How to Conduct Market Research for a Startup

Imagine a world where door handles are 40 centimeters (about 16 inches) lower than usual, meaning you need to lean down every time you get home from the office.

Imagine a world where Netflix tries to attract subscribers by streaming incredibly dull films about the Civil War instead of providing award-winning TV shows.

Imagine a world where you can’t get your favorite coffee to go from Starbucks.

These are three extremely inconvenient and not people-oriented parallel universes. They’re worlds where no one pays attention to proper market research and user satisfaction.

Fortunately, they are imaginary. And in reality, we have access to super convenient door handles, fantastic Netflix shows, and coffee to go from almost every coffee shop; in our world, market research data matters.

If you fail to do market research for a startup properly, your business has every chance of being as popular as Netflix’s evil twin that only streams military history. It will likely join the list of failed products sometime soon.

How can you conduct market research for a startup to save time, money, and even your whole business? Dive into this article to find out about the basics of market research, learn its secrets, and get insights into conducting market research the right way.

Why you need market research for a startup

Some founders aim to rush headlong into startup development with a clear goal to test their idea as fast as possible. If you still have concerns about market research only draining your time and money, this section is for you.

You can seriously save time and even raise money by taking small research steps.

Here are six key reasons you may want to start market research right away:

Better understand your target audience

You may already have a vision of a customer profile; you may have tested your product with beta users, or your product may even attract new users every day. Seems like you know your product’s audience! But have you already discovered your users’ behavioral patterns? Do you know what to offer to make users stay?

After conducting market research, you can satisfy users’ needs better than any other product does. Research helps you add missing details to your customer persona and adjust particular product features to meet unique needs.

“If you want to know how to improve the saleability of your product or service, or how to improve customer satisfaction or experience, the best people to ask are consumers and customers,” says Simon Lidington, former founder of Insight Exchange, an independent consultants’ association.

But there’s so much more to discover with market research.

Attract noncustomers

You may be familiar with your market; however, there are three tiers of noncustomers who may turn into loyal users:

• The first tier of noncustomers are on the edge of your market, and may join you soon.
• The second tier currently opt for different products and market opportunities, but there’s still a chance they’ll pay attention to your product as well.
• The third tier of noncustomers may be distant from your business because of your location, industry, or niche.

One feature added at the right time can make these three tiers of noncustomers turn their heads towards your product.

Market research conducted the right way helps you understand customers you don’t even know you may have.

Raise your first funds

Jamie Herbert, CEO of the FinTech startup Bridgecare Finance, has shared an inspiring story on how the company attracted its first investors.

When Bridgecare Finance was just an idea and not yet a company, its founders started conducting market research to make sure their idea had a chance to succeed. They targeted a specific audience — working parents with children under five — to better understand parents’ needs and opinions on mixing careers with parenthood. With data obtained from surveys and research, they joined the Techstars accelerator and raised their initial funding!

Market research data may help you take the first step to fund a startup, without actually investing in real problem-solving and product development. Market research as a component of the project discovery phase is a way to make the most out of your idea even before it’s converted into code, wireframes, and software solutions.

Don’t join the competition — beat it

Without a precise understanding of users’ needs, founders only try to mimic existing products and either make them fit a new market or improve them with features that are different from competitors’.

But with a deeper understanding of demand, unique opportunities emerge.

This is the opportunity to discover a blue ocean — a space where competition doesn’t exist yet.

A blue ocean is a market space for innovators, where new industries and exceptional solutions are born.

The only way to beat the competition is to stop trying to beat the competition,

— Renée Mauborgne and W. Chan Kim, Blue Ocean Strategy

Discovering or creating a blue ocean may take time, but once you launch your MVP targeted at that uncontested market, your product can get to a whole new level of supremacy, where you set the rules, manage user expectations, and regulate relations in a way that is most beneficial for your business.

Discover new business opportunities

When you’re not sure how to move forward with your idea, your app, or your startup and it feels like you’re stuck, market research can save you.

It can provide you with brilliant insights, stimulate idea generation, and help you discover real-world opportunities for business growth.

It may be a chance to challenge your idea without actually building a product. At the same time, it may help you to decide on a pivot and get out of a rut.

Save you from making the wrong decisions

Market research for a startup doesn’t just help you make the right decisions; it also helps you avoid wrong decisions.

Even if you’re a serial entrepreneur with years of experience in the target market, you’re still prone to making mistakes. Ron Johnson, a highly skilled executive with years of experience in the field and multiple successful cases behind him, was expected to bring American retailer JCPenney to a whole new business level. However, as a result of poor business decisions, the company took a step towards complete failure in 2011. Johnson decided to modify JCPenny’s business model and get rid of coupons, sales, and promotions — special offers that, as he believed, “people were just tired of.”

But the reality was customers loved coupons and sales. After canceling them, the company experienced an unbelievable decrease in sales and net profit.

