Market research can sound superfluous, academic, intimidating, or simply outside of a startup business’s budget. You don’t need a business degree or a multi-figure budget, though. Any startup can conduct useful research, so long as you know how to do market research well.
Research could be as simple as talking with potential customers about your business’s products/services. Or, it could include surveys, visiting competitors, keyword analysis, and following select social media accounts. These are helpful strategies that any entrepreneur can use.
Whether you’re an entrepreneur with an idea, first-time founder just launching, or established business owner, here’s a breakdown of what market research is and why it’s important.
What is market research?
Market research is learning about the landscape your business is in. It includes anything that helps you better understand demand, customers or competition. The purpose is, of course, to better position your business within the landscape.
Importantly, market research is firmly grounded in the real world. It fits between a business concept you have and projections (financial or otherwise) that you make. This research looks at the actual, current industry, potential or actual customers, and competitors.
Some basic questions will help keep your market research on track:
- Demand: Is there a genuine need for what you’re selling? How big is the market?
- Customers: Who are they, what do they value, and where are they?
- Competition: Who else is selling a same, similar or alternative product/services?
Market Research: Any efforts that help you know your business’s marketplace better.
Market research vs marketing research
Market research and marketing research are often used interchangeably. As a small business owner, you can think of them as more or less the same. There is a technical difference if you work in a large corporation:
- Market research focuses on the current market as explained above.
- Marketing research focuses on reaching customers through marketing and advertising.
Marketing research is directly informed by market research, which is why you can think of them as closely linked. Small businesses don’t have the employees (or need) to distinguish between minutiae like this.
Examples of small business market research
For small businesses, market research can take many forms:
- Directly talking with current customers
- Informally or formally interviewing potential customers
- Online or in-person surveys
- Visiting and purchasing from competitors
- Following businesses and influencers on social media
- Participating in comment selections or online forums
- Analyzing competitors’ websites
- Keyword research
- Searching industry statistics
None of these methods guarantees success. But, they do improve your understanding so that you’re able to make informed, customer-focused business decisions.
How to conduct market research
Market research doesn’t follow any one rigid process. Large corporations even vary their methodologies, and that’s doubly true for small businesses. The methods that’ll be most beneficial to you depend on your business’s size, stage, industry, customer interactions, and the stakes of whatever decision you’re facing.
There is, however, a general thought pattern that’ll guide you through the market research process. The approach is fairly consistent among businesses, although it won’t lead to a single set of steps. Follow this pattern if you’re unsure how to do market research.
Start by defining the question you need to answer
The methodologies you use will heavily depend on what question you’re trying to answer. Larger decisions call for more research. Whether you’re testing new business ideas or considering a new customer segment would also impact your methods. Other factors come into play, but the first is simply this: What are you trying to answer?
For example, consider potential decisions a bakery might make. The baker probably should spend months researching a potential new location, using a number of different methods. They might test out new pastry ideas after just a couple of customer comments, though.
Some questions you could start off with are:
- Is there demand for this idea?
- What problem am I solving?
- Who would buy this?
- What price would customers/clients pay?
These assist with validation, defining your audience research, and pricing. You’ll want that information for everything from pre-open planning to revenue forecasts, and especially when figuring out how to reach customers effectively.
Identify who you need to learn from
Before thinking about how to conduct small business market research, first figure out who you need to learn from. Who will be determined by what you’re answering. They could include:
- Existing customers (if already open)
- Potential customers
- Direct competitors
- Alternative choices
- Professional consultants
It’s not common that a small business owner needs extensive professional consulting. In certain situations, however, gathering reports on industry segments, price trends, local traffic or similar data can be helpful. Sufficient information can often be found free online, but sometimes it’s necessary to pay for a report.
Be wary of consulting friends and family. While they can be encouraging for an initial phase, they’re not critical enough to provide truly accurate information. The others mentioned above are much more useful.
Additionally, don’t simply say “everyone.” Narrow down the “who” as much as possible, maybe creating a few clearly defined groups if there actually are several potential customers. Everyone won’t give precise feedback, which is what you need for helpful insights.
