Market research: a key to small business success
Knowing what to do next with your business has always been a marker of the strategic entrepreneur. But how do you develop an approach that won’t fall flat? With nearly 20% of businesses failing in their first year according to the U.S. Bureau of Labor Statistics, having a strong product idea is vital to succeeding in a competitive market.
So, how can you reliably “test the waters” before or during your business venture? By performing comprehensive market research.
What is market research?
At its core, market research is gathering data about the consumer market and organizing it effectively to better understand how to improve your product or service – or how to offer something that will compete. Think of it as collecting data from sales calls, surveys, government statistics, and other sources, to come up with actionable steps to perfect your offering.
Market research can also be used to answer certain questions about your business landscape, such as:
- How is my business compared to competitors?
- What are my customer’s pain points?
- What are my consumer spending habits?
Answering these questions is what makes market research so valuable: if you’re willing to put in the work (or pay someone to do so), you can gain valuable insights into your industry.
How to conduct market research for a small business or startup
There is a lot to unpack when it comes to performing quality market research for your business. More importantly, you need to outline some key parameters before exploring options that could cost you a fair bit – both in time and money.
First, determine a budget. Understand what you are willing to spend on market research.. This could be done by creating a spreadsheet of the types of research you want to perform and what you are likely to spend.
For example, let’s say you set a budget of $5,000 for general research and development in your business, and you decide $2,000 of that will be on market research. Break down that amount into the costs for each type of research. Let's say you allocate $500 to surveys and the same to sales follow-up calls. Surveys can be tracked using the cost per form, or per package, but sales calls might need to be measured using hours worked by staff.
If you’re a solopreneur, make sure to consider the value of your time, given that you may not have the staff capacity to do the research for you. Market research is no small task.
Second, clearly define your expectations and goals. Giving you or your team expectations that cannot be met or communicated will set you up for failure and demotivation. Take the time to understand what you are hoping to get out of the research project, and be specific.
For example, rather than setting a goal of “understanding our client base more”, add in specific points that can specifically be answered by the data you receive. Instead, create a goal such as, “understand the results of our rebranding initiative by comparing revenue from relevant products before and after the change.”
Finally, make sure your staff is on board. Market research can and will involve nearly every member of your team if you want to be as efficient as possible.
Administrative assistants can help with organizing data. Sales reps will be able to provide client feedback and follow-up. Website developments can find pain points on your site that may be affecting click-through rates on your online product. Ensuring the appropriate personnel is on the same page will be crucial to retrieving the right types of data – more on that below.
Now that we’ve established these boundaries, let’s turn to the research process.
Primary research is strictly new data that is collected from customers related to your products or services. It is the bread and butter of market research programs, as it seeks to understand the current climate of your customer base or business ecosystem.Some common examples of primary research types are:
- Phone calls
- Focus groups
- Customer feedback
In contrast, secondary research is taking past data to determine trends and conclusions about your business or your competitors. This could be in the form of:
- Public sources (e.g. US Small Business Administration)
- Commercial sources
- Educational sources
- Internal sales data
- Business literature
Although secondary research can help give you a big-picture view, it can be misleading if it is quite old. Utilizing it properly is key.
Now that we’ve looked at the types of data you want to gather and different ways of processing it, let’s review how to tie it all together using crucial steps present in any market research program.
Step 1: Create a persona
A buyer or consumer persona is a fictional representation of your targeted client. Through basic characteristics like age, job, average salary, gender, and pain points, you can understand where to first direct your research. Creating a marketing persona allows you to define your ideal client and then understand how to reach them.
Note that you may end up having more than one buying persona. Make sure to limit the number of personas you are creating to no more than five. Any more than that and you are going to spread your results too thin to find solid patterns.
Step 2: Identity a target group
After defining your business’s personas, you need to then select one or more of them to perform the research with. This could be done by selecting a recent group of consumers that purchased your new product or individuals you regularly connect with on social media so long as they match your chosen persona.
For example, if you determine that one of your ideal clients are males aged 21-25 with an annual income of 80k, you will filter through your social media groups to highlight these individuals where possible. That’s also why it is important to have multiple personas defined, as if you have a large customer base, you may also have a diverse demographic to work with, too.
It is important to choose a representative sample from this group to accurately represent your consumer base for that persona.
Step 3: Engage your targeted audience
This is where your research will actually begin. Once you have a target group of consumers to work with, you will use primary research sources such as surveys, phone calls, reviews, and other forms of customer feedback to determine what is and isn’t working. This is when you will get down in the details to understand both qualitative and quantitative data. Having both of these types of data in mind when researching will be key.
Step 4: Analyze your competitors
In addition to analyzing your clients, you also should be analyzing your competitors using secondary sources (Pew research reports, internal data on client takeovers, etc.) to understand where your competitors may be succeeding despite your pain points with customers. To get a holistic picture of your market, you need to see where your clients are at, and how your competitors might be doing a better job of meeting them there.
Step 5: Summarize and create actionable steps
Once you have gathered all of your market data, you aren’t finished just yet. You will need to compile it all together using your preferred presentation software to let other team members or stakeholders see where the business is meeting client needs and where it should improve.
Arguably more important is creating an actionable step plan based on the market research you have performed. While it is important to collect all of this data, failing to act upon your findings will make them impotent. Come up with specific and actionable strategies you can perform in both the long and short term and incorporate them into your business plan – if necessary.
When should you perform market research?
Market research is all good, but it can be quite expensive and time-consuming for the average business owner. It isn’t an endeavor that is taken up without good reason. Though understanding your client base more is always a good idea, here are some prudent reasons for collecting data on your ideal consumer.
New product release
Before coming out with a new product or service is an opportune time to research your market for new product viability. Rather than crossing your fingers and hoping that your current clients and the open market will enjoy your new idea, market research allows you to make an informed decision before hedging your bets.
Exploring new markets
If you’re looking to explore new markets, either overseas or locally, a smart step is to seek to understand the culture you may be stepping into. By doing so, you increase your chances of preventing awkward product releases that flop and increasing your chances of hitting a home run with a new service. The kind that speaks to your clients exactly where they are.
Have an idea and want to start a new corporation to get it up and running? Taking the time to understand how potential clients will react to your service will help you save time and incorporation fees before you take the plunge.
Firstbase offers cost-effective incorporation options for both LLCs and C-Corps. We also have a team of experts to help you get up and running as quickly as possible.
Interested? Check out Firstbase Start to get the ball rolling.
When seeking funding
People and organizations seeking to invest in your business aren’t looking for a “gut feeling” — they want hard data to back up their choice. Comprehensive market research allows you to present key insights on how and why your product or service will succeed in a proposed market.
Further, market research confers the benefit of showing others that you aren’t afraid of seeking to disconfirm your own biases as a business owner. That shows character that can weather the ups and downs of entrepreneurship. Investors love to see that initiative.
Want to make your small business succeed? Start with market research.
Yes, market research is one of the most time-consuming efforts you can make as a business owner, but it can be one of the most profitable. If you are seeking to implement a new idea in your business, start up a new company, or offer a new product, doing your homework only increases your chances of success.
Wondering how to implement your findings using a new corporation? Visit our Founder’s Guide for everything you need to know prior to taking the step of incorporating.