If executives rely not on a gut feeling but on real customers’ expectations and feedback, they can both uncover ways to improve products and understand what exactly makes their products loved and unique.

If you’re not sure what to do, go to your target market. The market knows it all.

The challenge is to ask the right questions.

Fortunately, we’ve got you covered.

How to conduct market research for a startup

To make your research journey effective, we’ve defined key steps to perform market research for a startup the right way.

Define your objectives

What’s the purpose of your effort?

What would you like to accomplish with this research and your entire startup?

Think carefully about the information you would like to discover; then, define how exactly this information can help you and your business.

If there’s any issue you would like to tackle with research results, define it; if there’s a goal behind your effort, clarify it; if there’s an assumption you’d like to test, state it.

Your key objective should guide you from the day you launch your research till the day you start acting on discovered data.

Shortlist your questions

If you want to get the thuthful answers, you should ask the right questions. While clear, well-thought-out questions can give you data you’re looking for, wrong questions can be misleading, damaging, and ineffective for your startup.

Wrong questions can literally steal your time and money.

At the previous step, you defined key purposes of launching market research; now, it’s time to build relevant questions around your purpose.

Market research helps shed light on customers, competitors, and the current state of the industry.

Your questions will depend on your unique case and objective, but make sure to brainstorm questions about each of these subjects.

Use this table as a reference in your research:

Once you’ve formulated these questions, try to answer them yourself based on your current vision. Do you have a clear and precise answer to each of your questions?

If you do, that’s awesome: You’re almost halfway to effective market research. But are you sure your audience knows the answers too?

If you can’t answer your questions yet, we recommend starting over with developing a business model canvas and taking other primary steps of the project discovery phase.

At the same time, you may lack details on your customer persona, or perhaps you would like to start with a SWOT analysis as the first step in your market research. If you struggle to answer some of these questions, the right step is to start with a project discovery phase and collect all necessary details to properly test your assumptions.

The questions you define at this step may lay the groundwork for deeper investigations: surveys and feedback forms for achieving market research goals.

Choose the type of research

Should you create a fancy quiz right away and send it to your users? Not necessarily.

It may seem like market research consists of surveys and interviews only; however, the process is more complex and interesting.

To understand the essence of market research and choose the most effective approach for your business, let’s take a look at types and methods of market research.

Primary startup market research

What comes to mind when you hear about market research? We bet that Q&A sessions and interviews are some of the first things. When you collect brand-new data on a specific topic from your target audience or people who may potentially turn into your customers in the future, you leverage primary market research.

This may be an expensive and time-consuming way to do market research for a startup. At the same time, once you reach out to your target audience, you get a chance to discover exceptional insights that are perfectly relevant and beneficial for your business.

Secondary startup market research

Terabytes of information that can help you grow a successful startup are easily accessible online on channels like TechCrunch, Hackernoon, and Medium; in Q&A resources; in books and journals; and on research and statistics websites.

When you dive into information available in existing reports, published statistics, books, and blog posts, you undertake secondary market research.

Secondary research may seem complex, but when you know what to look for and where, you can uncover brilliant insights in a matter of days.

What’s the main difference between primary and secondary research? And what type of research should you start with?

It’s most time- and cost-efficient to start with secondary research, collect basic data about your target market, competitors, and customers, and then launch primary research to accumulate data about specific users’ preferences, behaviors, expectations, and so on.

No matter what type of research you’d like to focus on, you can find and collect necessary data from online and offline resources.

Offline market research

Although completely irrelevant for particular startups, offline market research may be helpful, such as for eCommerce entrepreneurs and executives who can leverage the results of offline surveys or user behavior observations.

Components of offline research include:

• In-person interviews and discussions
• Observations of customer behavior (for example, working in a mall so you can observe and analyze customers’ actions)
• Checking out competitors’ stores

Online market research

Researching keywords and online trends, conducting online interviews and surveys, and checking out social media profiles, statistics websites, niche websites, and even YouTube videos are all ways to acquire data.

In a world of digital startups, online market research results prevail. In the following section, you’ll find out more about online research methods.

Still, offline research can’t be completely ignored, so you may want to combine both methods to collect as much data as possible.

Choose market research methods and tools

With offline startup market research, the list of tools is rather short. You may need to create a detailed questionnaire, print it out, and reach out to potential respondents. Then, Google Spreadsheets will help you organize your collected data, find and extract patterns, and get insights.

To conduct online research, there are more methods and tools to consider.

Keyword research

To collect user data, there’s no need to chase down people on the streets of your city, bombard them with questions, and throw booklets in their mailboxes.

To know what people talk about and what they’re interested in, you can just launch keyword research.

A keyword is a phrase or a search query people type into a search bar to find what they’re looking for.

These phrases may be of great value for you to understand your potential customers’ preferences and expectations.

