Market Research for Startups – Types & Step-by-Step Guide

Our confidence in this statement stems from a recent study conducted by renowned entrepreneur Bill Gross, the co-founder of Pacific Investment Management Co. In-depth market and marketing research provides budding companies with insights into critical aspects such as launch timing, unique features to include, and more, allowing them to plan their launch effectively.

So before you try to soar in your business field, you must understand the art and science behind startup market research. It is with this goal in mind that we present the following article.

What is market research for startups?

In essence, market research is a business strategy applied at the very beginning of conceptualizing a business idea, which involves acquiring a thorough understanding of the target market, its dynamics, the attitudes of potential customers, the buying behavior of focus groups, and other important factors.

The results of market research are used to make business-oriented decisions and plan the launch accordingly. When done and implemented with the desired diligence, market research holds the power to leverage the success of a startup.

Market research is so widespread it has become one of the fastest-growing industries in the world, surpassing the $74.3 billion mark in 2019. While market research is crucial for any business, it plays a particularly important role for an early-stage startup, ensuring its victorious launch and increasing the chances of long-term success.

The statistic illustrates the harsh reality of founding a startup. Most of the new companies fail. The good news is that entrepreneurs’ belief in their success is stronger than statistics. That’s why new companies are created all the time. || source: https://medium.com/glassdollar/estimating-the-number-of-startups-in-europe-5d28286307f8

What types of market research can startups engage in?

Market research is one of the few viable ways for companies to improve their decision-making and survive in today’s competitive world. It’s used to ensure the best results from the efforts invested in product development, marketing, and service expansion.

While planning to conduct market research, it is crucial to know its types. Here are the two most common:

#1 Primary research

Primary research is conducted either by the startup itself or by a third party and involves collecting data by engaging directly with customers. The information is gathered by asking relevant questions. It’s the most common type of research.

Primary market research is best suited for startups that:

• want to know the average customer spend for a specific service or product;
• are unaware of customer perceptions and attitudes toward their brand;
• need to find out what their customers would like to see improved.

Based on research requirements, startups list relevant questions and interact directly with customers.

In addition, it’s always a good idea to gather customer insights on your direct competitors and the latest trends employed by other small businesses.

During the exploratory primary research phase, most startup owners collect feedback on their businesses through surveys, scouring online forums related to their target market, and conducting one-on-one interviews with potential customers.

Example: Digital service-delivery surveys you receive after using a service.

• Pros
  Results in more authentic digital marketing strategies.
  The startup has exclusive rights to data and findings.
• Cons
  It’s expensive, extensive, and time-consuming.
  Because the startup is in charge of the research, acquiring suitable resources and maintaining quality standards becomes difficult.

#2 Secondary research

Secondary research is conducted by analyzing data collected by a third party that has no direct involvement with the startup and its customers. Usually, all research begins with secondary research, as it doesn’t require any direct investment.

Through secondary market research for startups, you can figure out:

• the total market value of a specific industry;
• the current market situation and future growth projection;
• the latest market trends and emerging technologies.

Example: The government-ordained public studies on a particular area/domain can be called secondary research studies for the market.

• Pros
  Cost-effective.
  Provides required data instantly.
  Covers more fields and concerns a broader group.
• Cons
  You have to make peace with whatever data you have. The data is difficult to customize.

Brainstorming, feasibility analysis, and critical thinking can be your few cost-effective ways to derive success from market insights data.

A step-by-step guide to conducting market research for startups

Conducting market research is a tedious task for many.

Startups face additional challenges during market research due to limited investment, resources, and talent. However, excelling in market research is possible, and you can start by paying close attention to the points we mention below.

Step 1: Define the purpose of your market research

Why: Every research initiative should start with a clear understanding of its purpose. Without a purpose, your efforts can scatter, and results may not be actionable.

How: You should outline your specific objectives. For example, are you trying to validate a new product idea? Understand shifts in consumer behavior? Explore potential markets?

Step 2: Pick the proper research methodology

Why: The research methodology will shape the type of insights derived.

How: Evaluate your objectives. Quantitative research (surveys, structured interviews) yields structured, numerical data. Qualitative research (focus groups, open-ended interviews) offers deeper, nuanced insights.

Step 3: Get to know your target market

Why: You need a clear understanding of who your customers are to provide meaningful solutions.

How: Create detailed customer personas. These are semi-fictional representations of ideal customers based on real data and market insights.

Step 4: Formulate your questions

Why: By asking the right questions, you’re able to gather relevant data.

