This blog explains why it’s essential to conduct thorough market research before drawing up a business plan for your startup company.
Table of Contents:
Why you need to conduct market research for a startup
If you’re interested in this blog post, you‘re likely an entrepreneur who has a new business idea that you plan to launch as a startup. You can already picture it - customers flocking from all over to spend money on your great idea, there are no serious competitors in your space, and all you’ll have to do is sit back and watch the money roll in. Sounds like the dream, right?
Unfortunately, the reality for startup businesses proves to be quite different. Statistics around startups show that 90% of startup businesses fail. However, by putting in the upfront work through market research, you’re more likely to separate yourself from those statistics.
Those who conduct market research to prepare a ‘realistic scenario’, rather than an ‘ideal dream scenario’ are more likely to succeed with the launch and progression of their startup.
There are three main areas that market research for your startup should capture:
- Your marketplace
- Your competitors
- Your target audience
Knowing how your product or service will fit into the existing market, which businesses you’re going to be up against, and what you can do to attract your potential customers will ensure your entry into the market is focused and strong.
How to perform market research for your startup
At the beginning phases of a startup, there’s a lot of information-gathering to be done, and the first thing to decide is how to go about capturing that information. Some of this information might already exist from other entrepreneurs in a similar niche, so it would be to your advantage to explore existing reports and statistics related to your general business idea or category; this is called secondary research. Other information, particularly anything relating to your specific offering, will require dedicated market research surveys - otherwise known as primary research.
Before starting your research process, it’s worth starting with a clear outline of business objectives as well as research objectives. What is it that you think your new business will offer a customer? How does it differ from the competition? What is its unique selling point? And crucially, how will you make your offer a reality?
If you have a solid idea of what it is you’d like to bring to market, you’ll be in a good position to get feedback on it from potential customers through research, and then revise your offer to maximize your chances of success.
Within each of the three areas of information outlined above (your marketplace, your competitors, and your target audience), you will need to establish research objectives specific to your offer and category.
1. Analyze the marketplace
Say you’re thinking of setting up a new coffee shop. You’ll need to immerse yourself in the world of cafes and coffee retailers to understand:
- What’s currently offered (types of outlets and their products)
- Market demand (does the world need another coffee shop?)
- The market size, value, and projected growth
- What the main market trends are around coffee consumption
- What’s missing in the market (potential opportunities)
Some of these questions could be answered well through existing secondary research. Industry publications, market analyses from commercial intelligence agencies, and online articles will all offer up market data on the coffee shop sector. The information you glean here can act as inspiration for generating your own unique business idea.
2. Look at your competitors
Understanding the competitive set will give clues as to what works and what doesn’t in your line of business. This will contribute to the picture you’re building of the current market and how your product will fit into it. Again, secondary research in the form of past and projected sales figures, as well as an analysis of where revenue trends change, will tell you how best to tackle your startup.
However, alongside objective competitor analyses, you’ll also want to know how competitors are perceived by their customers. This is where primary research comes in. Dedicated research - interviewing your potential target market (and your competitors’) will identify levels of customer satisfaction, perceptions of the dominant brands in the market, and how popular those brands are in your competitors’ lives.
If you feel you know enough about the current market to include all possible responses in a pre-coded questionnaire, you could set up a quantitative survey, which involves interviewing hundreds of respondents and obtaining statistically reliable data. If you’re not yet sure what all the issues are surrounding your business idea, or which metrics you’d like to assess, you might want to conduct some qualitative research first. This involves interviewing a smaller sample, either in focus groups or in-depth interviews. With qualitative research, respondents are given more freedom to set the agenda for an interview, rather than answering using pre-set responses. This means that the important issues at play in the category will arise spontaneously.
3. Understand your target customer
The people you intend to sell to (let's continue with the coffee example) will be at the center of your offer, so you need to understand them intimately. This will include your target audience’s...
- Demographics: Gender, age, income, where they live, household profile
- Current needs: (Preferred coffee variety, type of cafe atmosphere, budget expectations, and so on)
- Unmet needs: (Are they looking for... more eco-friendly coffee options? A greater range of flavors or syrups? Entirely new products? A selection of books to read alongside their coffee in the cafe?)
- Behaviors: What do they buy? How often do they buy coffee from a shop? How much do they spend, and how much do they wish they spent?
- Attitudes: Which values impact their behavior (e.g. eco-consciousness, company values, etc.)
- Location: Where do your target consumers tend to buy coffee now, and where they would like to in the future? Is their current coffee shop close or far away?
- Information access: (Where they’re most active online to inform your website and social media strategy)
- Marketing appeal: What kind of advertising and marketing messages do they respond best to?
Generally speaking, both qualitative and quantitative research methods are useful types of market research for understanding insights into your target audience.
For instance, you might start with a focus group for a mix of idea generation and debate, and then aim to understand behavior and views on an individual level using depth interviews. You might also want to observe behavior in coffee shops - e.g. how do customers feel about the wait time? Do they understand the menu? What do they think of the choice of food? Observation through ethnographic studies gives great insight into how people behave at the point of purchase.
Once you feel you have established the main factors for consideration in the category - for example: price range, ambiance, location, and brand image - it’s time to quantify your findings using a larger sample in quantitative research. This is best done using an online survey, which can be sent out to your target market quickly and easily as a form of primary research.
4. Review the results
Once you have gathered all your information, it’s time to start analyzing what the results mean for your startup idea. What is it that your customers are looking for, where are the gaps and opportunities in the market, and how can your business capitalize on those unmet needs?
The analysis you do is important here. Data analysis and reporting tools should present the information in a straightforward way, with a clear link between insights and recommended action.
Tools for performing startup market research
There are a lot of decisions to be made when setting up a small business, and you don’t want to leave that up to gut feel. Your marketing and business decisions should always be based on high-quality, reliable, and actionable data.
quantilope’s suite of quantitative research methodologies and automated software will help you collate all the information you need to form a solid business plan and marketing strategy for your startup. For example, a MaxDiff analysis will tell you which elements of your offer to prioritize to maximize appeal to your audience, while a Key Driver Analysis could reveal which factors are most important to a specific outcome (e.g. customer loyalty or positive brand image). If you’d like to know which combination of factors is most likely to encourage take-up of your offer, a Conjoint Analysis could be the route for you. Or, to help price your offer appropriately for optimum sales and market share, a Price Sensitivity Meter can help uncover those insights.
quantilope‘s new qualitative research tool, inColor, also brings you face-to-face with your target audience via video surveys. This allows you to really explore in detail what it is that consumers are looking for in your product or service offering.
To learn more about how quantilope’s platform can equip you with both quantitative and qualitative insights to form your startup business plan, get in touch below:
