Conduct and Use Market Research
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In my entrepreneurship course, I teach a variety of tools that are useful, if not essential, in planning a startup venture. Recently, one of my students asked me what I believe to be the most important part of planning a startup venture. I didn't hesitate for a moment in responding, "market research". (See a related article on "Why Analyze the Market".)
Many of you reading this post are likely thinking that market research is the most fungible portion of starting a business. In many ways that is true. However, undertaking a startup venture is somewhat different than starting a small business.
The startup venture is, by its nature, a growth-based entity that the entrepreneur seeks to establish, grow rapidly, and ultimately exit at some later valuation. The small business more commonly arises where the entrepreneur opens his or her own firm for producing or providing a product or service with which he or she has great familiarity. This characteristic difference is the primary reason for the disparity in value attributed to market research.
Below, I elaborate on by providing some basic information about market research and how it is valuable to the entrepreneur.
What is marketing research?Business owners and entrepreneurs acquire information through marketing research that helps identify and define marketing opportunities and problems; generate, refine and evaluate marketing actions; monitor marketing performance; and improve the understanding of marketing as a process.
Market research is generally broken down into primary and secondary research. Secondary research involves exploring information previously assembled by others. You may read journals about market preferences or use census bureau information to determine the size of potential markets. Both of these are examples of secondary research.
Primary research, on the other hand, involves undertaking the research oneself. More specifically, it involves collecting information about or directly from potential clients and customers.
You may use questionnaires to learn about customer buying preferences. This type of research is qualitative, as it gives you non-numerical preference data. You may also generate statistical data about potential customers, such as determining the number of individuals who visit a retail establishment on a given day of the week. This provides numeric information that can provide valuable insight into customer activity.
Successful market research often involves a combination of primary and secondary research, with a mix of both qualitative and quantitative data. In the next section, we provide a little more information about the purpose of market research and the type of information that it can produce.
How is marketing research valuable to entrepreneurs?
In order to determine whether a potential business opportunity will produce the desired amount and type of value, the entrepreneur has to fully understand the nature of the industry, the competitors, the substitute products, the willingness of the customer to pay a particular price, etc. All of this information arises from the entrepreneur's directed research into the market.
Likewise, market research helps the entrepreneur to understand the potential customer(s). It involves identifying the needs and wants of your target customer, scope business operations necessary to meet those needs, the manner in which to reach the customer with your offering, and broadening your product or service to include other prospective customers. In summary, market research allows you to uncover the following information:
- What are the demographics of your potential customer base? (Age, race, ethnicity, community or belief association, socio-economic status, etc.)
- Where is your potential customer base located?
- How many people within a given area meet those demographics?
- What is the level of urgency (level of need or want) for the product among the potential customers?
- To what extent will your product or service meet that specific customer demand?
- Are there other businesses already serving these customers?
- How well do these competitors meet the customer's level of demand?
- Does any competitor have a competitive advantage over other businesses in meeting customer demand?
- Do you have a competitive advantage in meeting customer demand? That cannot be replicated? That cannot be outdone?
The above questions are just examples of the type of information you will want to understand in evaluating the value proposition or potential of a product, service, or idea to be a profitable entrepreneurial venture.