How To Do Market Research For A Startup
Market research is a crucial element for any business, and, for startup businesses, it’s indispensable. That’s because startups are notorious for housing many risks. For instance, in 2020, startups had a high rate of failure with a heaping 90% of startups failing in their early stages.
Fortunately, startup businesses can conduct startup market research to have a major leg up in their industry. Market research is a crucial strategy that allows companies to glean an array of insights. They include in-depth information on customers, competitors, prospective customers, and the entire sector at large.
In this article, we’ll discuss how to conduct startup market research to stay ahead of the competition and avoid failure.
Steps For Effective Market Research For Startup Founders
Market research involves gathering details about a certain market. Such analysis is geared towards analyzing market dynamics and the rationale of prospective client behavior. Thus, conducting a startup market analysis allows you to know your potential customers and the startup conditions, which reduces the risks of developing a product or service nobody wants.
Whether you’re starting a business, launching a new product, or scaling your small business, market research can take your startup to the next level by helping you understand the audience segment you work with.
Let’s dive into five key steps you must follow to conduct effective market research.
Identify The Purpose Of Your Market Research
To reap maximum benefits from market research, first, you must define the purpose of conducting market research. Do you want to conduct internal research to identify problems? Do you want to craft a better marketing strategy to attract more startup advisors and raise capital to fund your venture? Alternatively, you can focus on external research to examine drivers and barriers in the market.
Internal market research primarily focuses on increasing sales or revenue, and ultimately the startup value of your company. This analysis focuses on the previous experiences of other businesses in the market to reduce risks for future business ventures.
External market research, on the other hand, examines the environment and market where your startup operates. Analyzing market trends and other business activities is all part of the external market research.
Depending on your goals, you’ll need to apply the right approach or sustained startup growth. But first, it’s crucial to have an effective marketing research strategy, which should also have a well-defined goal.
Analyze Industry Trends
When performing startup market research, try to answer the question, “what’s the type of industry in which my startup business will operate?” Thus, your startup market research could be based on growth direction, size of the industry, life cycle, and industry trends.
During the entire process of market research, a detailed description of the industry will guide you. This involves finding the exact market segment that your product or service is designed for. You must understand the nature of your customers, their behavior, and where they’ll come from.
Further, it’s essential to note that what prevents you from venturing into a certain industry is exactly what allows existing companies to maintain their market share. Thus, you should be ready to encounter barriers as you operate your startup. The most typical barriers include:
high costs associated with venturing into the market
the need for extensive funding
limited access to raw materials
technical knowledge experts
exclusive or expensive distribution mediums
restrictive government regulations.
Analyze Your Competitors
To continue analyzing market conditions, you must know your competitors. Prepare a list of your primary competitors in your market segment. Outline their weaknesses and strengths. This information will help to map the competitive advantage and market position of your startup business in the market.
Furthermore, it’s essential to identify who your direct and indirect competitors are. Direct competitors have the same price segment for services or products, have similar target customers, and also have the same promotion and distribution channels that your startup has.
The primary audience segment of indirect competitors is the same as yours, but their products or services differ from yours. For indirect competitors, there are also differences in pricing strategy, distribution, and promotional channels.
After identifying your major competitors, define the key features of your product. Then answer the questions:
What makes your products or services unique?
Why should potential customers choose your product or service?
Choose Your Market Analysis Methods
Based on the type of data you want to gather, you can choose between the following market research methods:
Interviews: This method is more personal. It can also help you delve into the matter deeply, and it allows for extensive communication and clarification.
Surveys: This is the most common market research method because it employs a wide range of question formats and options.
Focus groups: This involves a group of people discussing a certain topic, along with an organizer who controls the discussion. While this concept is simple, it’s difficult to conduct effectively.
Social media: This method is considered useful because of the amount of information available on social media. Typically, the immense information on social media reflects what the user cares about, because social media is often unfiltered and spontaneous.
Observation: This method involves observing participants of your target audience in their natural environment.
Most startup founders focus on one or more research methods. Typically, the choice of a research method will largely depend on your marketing budget and time resources.
Ask The Right Questions
After testing different approaches, you’ll come up with a set of questions you need to answer for effective market analysis. The answers you get will be fundamental in creating a business plan and making crucial decisions in the future. These questions may include:
How big is my potential market?
Can this target audience potentially grow?
What is the nature of services or products similar to mine?
Who are my major competitors?
What is the market reach of each of my direct and indirect competitors?
Is there a niche that I might fill?
What is my unique competitive advantage? What will make me win customers in the market?
Final Thoughts
It’s important to conduct market research before diving into a new market. However, you’ll need money and time to analyze the market for your product or service. Thus, it’s essential to make sure that the data you gather can be applied to your project.
Market research for startup companies should always be based on official and trustworthy data that reflects the real world. A solid market analysis can help you anticipate and solve potential challenges that may prevent your startup from moving to the next level.