To take any business idea to the next level, it is crucial to prove (using reliable data) that the idea is wanted and/or needed by a target market. Beyond asking those near and dear, you need to arm yourself with as much objective and unbiased information to validate why potential investors should believe in you. But, what does market research for a startup actually mean? How realistic is it for a startup with no budget, no marketing team, or no prototype?
Firstly, what is market research? Well, Hubspot defines it as “the process of gathering information about your business’s buyers personas, target audience, and customers to determine how viable and successful your product or service would be among these people.” Unfortunately, there’s no way around it, market research is essential; especially for early-stage ventures. However, this guide will explore the low-cost methods of validating your product or service idea before you take it to market and/or investors.
When Should You Conduct Market Research?
If you’re an early-stage startup, you should start researching in tandem with writing a business plan as the data from the research will feed into several areas of the plan, such as determining the sales potential of your products and/or services.
If you’re an established business, you might conduct market research if you’re about to make any significant changes, such as a new product line or feature, and use the market research to support your decisions.
Step 1: Define Your Market
This process begins with defining your target audience, and one way to understand your potential customers is by using buyer personas. Buyer personas are fictional, generalised or stereotyped depictions of your ideal customer to help you visualise your audience. Some key considerations to include in your persona, other than basic information (such as. age, gender, location, job title, income) to consider are:
Characteristics – What is your ideal audience like? Are they active? Ambitious? Daring? Assertive? Technophobic?
Relationships – Who does your prospective buyer influence? What is their relationship with their team/family/friends/whomever your product or service affects?
Motivations – Why do they need your product or service? What problems do they have and what motivates them to solve them?
Personal needs – What challenges do they face? What areas of their lives could be easier or be made more enjoyable?
Where are they? – Where do they hang out online, are they on social media? What kind of events do they go to?
HubSpot has some good Buyer Persona Templates to help you with this activity.
Step 2: Engage Representatives of Your Market
You now need to find a representative selection of your target market to delve deeper and inform the visualisation of your audience, streamline your communications and inform your strategy. Using the information you’ve deduced for the ‘where are they?’ question in the previous step, start there. Go online and find the groups or forums where your people in your market congregate (such as a mums group on Facebook, a web developer’s Slack channel, a swimming enthusiasts’ forum) wherever they interact with each other.
Generally, there are two ways to approach researching and engaging your market target market; primary research and secondary research, which are discussed below. Since both approaches entail different processes and uncover different information points, it is usually best practice to conduct both to build a full understanding of your marketplace and consumers.
Primary research is research that you conduct yourself, and it is an opportunity to get into a customer’s head and understand their purchasing decisions. It is crucial to gain the outlook of an unbiased target market, as they will be more honest with their thoughts and may spot shortcomings that a biased audience may not. Primary market research is a coin with two sides: quantitative and qualitative. Both shed valuable light on a product and market, but they follow fundamentally different methods.
Not sure where to start? Begin with quantitative.
Quantitative Market Research
Quantitative market research is the collection of numerical data from a statistically significant sample, often resulting in statistical analysis to project insights and understand trends in the data. You can collect data via email, over the phone, online/web, mail, or in person. Not sure how many responses you need? SurveyMonkey has a Sample Size Calculator that you can use to determine survey sample size.
How should you structure your surveys/questions? Here are some important tips:
Quantitative Research Top Tips
- Keep questions short and as straightforward as possible.
- Ensure that the format is aesthetically appealing and easy to read.
- Questions should be specific, rather than general or leading.
- Include a cover letter explaining the purpose of the research.
- Response scales should be logical.
- If the research involves sensitive topics or details, you might want to think about keeping the questionnaire or survey responses anonymous so that the answers are as honest and transparent as possible.
- Present the participant with an incentive to complete the research – e.g. 20% their next purchase.
- Generally, the larger the sample size, the more reliable the data.
- A/B Testing.
- Stick to no more than three arms per experiment: one control and two test conditions. Don’t get caught up testing every possible implementation of an idea at the same time.
- Realise that there are some tests you shouldn’t run, such as those which are in opposition to brand values or principles, e.g. a new design that is off-brand.
- Instead of leaving decisions to opinion, egos, or background, let the metrics from A/B tests make the vast majority of decisions.
- In the brainstorming stage, write down every idea and then twice a quarter, go through the list for new testing material. When choosing between ideas, ask yourself two questions:
- 1. How many people will be affected by this change? If something can improve your numbers, then consider it more seriously. As a mature company, a statistically significant number might be 1%, but for early-stage startups that might mean focusing on tests that can bring a 20-30% increase in metrics.