Where can you find keyword data? Google Keyword Planner, Semrush, Ahrefs, SE Ranking, and multiple other SEO-related platforms may help you learn more about the entire concept of search engine optimization, keywords and their features, and regions where the audience is interested in particular keywords.

At the same time, keywords may help you find competitors, get acquainted with their products, and try their unique offerings.

Competitor research

Did you know that initially, Twitter was supposed to become a streaming service? Evan Williams and Biz Stone were inspired to build a platform for podcast sharing, but after market observations and research they understood there was no chance they could outrun Apple.

So the founders pivoted to microblogging.

With this step, they not only mitigated risks related to probably devastating competition but also created a new market.

Today, 17 years later, Twitter is one of the most powerful players on the tech market, with annual revenue exceeding $5 billion!

Competition research doesn’t guarantee that you’ll repeat Twitter’s success, but it helps you understand your rivals, avoid mistakes, and adjust your idea in response to the competition.

Researching the competition means focusing on three different things:

• Direct competitors — businesses and products that solve the same problem as you do and target the same group of customers
• Competitors that offer different solutions — products that solve a similar problem in a different way
• Competitors that target different customers — products that solve the same problem in the same way as you but target customers from different markets or industries

Where can you find data about competitors? Crunchbase is a major web platform providing information about a variety of companies worldwide. It may help you easily find top SaaS startups or the most powerful players in your niche, your direct and indirect competitors, visit their websites, and even find customers’ feedback on particular tools.

Trends, statistics, and report analysis

Founders should be aware of the current state of the target market; at the same time, they should look to the future, understand the hottest current trends as well as emerging trends, and come up with ideas on how to integrate these trends into their products and services to speed up business growth.

Trends are driving the market forward. If you want to move forward, too, you can’t help but add trends analysis to your scope of work. In the meantime, reports and statistics are your sources of concentrated insights on the target market.

Google Trends can tell you much about users’ online behavior over the last couple of years, in 2008, or this month — just choose a date range and get data. Statista and Gartner contain an immense volume of consumer data that reflects both the current state of different markets and popular trends.

Social media analysis

We voluntarily share gigabytes of personal information on Facebook. While it’s always pleasant to scroll your News Feed packed with cute pictures of dogs, news, and events, there are ways to leverage the power of social media for your startup.

• If you already run a business and have profiles on social media, check out your followers’ profiles.
• If you don’t have a social media presence, it may be a good time to get one when doing market research for a startup.

Share your product details, elements of a business plan, and ideas on your social media profile and ask what people think. Ad campaigns may help you to engage with more potential customers.

Your company profiles on Facebook, Instagram, and other social networks may give you tons of information about your target audience, your competitors, and the entire market. LinkedIn provides great research opportunities as well. Besides, social media websites typically have built-in statistics functionality, allowing you to generate insightful reports in a few clicks.

Another handy tip is to investigate users’ activity under competitors’ posts. Who likes these posts? What comments do you spot? What conclusions can you make based on them?

Investigation of forums and Q&A websites

Earlier, you’ve formulated questions to answer during startup market research.

Why not go and ask them right away?

Websites like Reddit, Quora, and StackOverflow are there to help you find insights, get to know other people’s experiences, and even meet potential partners. A major disadvantage of these websites is that you can’t filter respondents and focus only on the target audience. But there are a lot of fish, or Q&A websites, in the digital sea, so you can search for forums related to your particular industry, market, and niche to get relevant information.

Surveys and customer feedback analysis

You can either enhance or replace offline surveys with online surveys. To get the most out of this research method, you should:

• Create a survey
• Contact your existing or potential customers via email, on social media, using messengers or via your landing page for a startup
• Post a link to the survey on your website, LinkedIn profile, and relevant online groups, channels, or discussions (forums may help)
• Use other methods to engage respondents and collect data

Google Forms may be the best and easiest to use tool to conduct a quick survey. Qualtrics is a handy platform that allows businesses to create surveys and use other methods to conduct online market research. Survey Monkey is another handy tool for customer surveys.

For your unique case, some of these methods may work better than others, and there may be other helpful tools and resources on the web. As you start your research, you’ll get a chance to dig deeper in user data and improve the quality of your research as you go.

Acquire data

There are tons of useful tools to conduct market research and dozens of ways to gather data.

Can you imagine the amount of data you can gather during your investigation? Depending on your objectives, the size of your target market, and your business specifics, there might be kilobytes to terabytes of data you can leverage to launch a viable startup or improve an existing product.

And once you define your objectives, shortlist questions, and choose ways and tools to conduct research, it’s time to start acquiring data.

