Guest post by James Burbank, editor in chief at BizzMarkBlog
The vast majority of startups begin their life as a single idea. This is an idea about a project, or a service or a need that could be met by this future new startup. A startup's inception almost never involves a couple of people who get together around a table, exclaim that they are going to found a startup and then do market research till they drop before they discover a hole that their future startup will fill.
We are not suggesting that this is the right way to do it, either. It is just that startups far too often get hung up on an idea and forget all about market research.
Market Research Basics
The history of market research begins in the 1920s with the advent of radio as an advertising tool in the United States of America. This is the first time advertisers started noticing how important demographics are and it all snowballed from there.
Over the years, market research has developed into a multidisciplinary practice through which a company discovers important facts about their market, either existing one or a potential one. On the most basic level, market research identifies and analyzes the market size, its needs and the competition.
There are numerous ways in which companies do this and they often involve third-party solutions. They can obtain information through interviews, focus groups, customer surveys and, especially lately, through analysis of large sets of data obtained from the web (big data).
Once this data is organized, analyzed and interpreted, the companies make decisions that affect almost every aspect of their functioning.
Why Startups Should Do It
There are more than a few reasons as to why startups should do market research, from not being able to get funding to the not being able to build any kind of a sustainable business model. Above everything else, without at least some market research, a startup founder can never be truly certain if their idea is truly a good one or if it just sounds good in their head.
This is something that is often pushed aside due to a number of reasons; this inability to be truly self-critical. An individual or a team believes they have come up with the perfect new product or service; they really apply themselves; they work out an entire business model which actually holds water (nothing too ambitious); they come out with a minimum viable product; they attract some initial funding…and…
No one has the slightest interest in this "fantastic" and "revolutionary" new concept. It either fails to even register with the projected market, or it receives an underwhelming welcome.
In either case, it spells doom for the startup.
No amount of pivoting, business model adjustments or hard work can fix this.
Why Startups Often Don't Do It
There are quite a few reasons why startups often decide to skip the market research step and go in blind.
For one, many startup founders think that it is too expensive to conduct any useful market research. Twenty years ago, they would probably be right, too. Traditional, corporate-level market research is extremely expensive. Luckily, there are quite a few free and affordable options.
For example, in most countries there are organizations where startup owners can get perfectly serviceable data that can help them get a feel of the market. This article provides 5 options for U.S. startup founders and on this page on State Library Victoria's website you can find a number of data sources for Australia.
In addition to this, there are plenty of companies that offer scaled-down market research for companies with limited means. Paid survey websites like Opinion Outpost can also provide good actionable data without asking for exorbitant fees.
Another reason why startups do not do market research is that they are often coming out with a product that is completely novel and that market research cannot gauge since there are no existing reference points. This is actually quite understandable as a reason. That being said, startups with such products can still find the next most similar product and try and get some insights from analyzing its success.
What About DIY Market Research?
Of course, there is always the option for startups of doing their own market research by talking to the people they know and using their connections to conduct surveys that can provide them with valuable insights.
In order for this to be successful, the founders need to have access to the target demographic which can sometimes be a challenge. For example, three youngsters from Melbourne who are planning on creating a piece of software for global federal banks may not exactly have access to their target demographic – people who work for such banks.
In addition to this, the startup founders need to learn a thing or two about how to get the data they need using their surveys. They should also ensure that the results are not skewed because they only surveyed their friends and family.
There are a number of reasons why market research should not be an afterthought for startups. It does not even have to be too costly and the insights gained from a decent market research effort will be more than worth it in the end.