How to do market research for a start-up

If you are involved in a start-up, you probably have a lot of big ideas about how to proceed. From the overall direction of the start-up to new products you want to pursue along the way, there are endless ways to test your creativity and expand the organization's horizons.

However, it's important to know how customers will react to these new products before you invest in expensive production costs.

Market research can tell you whether or not a product is going to resonate with your target market. Through market research, you can gather data insights into the needs of your target customers, so you can better understand whether your product fits their needs and how it stacks up to what your competitors are offering.

Although market research is necessary for a start-up, it isn't always easy. There are considerations such as different types of market research, costs involved, and more.

Our guide will help you discover how market research can help your start-up and how to go about it. Let’s dive in.

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Market research is the gathering of information about your target audience to determine the viability of a product or service. There are different methods of market research, including:

• Surveys

• Focus groups

• Customer interviews

• Data analysis

Market research is especially important for start-ups, as it can persuade investors and stakeholders to invest in your business. When you understand how to conduct market research, you'll be empowered to protect your start-up, even in challenging economic conditions.

If your start-up is relatively new, consider carrying out market research every time you develop a new product or service. Even in an established start-up, using market research to ensure your product or service will be well received is the smartest way to make business decisions.

Start-ups have become increasingly popular. According to McKinsey, 2021 saw twice as many start-ups financed as the previous year. Many entrepreneurs are eager to bring something new to the marketplace and serve customers in exciting, innovative ways. However, without market research, start-ups might not understand how they can best engage with customers and meet their needs.

Market research is essential for start-ups and entrepreneurs to make predictions about profitability. Research and data can help guide future business decisions, increasing revenue and developing a smarter sales and marketing strategy. Market research can also provide deep insights into the target market you're hoping to serve.

Market research helps you test ideas

One of the most obvious benefits of market research is that it can help you test new ideas. Just because you and your stakeholders are invested in a product and believe in it, that doesn't mean it will sell well or resonate with your target customers.

Market research can help you understand if the timing is right for your product or solution and help you anticipate demand for the product. With proper market research, you can also gather information on pricing, marketing strategy, and product messaging that could help you become more profitable.

Conducting market research helps attract investors

Investors can help start-ups go to the next level. However, to attract investors who believe in your business strategy and solutions, you'll need to show them hard evidence that you’ll be offering what customers want.

Market research shows potential investors there's a viable market for your product or services and makes their decision to invest easy. Keep a paper trail of any previous market research you've done, so you can show interested parties the work you put into your products.

Market research makes start-ups less likely to fail

More than two-thirds of start-ups never deliver a positive return to investors, eventually shutting their doors. While there are many reasons why start-ups fail, one of the top reasons is a lack of market need for the start-up's products or services.

Market research helps you anticipate the needs of your target market, so you can enter the business landscape with the knowledge you need to grow and thrive.

There's not just one foolproof way to succeed as a start-up. However, by investing time and resources in market research, you'll get a headstart that can help you beat the odds.

There are two main types of market research: primary and secondary. If you've never done market research for a start-up before, consider which would best suit your organization's needs.

The most comprehensive approach involves using both kinds, so you can develop a more holistic understanding of your target audience and what your competitors are doing.

Primary research

Primary market research involves gathering market data straight from the source. You conduct primary research with clear objectives in mind, so you can gain insights your competitors might not have access to.

Examples of primary research include:

• Interviews

• Focus groups

• In-person surveys

Secondary research

Secondary market research is data-gathering from secondhand sources, such as:

• Industry publications

• News sites

• Public and private company databases

• Academic journals

While secondary research removes you from your target audience slightly, it allows you to gain a comprehensive understanding of industry trends.

To determine the type of data you'll collect during your market research, establish whether you plan to conduct quantitative or qualitative research. Both are important for gaining perspective into how your product or solution will resonate with your target audience.

Quantitative research

Quantitative research deals with numbers and statistics, gathering large numerical datasets that offer insight into common market challenges and industry trends. Quantitative research is most often expressed in numbers and graphs and can be used to establish certain facts about a topic.