You can either conduct market research together with your internal team or delegate it external experts. Let’s take a closer look at both options:

Conduct market research internally

If you and your team possess enough time for research, start acting:

• Share roles and responsibilities. Although it may seem like you can do everything by yourself, the workload is too big to handle on your own. Besides, as a startup founder you have a myriad of tasks on your to-do list, so be careful with your time and share responsibilities with your team.
• Hire a business analyst. This person can take you through the entire process from formulating your hypothesis to implementing changes. Before you start the hiring process, make sure you have a sufficient budget. For example, the annual salary of an IT consultant ranges from $43,000 to $103,000 according to Glassdoor. Also, get ready to invest at least two hours in every interview.
• Learn on the go. No matter what market you’re operating in, you may lack details on its features and A-players. Conduct your research incrementally, strengthening every step and every action with things you’ve learned at a previous stage.

Delegate market research

To avoid startup mistakes, save time and money, and make sure everything’s done the right way, consider delegating market research.

• Consultants

You can reach out to consulting firms for both primary and secondary research services. But before you do that, take into account major cons of doing so.

Consulting services may cost you $150-500 per hour. And the role of a consultant in your startup growth is rather limited, and once they provide you with the results of their research, their job is done, while you’ll have to analyze the data and decide how to use it.

• Development teams

Software development teams can help you grow your digital, technology and innovative startup from scratch. These teams may have years of experience in your niche and multiple research phases behind them. They now the tech industry and may already have a vision of types and methods of research that may be the most informative for your startup.

During a project discovery phase, a team of professionals helps you validate your idea, brainstorms ways to improve it, researches the target market, and suggests steps to take after the research stage is finished.

A development team can not only help you with research tasks but may even handle all efforts related to a successful launch.

The team’s knowledge and experience may help you save time and money on market research and other tasks.

Organize and analyze data

Slice and dice the results to extract unique insights and brilliant ideas to facilitate your startup’s growth.

This process may be rather complex, as it requires reviewing and analyzing a variety of reports from different sources. However, if you delegate it to a skilled team, you can focus on other critical business activities and then just review the qualitative and quantitative research results to proceed with the last step of effective market research. Data visualization methods may be of great help here.

Make result-driven decisions

In the first step, you defined your objectives and generated your hypothesis.

What do your results say about them? Did you reach your objectives? Did you validate your hypothesis?

Take your time to dive into market research reports, think over key findings, and generate ideas on implementing them in your product and business.

Three damaging mistakes you can make during market research

Wanting to do everything right, founders may fall victim to their own research approach:

Mistake 1. Experiment over everything

A startup is a human institution designed to create a new product or service under conditions of extreme uncertainty,

— Eric Ries, The Lean Startup

Following the Lean Startup approach, many founders may be impatient to launch startup MVP development and run an experiment to find out if they’re on the right track.

Although this may seem to be the most time-effective decision, the price of a research mistake may be high.

Don’t rush into development after you’ve got a very first market research insight. Build a more detailed vision of the market situation, users’ preferences, and users’ needs as well as a picture-perfect customer portrait. It may be much easier for you to provide demanded functionality in your app if you invest enough time in a research stage.

Mistake 2. The deeper the analysis, the better the results

Some founders invest months in market analysis, endlessly studying trends and talking to customers.

But markets are dynamic. Trying to adjust your idea to the current market situation may result in never-ending refinement of your business plans for a startup. In the meantime, the red ocean of opportunities - a market with intense competition - gets even more crowded than the day you started your research and the blue ocean becomes not so blue. Competitors manage to roll out their products before you even finish your research.

Go with the golden middle. Take your time to do everything right, but don’t linger on further actions. Spend one to six months in a research stage, and then, implement gained knowledge in product development.

Mistake 3. Wrong interpretation of research results

As you’ve invested months and thousands of dollars in research, it’s critical to avoid making the wrong data-driven decisions.

A tiny detail hidden somewhere between the lines of a report may either be a cherry on top of your success or a terrible future mistake.

Even with mountains of data and good advice, if things don’t go as expected, it’s probably because we missed one, sometimes small but vital detail.

— Simon Synek, Start with Why: How Great Leaders Inspire Everyone to Take Action

A tried and tested method to avoid this mistake is to share research results with your co-founders, partners, and team. It may also be beneficial if external specialists contribute to your market research for new business. They can bring an unbiased, fresh, yet expert vision to your business processes. Having a reliable discovery team by your side, you can avoid painful mistakes.

In conclusion

Steve Jobs believed founders shouldn’t give customers what they want because people don’t know what they want until you show it to them.

At the same time, no market need is one of the top reasons for failure cited in startups’ post-mortems according to CBInsights; and a naive assumption that if you build a product someone will materialize to pay for it may be painfully wrong.

The winning strategy is somewhere in the middle. If you focus on the right objectives, follow the right algorithm to achieve the desired results, and cooperate with reliable people who want to contribute to effective market research and support your startup on its way to success, you can make the best out of any assumption and hypothesis.