Choose the right research methods
The methods you use ought to fit the “what” and “who,” while also being within your small business’s means. Common market research methods for startups and small businesses include:
- Talking to customers
- Observing customer behavior
- Analyzing competitors
- Reviewing available data
Keep whatever methods you use proportional to your decision. The bakery deciding to open a new location vs try a new pastry is a good example. The former requires a lot more research than the latter.
Gather and review information
When you start collecting information, aim for patterns, not perfection. There is no perfect market understanding. In fact, the market would likely evolve before you reached any “perfect” understanding. There are two specific things to focus on.
First, validate what people claim with what they do. Just look at dating profiles to see that what people say vs what people do isn’t the same. Almost everyone who’s online dating says they love to read books, but ask people the number of books they’ve read recently and the yield is much lower. Similar is true for customers, and not only when answering how often they eat veggies.
Second, focus on insights that are truly relevant to your question. Actionable data is what you need, not broad or simply interesting information.
Use what you learn to make decisions
At this point, you should have enough data to make decisions. Adjust any pre-research assumptions, refine ideas and plans accordingly, and implement your next steps.
After you’ve implemented the next steps, return to market research for the next testing phase. This is how you can try to grow a business.
How to do market research for a business plan
Every good business plan relies partly on good market research. Specifically, research informs the customer, marketing and financial projections (via pricing) of a business plan. It also serves to validate the initial idea.
When specifically doing market research for a business plan, focus on things like:
- Defining target customers
- Calculating demand estimates
- Checking pricing assumptions
These won’t guarantee certain success, but will clarify parts of your small business plan. Make sure you keep in mind that even business plans don’t require entirely exhaustive nor perfect research-ology.
Types of market research
Most of the specific aforementioned market research methods can be categorized in two ways: primary vs secondary, and qualitative vs quantitative.
Primary market research
Primary research is research you conduct yourself. It usually involves direct input from customers or direct observation. Remember the “first-hand” sources? This is data that you gather first-hand. Customer interviews, self-designed surveys and in-person observation are examples.
The biggest advantage of primary research is that you can completely tailor it for your business. Gathering the information yourself also gives a better understanding.
Secondary market research
Secondary market research uses existing reports and data created by others. Common secondary sources small businesses use are public sources (e.g. government statistics), academic research, industry publications, and credible reports. Custom consulting would be an example that larger businesses may pay for.
Secondary research is faster than primary research, and doesn’t require extensive time on your part. Use secondary sources to review the broader landscape, and to gather information you can’t realistically obtain yourself (e.g. traffic data or population figures).
Qualitative research
Qualitative market research focuses on opinions, motivations and behaviors. It helps explain why people make choices. Open-ended conversations, some survey questions, and focus groups fit here.
Qualitative research is most helpful for initial validation, and for designing advertising campaigns.
Quantitative research
Quantitative market research is all about hard data, like numbers and trends. Industry reports, government figures, and keyword research are a few quantitative methods.
Quantitative research is for measuring, comparing and forecasting. It’s especially helpful when making financial projections or evaluating opportunities.
Getting prepared before doing market research
Market research is easier (and more useful) when you’re prepared. Have a clear direction prior to using any methods. Specifically, you should:
- Have a clear business idea, including specific products/services
- Know what decisions you need to make, including what, who and why
- Gather and organize business information you already have, including details related to LLC registration or other formal setup steps
- Think through how research will fit into your near- and long-term planning
Tailor Brands has a range of ways to help small business owners stay organized, clarify their business details, and prepare ahead of conducting market research. No resource can guarantee demand, viability or success. The right market research tools can make what you do more efficient and potentially useful, though.
Conclusion
Every business owner faces uncertainty, and there’s no way to completely answer the market’s who, why, and what. For anyone learning how to start your own business, effective market research can substantially reduce that uncertainty and enable better-informed decisions.
Don’t feel like doing small business market research is over your head, or outside your budget. Talk with a customer today, and you’ve done market research! You can start small and still learn a lot about potential customers.