Test before you invest: How to do market research as a startup

Jane Hillman

|

29

June 2022

Test before you invest: How to do market research as a startup

Jane Hillman

|

29

June 2022

Thirty-five out of 100 startups fail because there is “no market need.” That’s 7 out of 20 startups that could have saved time, money, and heartache if they’d conducted thorough market research before they invested too heavily in their new business idea.

Market research is important, but how do you do it? You need to identify the reason for your research, conduct both primary and secondary research (by gathering data from original sources and from a third party), and analyze your data. 

Relying on just one type of research will limit your understanding of your market and make it more difficult for your startup to achieve product-market fit.

1. Identify the overall goal of your market research

Before you jump into your market research, you need to agree on its purpose. What are you trying to learn, and what are you hoping to achieve?

Startups often turn to market research for two main reasons:

  • To test a business idea and check that there’s a viable market for your product or service
  • To convince investors that there’s sufficient demand for your product and that your company would be a worthwhile investment

The purpose of your market research will influence whether you need to focus more on primary or secondary research. While you should include both types, if you’re looking to validate a business idea, primary research is very important because no one will have experienced your idea before. Gather input from as many people as possible. You may want to focus first on online surveys to gather insights from a wide variety of participants. Then you can dig deeper with focus groups or interviews to ask more specific questions about how they get value from your product or service.

However, if you’re looking to convince investors, secondary research might be enough to demonstrate market demand.

2. Conduct primary research

Primary research involves collecting your own first-hand data straight from original sources, rather than taking the findings from existing research. It allows you to learn directly from your target audience, which can help entrepreneurs assess the viability of their new business or get valuable customer insights to bring to potential investors.

Someone conducting an interview online
Conduct surveys and interviews

Identify target audience

Identifying your target audience will help you understand your market better. It will help you understand who will likely buy your products and who will use them (because it may not be the same person). This information will help you recruit research participants later in the market research process. You can document these findings by creating your startup's buyer personas or customer profiles.

Start by working out who your ideal customers are and where to find them. This includes demographic data, challenges, and motivations that lead them to search for a product like yours. You can do this by analyzing your current customers, if you have any, or by using social listening tools to identify people using your competitors’ products. 

Choose research method(s)

Next, choose how you want to collect your primary data and market insights. Different research approaches enable you to go into varying levels of detail to align with your priorities and research goals.

Some common research methods include:

  • Interviews - these are generally one-to-one with customers, potential customers or industry experts. They let you ask targeted questions and get detailed answers. Interviews often give you the most in-depth information, but they are time-consuming to conduct, making it difficult to gather a large quantity of data from them.
  • Focus groups - these are normally one-to-many. They let you ask questions to a targeted group of people and get detailed answers from them. They enable you to reach a wider audience than individual interviews, but the trade-off is that you get less depth to your customer responses.
  • Online surveys - these let you reach a wide audience very quickly. They help you gather a large amount of data from your target audience in a short amount of time. They can be a great starting point for your market research, helping you identify trends and topics to explore in greater detail with more targeted research methods.

In addition to these traditional market research methods, you may want to consider other emerging research approaches, such as using chatbots, virtual reality, or eye-tracking tools.

Write research questions

The right questions will depend on the purpose of your market research, who you’re asking, and the research method you’re using. Keep your overall goal in mind so that your research stays focused and gives you the best chance of providing relevant, usable market insights.

If you’re conducting research to test a business idea, your questions should focus on identifying customers’ needs, the challenges facing your target customers, and their motivations for buying similar products to yours. These questions will help you get a feel for the size of your target market. For example:

  • How often do you buy skincare products?
  • What is the biggest challenge for your social media manager?
  • How much do you normally spend on tech subscriptions in a typical month?

But if your market research is to convince investors, you'll want to focus on the strengths of your startup according to your existing audience. For example:

  • Why did you choose us over a competitor?
  • What features do you like best about our product or service?

Be careful about accidentally asking biased or leading questions, as this will bias your data. Also try to keep each question simple enough for participants to answer accurately.

Recruit research participants

Next, you need to find people to participate in your interviews, focus groups, online surveys, or other types of primary research. There are several ways to do this:

  • Use word of mouth. This involves asking people you know, such as your existing customers, prospects in your database, and industry contacts. It’s useful for engaging your existing network but makes it difficult to reach a wider audience to get a rounded variety of insights for your research.
  • Find participants on social media. This involves putting out a call for survey responses or interview participants on your company or personal social media accounts. If you have a large following on social media, this can help you find more research participants, but for startups and founders with a smaller network, it can be difficult to find high-quality participants this way.
  • Use a dedicated research platform. You can put together an online survey and distribute it to a large number of respondents that fit your target audience. This can help you find high-quality survey participants more quickly than relying on your existing network. 

Putting together an online survey for your market research? Take a look at Prolific’s network of 130,000+ active participants.

3. Conduct secondary research

Secondary market research looks at all the existing market data and research, such as government data and industry-specific research reports. They often cover market size and industry trends. It helps you assess the size of your target market and can help you identify direct and indirect competitors. It's also helpful for emerging startups with no existing customer base or substantial budget to rely on for primary research.

A report showing market trends
Look at market trends

Check publicly available data

Get to know the market you fit into by collecting publicly available data on your industry, market, and competitors. There are many reputable data sources, such as government research and the census bureau. You can also use Google Trends to see how interest is changing in a particular topic or type of product over time. 

This publicly available data will help you understand the size and scope of your target market and identify the opportunities it offers for your startup without investing heavily in conducting large-scale industry research yourself. 

Review industry reports

There are lots of existing reports about the state of your industry that you can check out to learn more about the market you want to move into. These may be produced by independent companies like Gartner, Forrester, or other companies in your space.

You can find lots of industry reports online. Statista, for example, produces in-depth reports on different industries, covering market trends, overviews, and revenue.

4. Analyze your data

Collecting data from primary and secondary research is just the first part of your market research. Now you need to analyze your research to identify trends, common themes, and actionable insights. Your market analysis should include:

  • Market insights: size of the market, trends in the market, main players in the space, and their market share
  • Competitor insights: who they are, relative strengths and weaknesses compared with your product or service
  • Customer insights: who they are, what their challenges are, what motivates them to look for a product like yours
  • Product insights: what differentiates your product from others in the market, how customers and competitor customers view your competitors’ products

Once you’ve analyzed your market research, you can use your insights to adapt your product offering and positioning to meet customer needs and expectations. This will help you stand out from your competitors. Your market research will help you make informed decisions for your startup as you grow and help you find product-market fit.

Ready to start market research for your startup?

Online surveys are one of the most-used market research methods: in 2020, 89% of market research professionals said they use them regularly in their research process. Prolific can connect you to high-quality research participants quickly to help you get insights in hours, not weeks. You come with the questions, and we'll provide the audience. See how many potential participants you could have just by entering your target audience into Prolific's high-quality participant tool.