How: Prioritize questions or areas of investigation that align directly with the research purpose. Some of the key questions to include:

• Who are your direct and indirect competitors, and what’s their market worth?
• What particular feature can make my service stand out?
• What’s the scope of my service/product in the target market?
• What are the current trends in the market?
• What is the buying behavior of the customers in your target market?

Step 5: Choose your tools

Why: Tools facilitate data collection, analysis, and visualization. The right tools streamline the process.

How: For surveys, platforms like SurveyMonkey or Google Forms can be used. Analytics tools like Google Analytics or Tableau are great for data analysis.

Google Alerts, Google Trends, Simpleweb, Statista, and Ahrefs are a few tools to help learn industry and brand-specific trends.

Step 6: Pilot test your research instruments

Why: Ensures that the tools used are effective and capture intended information.

How: Run a mini-version of your study with a small group, tweak based on feedback, then proceed to the main study.

Step 7: Consider secondary research

Why: There’s a wealth of existing information that can be leveraged to inform decisions.

How: Explore industry reports, competitor analysis, and existing market studies. Tools like Statista or industry-specific publications can be invaluable.

Step 8: Validate your findings

Why: This adds credibility to your findings and ensures they’re accurate and reflective of reality.

How: Revisit some respondents for clarifications, or cross-check findings with secondary sources.

Step 9: Analyze the data and apply your findings

Why: Raw data must be turned into actionable insights.

How: Depending on the methodology, data can be statistically analyzed, charted, or interpreted through themes in qualitative feedback. To organize this process, decide on the KPIs to base your analysis on those KPIs. Present the gathered and analyzed data in a report.

Step 10: Update and iterate

Why: Markets, consumer behavior, and technologies evolve. Research should too.

How: Set periodic reviews of previous research. Reassess the market situation and adjust strategies accordingly.

Step 11: Communicate your findings internally

Why: Ensures everyone in the team is aligned with market understandings.

How: Host meetings or workshops to discuss findings. Use visual aids like charts, graphs, and presentations for clarity.

2021 is a record year for new unicorns, companies valued at more than $1 billion. || Source: https://news.crunchbase.com/news/unicorn-startup-investors-2021-tiger-global/

How to analyze your results, and who should participate in the analysis?

The process of analysis is like translating raw data into a compelling story—one that informs, guides, and ultimately drives strategic decision-making. Proper analysis not only illuminates what’s happening but also why it’s happening.

So, how should startups approach this analysis, and who should be involved?

#1 Distinguishing quantitative from qualitative data

Before diving into specific methods, it’s essential to differentiate the two main types of data:

• Quantitative data: Numerical data that can be counted or measured.
• Qualitative data: Information that is descriptive and interpretive.

#2 Analyzing quantitative data

Quantitative data provides a measurable and numeric insight into the behavior, opinions, and patterns of your target market. Whether obtained from structured survey questions, website analytics, or sales figures, these numbers provide clarity and objectivity. Quantitative analysis often falls into two primary categories:

Descriptive statistics

Descriptive statistics offer a summarized overview of the main aspects of data:

• Mean (Average): The sum of all data points divided by the number of data points.
• Median (Middle value): The middle point of a data set, especially useful when outliers might skew the average.
• Mode (Most frequent value): The number that appears most often in a data set.
• Variance & standard deviation: Measure the spread or dispersion of a set of data.
• Range: The difference between the highest and lowest values in a set.

Visual tools like histograms, bar graphs, and pie charts can also be part of descriptive statistics, offering visual representations of these metrics.

Inferential statistics

While descriptive statistics describe a data set, inferential statistics make predictions or inferences about a population based on a sample. Here are the key methods:

• Hypothesis testing: Determines if a certain premise or condition is valid for the population.
• Regression analysis: Understands relationships between variables, e.g., how does price affect sales?
• Confidence intervals: Provides a range within which the true population parameter will fall.
• Chi-squared tests: Evaluates the relationships between categorical variables.

#3 Analyzing qualitative data

Qualitative data analysis seeks to understand underlying reasons, opinions, and motivations. Techniques include:

• Thematic analysis: Identifying and analyzing patterns or themes within qualitative data.
• Narrative analysis: Analyzing the stories respondents tell to understand their experiences.
• Grounded theory: Builds theory from data, systematically obtained and analyzed using comparative analysis.

#4 Who should participate in the analysis?

