How to research the market for your business idea like a pro
You know your business idea is a winner.
You are motivated to make it succeed.
And you are excited to get started.
I get it.
But it’s dangerous to jump right in without first making reasonably sure that you are on the right track and this business is actually worth your while.
Imagine wasting months or even years of your life on a venture that was destined to fail from the start, and you could have avoided it by doing some basic market research.
And if you are looking for outside financing, investors and lenders expect you to research your market and test your product or service. That is especially true if you are a startup.
So, collect, digest and analyse pertinent data. Arm yourself for the inevitable scrutiny and grilling from your potential backers. It will come.
Use market research as an opportunity to question your business plan and uncover issues that could cause you serious headaches in the future, including (but definitely not limited to):
You would be surprised how many entrepreneurs reconsider their plan of action altogether after researching and analyzing the industry and market.
It is a good investment of your time that you will not regret. Trust me.
When you hear market research, you probably think:
I’ll just Google the name of my target market alongside words such as ‘market / industry’ and ‘trends / forecasts / growth’.
And you are right, that is a good way to start, but:
There are two kinds of market research – primary and secondary – and you should do both to properly address any market research assignment, such as the market analysis section of a business plan:
There are many different ways you could go about collecting data for your industry and market research, depending on the type of your business, needs, resources and circumstances. So, we have selected a few popular approaches for you to consider:
Your primary market research could include some of the following methods:
For example, testing a product or service on the high street or online by selling a minimum viable product on a limited time basis.
Field research examples:
Gain insight into your customers’ minds through:
Talk to people or businesses (e.g. corporate buyers) that fit the profile of your target customers about their needs, wants and preferences as related to your business and offering (e.g., what they like and dislike or how they make buying decisions).
These can be conducted online, phone or in-person, and may be as informal as walking around the target neighborhood where you would like to set up shop and talking to potential consumers, or as formal as hiring a market research firm to conduct professional-level research.
For example, observing customers and sales in a store, taste tests, mystery shopping. Observing consumers in action is as crucial as talking to them.
Analyzing internal business and sales data of an existing business (e.g., databases and enterprise management systems)
Other business people, industry experts, suppliers and even competitors are a great source of information:
Especially those in non-competing markets with similar services or products (e.g. different city) . Attend events, conferences and talk to other business owners.
Consultants, professors, journalists, corporate managers and other experts are constantly writing about and commenting on specific industries and markets.
While you will not uncover any trade secrets, the conversation could provide valuable insights into the industry as a whole.
Talking to potential customers and observing them in action is crucial.
So, launch your web browser and Skype/Zoom apps, pick up the phone, and get out and talk to people.
Secondary market research is data sourced from external resources, including:
You can find secondary information in many places, such as:
Using sources of information that already exist can save a lot of time, energy and money. On the other hand, the data might not be as tailored to a specific audience as one would like or need.
While secondary research is less targeted than primary research, it can yield valuable information especially when answering the following two types of questions:
If you are looking for outside financing, investors and lenders expect you to carry out some level of primary research, not only consult secondary sources. That is particularly relevant if you are a startup.
Secondary research may be a good starting point, but asking consumers yourself can give you a much more nuanced understanding of your target audience.
The benefit of primary research is that you can target selected groups (e.g., existing customers or desired geographic market) and tailor your research instrument to answer specific questions.
But, the drawback of direct research is that it can become rather time consuming and costly. Also, the results are not available immediately.
That can be especially true when the original information for primary research is not gathered through your own efforts but performed on your behalf by an outsourced professional market research firm.
As a result, primary research is best used to answer a particular question or set of questions about your business or customers.
For instance, primary research could investigate reactions to your branding/product/service, improvements you could make to buying experience, and where customers might go instead of your business:
Make sure that all stats, facts and figures from external sources included into your business plan are properly referenced. Not doing so undermines the credibility of your plan.
Tell the reader of your business plan how you did your market research. Prove what the facts are and where you got your data. Be as specific as possible and provide statistics, numbers, and sources:
When doing secondary research, always make sure that your sources are reputable. This gives the reader more confidence in the information provided and in the case you are making for your business idea.
The sources also should be noted in both the main text of a document as well as the Appendix.
U.S. Census Bureau (2020)
U.S. Census Bureau; December 2020; Demographic and Housing Estimates; Accessed: 31 December 2021; Link: https://census.gov/data/demographic-housing
So, the general referencing formula is: [author, date, title, publisher]
Most importantly, always make sure that you comply with the reference requirements of the recipient of your document.
For example, if you are writing a business plan for a grant or visa application, the organization you are applying to could have issued their own specific instructions on how to reference research sources.
Due to the perceived complexity of market research, there are some agencies that charge unreasonably high fees for rudimentary research that businesses can easily conduct on their own.
If you plan to hire a professional market research firm, shop around until you find a reputable company offering fair prices.
Otherwise, in addition to keeping the costs down, an added benefit of doing your own research is that you will get to know the market for your business even better.
Some industry and market research resources are available for free and some provided for a fee. But it does not always mean that paid information is better.
For example, in the United States, some of the most extensive and valuable sources of information for the market analysis section of a business plan can be found in the databases, publications and other free resources of the U.S. Department of Commerce, the U.S. Small Business Administration (SBA), the U.S. Census Bureau, and other governmental agencies.
As for the paid resources, libraries often subscribe to research journals and magazines that may help improve your research. Some libraries even provide free access to reports from professional market research firms that can easily cost more than US$1,000 apiece.
Selection of market research subjects is crucial for producing valid results and enable the business to understand the preferences of its actual customers.
Using friends and family exclusively as respondents for market research is a bad idea, because this group of respondents may be partial to the researcher, and they may not even be the target market for that particular business/product/service/research question.
If your industry research is for a business plan or a similar purpose, do not overload the reader in the main body of the document. Move everything that is not essential to telling the story into the Appendix. For example, place the detailed results of any market surveys, trials or focus groups that were summarized in the main body of the plan into the Appendix.
Remember, business planning is not about your ability to do professional-level market research–unless you are a corporation.
A business plan intended for a potential investor, lender, or business partner simply needs to show your understanding of where your business fits into the grand scheme of things within your market and industry–and demonstrate that you have incorporated that knowledge into making sound strategic decisions.
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