Quantitative research can be done via surveys that include:

• Closed-ended questions

• Observations recorded as numbers

• Polls

Qualitative research

Qualitative research is carried out with insights gathered in words designed to identify the reasons behind customers' buying habits. This type of research is used to clarify the "why" behind customer experiences.

Qualitative research is conducted through:

• In-person interviews

• Focus groups

• Open-ended survey questions

Conducting market research requires careful planning and consideration. It can also take a great deal of time and internal resources.

Many start-ups opt to have a project manager oversee the process, but other team members will likely be required along the way. If you don't have the resources to designate one team member for market research, consider hiring a third-party research company to manage the market research process for you.

Either way, the same general process, as outlined below, will help you stay on task and gather useful insights. Keep in mind that one round of market research might not be comprehensive. It can take several research projects to give you an overall picture of how a solution or product is perceived, depending on what particular feature or aspect you want to highlight.

1. Define the goal

Before you start your research, decide what questions you hope to have answered by the end of the process. This will help you to:

• Identify your purpose and goal

• Stay focused

• Determine the right research subjects

2. Decide what type of research to conduct

After you have defined your project goals, select the type of research that is most suitable to achieve them. Depending on your hypotheses, either primary or secondary research might be more appropriate.

Most start-ups use a hybrid approach and blend research methods and types.

3. Identify demographics and find appropriate research subjects

If you're planning on conducting primary research, identify and recruit subjects. This can include:

• Past customers

• Existing customers

• Potential customers

You can recruit subjects via a combination of methods, including social media, word of mouth, or even hiring a third-party firm to recruit and study participants.

4. Conduct research

After you have defined your target demographic, located research subjects, and verified your research method, you can execute your plan.

If you're conducting in-house market research, involve multiple members of your team, especially to review and vet the questions in surveys and polls. Your questions should be neutral and unbiased, so participants feel encouraged to answer honestly.

5. Analyze the results

Once the data has been collected, you and your team can sort and analyze it to check for trends or patterns. In most scenarios, you'll be working with two types of data, qualitative and quantitative, so you will need to approach analysis differently for each.

This analysis process takes time, whether you're analyzing the data in house or working with an outside firm. Don't rush it, and take time to thoughtfully review all the responses.

6. Determine action items

After analyzing your data, draw up an actionable plan that includes the next steps for your start-up.

If your market research involved customer responses about a product, your action plan should include improvements or tweaks to the product, based on what research participants had to say. Whether the responses you receive are positive or negative, making an action plan is the best way to keep moving forward and meeting your customers' needs.

Market research requires considerable resources, making it time intensive and often costly. The actual cost of market research for a start-up varies greatly, depending on:

• The size of the project

• The size of your start-up

• The number of team members you can devote to the research project

• Your personal preferences

Many start-ups work with outside firms, which can be expensive. Don't hesitate to interview multiple external firms, if you don't already have one in mind. Some firms work exclusively with start-ups and are experienced in conducting comprehensive market research in a streamlined, efficient way.

There are other costs associated with market research. You might reward research participants with an incentive, such as a gift card, free product, or discount. While this isn't necessary, it can entice more participants to take part in your study. Be clear about what you're offering, and never try to trick people into participating by promising a larger prize than what you're offering.

There are cost-effective ways to conduct market research. You can use free trials of software products designed to assist with customer research, and many cities provide market research grants to qualifying small businesses.

Market research is an important part of the growth and development of your start-up. Don't skimp on performing quality market research, even if it does cost you time and money.

Market research should never be a one-and-done endeavor. To continuously find new ways to serve your customers better and outrank your competitors, perform market research regularly. This will allow you to improve your products and solutions while growing in efficiency and discovering new and innovative methods of enhancing your viability as an organization.

A SWOT analysis for start-ups is a framework that allows stakeholders to evaluate their:

• Strengths

• Weaknesses

• Opportunities

• Threats

While businesses of any size can benefit from a SWOT analysis, it is especially valuable for start-ups, as it looks at the existing internal competencies in place, alongside any challenges and opportunities.

A SWOT analysis doesn't ensure a start-up's success, but it can provide a helpful, comprehensive look at how well a start-up compares with the competition and how well equipped it is to move ahead.