- 2. How many hours will go into running a test? If one test can get the same return as another test, but at half of the time investment of it, that’s probably the test you should prioritise.
- If you want to ask questions that gauge your respondents’ willingness to pay for your product or service, use the following set of four specific, open-ended questions:
- 1. At what price would you consider the product/service to be too expensive?
- 2. At what price would you consider the product/service to be priced so low that you’d question its quality?
- 3. At what price would you consider the product/service starting to get expensive, but you’d still consider buying it?
- 4. At what price would you consider the product/service to be a bargain – a great buy for the money?
- There is one exception – if your product/service is something your audience has no experience buying (i.e. there’s nothing remotely similar on the market), as they won’t know how to answer these questions. In this case, ask this question “How likely would you be to consider buying ___ for £___?” five times for each price listed below:
- 25% below your break-even cost.
- 10% below your break-even cost.
- Your break-even cost.
- 10% above your break-even cost.
- 25% above your break-even cost.
- Randomise the order of these questions, so they aren’t displayed from lowest-to-highest or highest-to-lowest.
If you’re sending a questionnaire or survey, use a major platform such as SurveyMonkey or SurveyGizmo as they are effective and very low-cost, and their built-in reporting tools make analysis easy. To launch your survey, use a panel provider (like people.fish). These companies will send web traffic to your survey, and it’s cheap. Otherwise, Google Forms is more basic but free!
Qualitative Market Research
Founders, especially technical founders, have a tendency to favour quantitative data to inform decisions and hard numbers to draw trend lines that are easily depicted on a pitch deck. You can run an A/B test to provide statistical certitude of your consumers’ preference, but that won’t tell you why a consumer chooses A over B.
Data from quantitative research can only reveal so much. In a lot of circumstances, data without insight is deadweight. For startups, in particular, delimited metrics and options aren’t always clear cut or readily available, so to answer those hazy questions such as “where would my service fit into a consumer’s life?”, you need to progress into qualitative research.
Types of Qualitative Research
A typical focus group lasts around two hours, with around eight participants and a moderator to guide the discussion. This arrangement works well if you’re seeking feedback from several people about a specific task or concept that isn’t context-dependent.
There is always a risk of ‘groupthink’ in an environment like this. So, to counteract that, ask participants to record their thoughts or reactions individually on a piece of paper before it is discussed in a group. Also, encourage an environment where there are no right or wrong answers, and that participants should be able to disagree with one another if that’s what they honestly believe.
In-person, 1:1 interviews is a good format if you have a lot of stimuli to share, and you want to note nuanced reactions. Further, this option is well suited to topics and questions that are sensitive such as health, wealth or sex.
This option is more time-intensive because it requires significant periods of individualised attention. If you need information from 10 interviews, always book more than 10 1:1 interviews to ensure that drop-outs don’t disrupt your study.
This type of research is perfect for monitoring your target consumer with your product or service in their natural environments such as their home, business or store. By observing the participant in the comfort of their own habitat, you can read body language and intonation, which can give you the closest view of your consumer.
Since you’re encroaching on someone else’s environment, be mindful and respectful with their house rules and ask for permission well ahead of time if you need to film the study. Limit the number of observers to four, per one participant, to avoid overwhelming them.
Primary Research Cost
Undertaking the research yourself is always the cheapest option, but you’ll need to factor in the cost of your time and effort. If you’re thinking of using an agency, costs start from around £5,000. Further, a research project conducted by a London-based market research company could cost around £30,000 (Start Up Loans).
Ethnographic studies don’t have to be an expensive exercise. You can record the studies on your mobile to avoid hiring a videographer; you can even ask your participants to video themselves performing a task in their environment or record it over a Skype interview.
Moreover, you can use phone or video interviews to conduct your 1:1 or focus group interviews as a low-cost way to talk to your audience, especially if they are widely scattered geographically. However, group interviews can be harder to facilitate and very noisy when done remotely.
You can gauge individual reactions to visual cues by using software to share stimuli. This should encompass a tech check for your moderator and participants ahead of time, screen-sharing, recording, archiving and a virtual ‘backroom’ so you and the moderator can liaise during and in-between interviews.
Online discussion boards are a good option if your targets are widely spread across geographies. This allows participants to log on at different times of day to respond, and perhaps record videos of themselves as they complete a task or respond to stimuli.
