before immersing yourself in conducting primary research for a startup, it’s always good to check to see whether there is an organization that you can cooperate with.
- Internal data
This includes any internal data for the company, e.g. statistics on sales and marketing indicators, information about usage, product purchasing, and customer account information. You may also find previously conducted marketing reports, which can be a great resource for insights.
- Government and non-governmental organizations
Currently, many governmental and non-governmental organizations gather and publish a lot of freely accessible data that can be used for research goals. The World Trade Organization, for example, often produces trade statistics and data on the business regulatory conditions for a lot of member countries.
- Industry media
There are specialist media for most industries, that concentrate on relevant news and developments, e.g. newsletters, popular websites, blogs, and online forums. Themes can vary widely, from identifying industry size and product types to discussing key issues. These will probably be the most high-yielding sources from which to get relevant secondary data.
- Commercial marketing data
Numerous companies, whose focus is commercial market research, provide syndicated analysis. It usually covers topics that may be of interest to different organizations. Research companies collect information, analyze it, and sell it on to businesses interested in the researched topics and customers.
- Search engine results
Perhaps this sounds very simple. But it is always wise to perform an Internet search for any sources of secondary data relevant to your project. Search engine results can be very useful, since you can compare what’s available and decide whether to buy secondary data or rely on free sources.
There are lots of advantages to using data from secondary sources, with reducing expenses being one of the most significant pros. Its cost is usually a fraction of the price for getting primary data. The other reason that makes secondary data more attractive is that it takes less time and effort.
However, there are also some drawbacks to secondary research. First, such information may be somewhat outdated. Second, secondary research may relate to your current marketing project, but it probably won’t address your exact problem.
Learn about tools for doing market analysis online
Do you want to learn how to do market research online and what it looks like in practice? Here are some useful tools that can be applied to effectively conduct your analysis:
This is a simple tool to collect, measure, analyze, and provide data on behavioral patterns, websites, and mobile user engagement statistics. It offers lots of insights about your competition for free plus more detailed information in return for paying a subscription fee.
This powerful tool offers marketers lots of valuable data, such as related search terms, keyword suggestions, keyword trend data, and more.
- Ahrefs, SEMrush or Ubersuggest
These are amazing tools that provide plenty of traffic estimation data and comprehensive insights. They are user-friendly, have great graphic representation, and yield details about the competition.
This is a powerful analytical tool that will help connect your product directly to your customers. Its main purpose is to allow advertisers to efficiently target their advertisements. The tool can also help you study the target audience. Information can be obtained from two sources — Facebook data and third-party services.
Statista is a German portal for statistics, which provides a range of statistics and facts about the global market research industry and is available in several languages.
- Google search tips
To effectively use Google, apply quotes when looking for an exact word or phrase. To research a specific website, use a keyword and put the domain name after the colon. Google Trends is another great way to find out what’s trending in Google searches at the moment. Google images can help you find reports on market research and other helpful graphics.
- Surveys and polls in social media
Social, consumer, or market trends can be studied through social media platforms. Social media are useful tools for marketing insights and getting an immediate response from clients. To ask consumers about potential improvements to your product, launching just one poll can be enough.
There are a bunch of different methods, tools, and tricks, which you can employ to get business insights. It all depends on the purposes for conducting market research, time, and the financial resources you have available.
Ask the rights questions
We’ve tested lots of approaches and have come up with a solid set of the questions you need to ask for market analysis. The received answers will be fundamental to creating a business plan and making further decisions:
- How big is my potential market/markets?
- Can this market potentially grow?
- What is the nature of the products/services similar to mine?
- My main competitors?
- What is the market share of each of my competitors?
- Is there a niche that I can fill?
- What is my unique competitive advantage? What will make me number one in the market?
Conclusion
Often ignored, yet a critical foundation of a business plan lies in the market research conducted prior to building a business. A little bit of work on identification, analysis and segmentation of your target customers can go a long way towards creating a low risk startup.