Ask almost any entrepreneur today about starting a business, and I guarantee most will tell you market research and validation is the most important first step.
Just because you build it, doesn’t mean people want it. You have to know if there is a market for your product. You have to dig a little deeper.
Who needs what you’re offering? What problem are you solving? What does the market look like? Is it saturated? Is it niche? What do your competitors look like? What does your ideal customer look like? How big is the market?
These are questions that need answers before investing time, money and resources to start a business. Not only do these questions address your potential revenue, customer base, competitors, marketing strategy, and much more but if you’re looking for outside investment- the market is typically what an investor is really interested in. And you better be able to define it.
But how do you go about answering all of these questions? and where do you start?
First, let’s define the various forms of market research and then craft a game plan for conducting it
Market research (MR) can typically be broken down into 2 separate categories:
Primary MR- Any form of research you do yourself.
This type of MR is usually in the form of surveys, questionnaires, focus groups, and interviews but can also be from talking directly with customers, phone calls or emails.
Typically, the format of this type of MR is aimed at getting a response to a specific question and understanding the reason for the customer’s decision but can also be used to answer unstructured questions that may not have a straightforward answer. Below are a few sites I regularly use
Secondary MR- Any form of research that is pulled from 3rd party sources.
This type of MR is typically found through economic reports, census data, chambers of commerce, trade associations, federal statistics, and research firms. Most of this information is free to the public and can be used to understand the market in a particular geographic area, populations statistics, industry trends, seasonal sales patterns, market size, and customer profiles. Below are a few sites to get started with!
So now that we have a better understanding of the types of MR, let’s simplifiy and begin with three simple questions that will address everything mentioned above.
Who are your prospective customers?
Using primary and secondary MR, build a prospective customer profile. A good customer profile will be specific.
What are your customers like? What are their likes and dislikes? how do they spend their time? What is their age, sex, gender, income? What do their behaviors look like? All of this can be answered with primary and secondary MR. The point here is to begin with a targeted and specific approach and then adapt and refine as you learn more.
All of this can be answered with primary and secondary MR. The point here is to begin with a targeted and specific approach and then adapt and refine as you learn more.
What is the industry I’m entering like?
First, let’s define an industry: “A group of companies that work together or compete with each other to provide a particular product or service.” From that definition, it follows that every company involved from production to consumption makes up an industry.
For example, the fast-food pizza industry would involve what you’d typically think: Pizza Hut, Papa Johns, Dominos etc. but also all the suppliers of cheese, meats, dough, sauce, and vegetables. And even the specialized tools used exclusively by the industry; like pizza ovens, and pans. And all the way back to the farmers who raise the cows and chickens, dairy farmers, processing plants etc.
Think about it the opposite way. Start with what is fundamentally needed to produce a finished product and you’ll have a good place to start to understand all the moving parts of an industry.
To learn more about a particular industry- do your homework. Read up on publications, google search your fingers off and write down everything you think might be of value.
“Verizon just bought Yahoo for $4.8 Billion”. That might be a big deal if you’re in the digital media or telecommunications industry.
Stay up to date with current news and companies in the space. Read their literature, thought leadership, case studies. Get a feel for how business is done there and how each business carves out their own niche in the industry. What customers like about each company, and what they don’t like, Check out review sites. There is much to be learned from observation.
Another simple way to understand more about your industry is to reach out to industry experts. Linkedin is great for this! Additionally, look into any trade shows going on near you, look at who is attending and reach out to them! Leverage industry influencers and bloggers as well to gain more information.
Who are your competitors in that industry?
Competitors can be broken down into two categories:
- Direct competitors– Anyone who competes by selling the same primary product or service
- Indirect competitors– Anyone who offers the same or similar product or service as part of a larger product offering
Back to the pizza example, Pizza Hut would a direct competitor whereas Walmart (who sells frozen pizzas) would be an indirect competitor.
A great next step is to build a competitor profile. Similar to the customer profile, it should be specific and answer questions about the strengths and weaknesses of the companies involved.
I recommend calling executives in the industry. Call them and say, “Hi, I’m doing some research for X and I wanted to ask you a quick question, do you have a brief minute this morning/afternoon?”
If they say yes, ask, “What would you say the 5 critical factors are that a company must do to be successful in your industry?” If they say no, then ask if you can send them an email, take their email down and move on to the next person! Repeat and refine until you have a thorough database of information from a wide range of competitors.
If you’re asking yourself, “How do I get their numbers?” My advice is to identify the top companies in your industry, find the senior executives of those companies by using a LinkedIn advanced search and then call the main line of the company asking for them.
Because it is difficult to get senior executives on the phone, I’d recommend identifying 3 other people in lower positions you can call if the senior executive is not available. Do this until you have a comprehensive database of success factors from a wide range of executives and companies.
Congregate that data and find trends. From the trends you see, filter it down to the top 5 and score all of your competitors on a 1-10 scale on how well they do that particular success factor. This exercise will help you understand where there is a potential gap in the market that competitors may not be addressing.
Coupled with your customer and industry data, you will begin to see the entire picture of how you could carve out a niche in the market.
Answers to these three questions will provide an understanding of your potential market. The next step is to use all of the data to decide if you there is an opportunity. If yes, awesome! Go make a prototype, and test it in the target market. From your competitor analysis, you’ll know where competitors are lacking, where their strengths lie and you’ll be able to devise a prototype that addresses a niche your competitors may be overlooking.
At this point, you’re moving away from standard market research to the prototype phase but the framework should be the same. Business begins and ends with good questions. Make sure you continue to treat the prototype step in your business as an experiment. One that should consider the research you just did and build upon that with constant learning and refinement
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