Weigh up your resources to assess whether you should outsource your research, or do it yourself. If you do it in-house, it is challenging to make time for this work and source participants while you are so concentrated on building your product and business. However, you can get creative and ask your best-connected salesperson to generate a list of targets.
Writing Research Questions
The most effective questions you ask should be easy to answer, focused, neutral, and open-ended.
Use this checklist to assess each question you’re looking to include:
- Can the question be answered entirely in the allocated time?
- Is the question in a simple format using plain, standard language?
- Can I answer this question myself?
- Is the response going to be significant for addressing my objective?
- Is this question different enough from the other questions?
- Is this question better answered by completing a task?
- Is the language free from assumptions or bias?
- Is this question avoiding answers that lead to a binary, one word or a yes/no answer? (e.g. questions such as “Do…” or “Is…”.
- Have I added an option for respondents to counter expectations by adding qualifying language such as “if at all” at the end of the question?
Qualitative Research Top Tips
- Set a clear objective – don’t start until you have a defined problem or question as it will directly affect every detail of your work, from the scope of the research to the questions you ask.
- Start the conversation with broad questions and then become more specific as you go.
- Prepare follow-up questions that anticipate a variety of answers.
- Leave your expectations at the door and begin any research with an open mind, but particularly when it comes to the nuanced, observational nature of qualitative research. If you’re fixed on a certain result, you’re likely to selectively interpret results through the prism of your own agenda.
- The value of the research lies with thoughtfully crafted and crisp questions. It’s tempting to ask as many questions as you can while you have the opportunity, but you’ll end up walking away with shallow answers.
- During any interview that you conduct, you should remain welcoming, authentic and warm to avoid interviewees disengaging and clamming up.
- Don’t let any one person in a focus group dominate the conversation; make sure that everyone contributes equally.
- Be sure that no one person’s strong opinion or belief is swaying the group; a good moderator knows when to jump in to neutralise situations.
- Adaptability and improvisation are important in qualitative research, don’t be afraid to go off path if you find that the conversation is steering off in an interesting tangent. If it’s not an interesting avenue to explore, refocus the discussion back on track.
Secondary Market Research
Secondary market research is research that has already been completed before and provides a background look at your market, the success of previous products and services, as well as your audiences’ previous purchasing behaviour. It is a low cost and a fast form of research; all you need is a computer and an internet connection to get started.
These sources are typically free and include government departments, business departments of public libraries, and business development departments within local chambers of commerce. Government statistics are plentiful and wide-ranging, providing information ranging from population trends to community income characteristics.
These sources include research and trade associations (such as Gartner, Forrester, and IDC), banks and other financial institutions, and publicly traded companies. The information sometimes comes with a cost, such as a subscription fee, but it’s often worth it for the quality of accurate, thorough research.
Other commercial sources can include newsletters, journals, magazines, and radio and TV stations, which keep information such as their audiences’ demographic profile and local trends. So, get in touch with their sales department and ask for their media kit.
Thorough research is frequently produced in colleges, universities and technical institutes. Many of which are available on Google Scholar. Google Scholar is handy for finding information about customer demographics, so try searching terms such as “X Market demographics”.
Top Tips for Secondary Market Research
- Start with Google.
- Use keywords such as “X market size pdf”; “X market outlook pdf”; or “X market survey 2019 pdf” to find insightful reports from research companies that have already done all the work for you.
- If you’re researching competitors, the keywords to use are “ X market players”, “X market share”, “X revenue statistics”, “company x vs company x”.
- Search research companies’ websites for keywords. Example: “X Market Size:STATISTA.com”
- Google Trends in case you need to know what’s trending in searches now. This tool will show you what’s on the mind of consumers, which company is popular in searches, and where the market is going.
- Try searching for market size charts using Google images. It’s very effective when you can’t find market research reports in the search
- Facebook Audience Insights (if you’re using Facebook Ads) is a great tool for customer demographics research. You start with the information about consumer and proceed with the demographic charts. This tool shows the pages your customer follows; job titles, education level.
- You can get some great information about your customers via online, niche forums.
- Tools such as SimilarWeb is great for gathering information about competitors, such as which marketing channels drive the most traffic to their website.
Whether your company is in its infancy or has been established for several years, market research is critical. It is the most effective method of gathering the reliable data you need to make sound business decisions. While it may seem like a daunting process, consider it an investment in your company’s future, and there are many ways to reduce costs to appease shoestring budgets.