The analysis is often a collaborative effort. Depending on the complexity and scope, consider involving:

• Research Analysts: Professionals trained to handle and interpret data.
• Subject Matter Experts (SMEs): Individuals with deep knowledge in the area being researched.
• Stakeholders: Product managers, marketers, or sales professionals who can provide context and implications.
• External consultants: Sometimes, a fresh set of eyes or specific expertise is needed.

Real-world examples of successful market research

To truly appreciate the power and importance of comprehensive market research, you should look at the most successful businesses today. Their achievements often stem directly from insights derived from meticulous market research.

The 5 examples we list below underscore the fundamental truth in business: understanding your market is pivotal. When companies listen, adapt, and innovate based on research, they set themselves on a path to sustained success.

#1 Airbnb

An online platform that connects travelers with local hosts offering their spaces for accommodation. It revolutionized the hospitality industry by offering unique and personalized lodging experiences worldwide.

• Challenge
  In its infancy, Airbnb wasn’t growing at the expected rate in New York.
• Research
  The founders decided to visit their hosts in New York to understand the problem better.
• Insight
  They discovered that the property photos on the platform weren’t appealing.
• Action
  Airbnb provided professional photography services to hosts.
• Outcome
  A significant boost in bookings and a realization of the importance of high-quality visuals for their platform.

#2 Lego

A Danish company renowned for its iconic interlocking plastic bricks. These construction sets have sparked creativity in both children and adults, making Lego a household name in the toy industry.

• Challenge
  Sales were plummeting in the early 2000s, and Lego was nearing bankruptcy.
• Research
  Lego decided to conduct ethnographic research, observing children playing in real time.
• Insight
  They noticed kids were looking for more detailed and intricate storylines and play experiences.
• Action
  Introduced products like ‘Bionicle’ and ‘Ninjago,’ which combined building with immersive narratives.
• Outcome
  A massive turnaround in sales which solidified Lego’s position in the toy industry.

#3 Netflix

An American streaming service that offers a wide array of TV shows, movies, documentaries, and more. Initially a DVD-by-mail service, Netflix transitioned to streaming and later to producing original content, becoming a dominant force in the entertainment industry.

• Challenge
  Transitioning from DVD rentals by mail to a streaming platform and predicting viewer preferences.
• Research
   Used vast amounts of user data to understand viewing habits.
• Insight
   Recognized patterns in what users watched, how they watched, and when they stopped watching.
• Action
   Introduced AI-driven recommendation systems and even produced original content based on user preferences (like ‘House of Cards’).
• Outcome
   Dominance in the streaming industry with a highly personalized user experience.

#4 Dove

A personal care brand owned by Unilever. It’s best known for its moisturizing soap, but its product range includes deodorants, body washes, shampoos, and more. Dove has also been recognized for its marketing campaigns that challenge conventional beauty standards.

• Challenge
   Differentiating themselves in a saturated beauty market.
• Research
   Conducted a global study on women’s beauty perceptions and confidence.
• Insight
   Found that only 4% of women viewed themselves as ‘beautiful’.
• Action
   Launched the ‘Real Beauty’ campaign, celebrating natural beauty and breaking conventional stereotypes.
• Outcome
   Widespread acclaim, increased brand loyalty, and impressive sales growth.

#5 McDonald’s

A global fast-food chain known for its burgers, fries, and the Golden Arches. Founded in the U.S., McDonald’s expanded worldwide, adapting its menu to local tastes and becoming one of the most recognizable brands globally.

• Challenge
   Declining sales and shifting perceptions about fast food.
• Research
   Extensive market research on changing consumer preferences around health and diet.
• Insight
   Recognized a growing demand for healthier options and transparency in ingredients.
• Action
   Introduced salads and wraps, and highlighted nutritional information prominently.
• Outcome
   Managed to retain core customers while attracting a health-conscious clientele.

Conclusion

The landscape of market research has, over the decades, transformed from mere number crunching to a sophisticated blend of art and science. As we stand on the precipice of a future punctuated by AI-driven insights, augmented reality market simulations, and even neuroscience in consumer understanding, startups must recognize the boundless possibilities ahead.

However, amid this whirlwind of technological advancements, the essence remains the same: understanding people. The tools and techniques will evolve, but the quest to connect, empathize, and serve the ever-changing needs of the market will always be at the heart of successful entrepreneurship.

As startups chart their course in this vast sea of opportunities, the compass of well-conducted market research will be more crucial than ever.

When you’re developing a digital product, ensuring you have the right business strategy in place is a must. As a technology company, we have experience in advising at the very early stages of product development. Schedule a free consultation and see how we can help you get your idea off the ground.

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