As the founder of a new startup, you put a lot on the line: your time and money, your investors’ capital, and your employees’ time and emotional commitment. With so much at stake, you want to do your homework before diving in. That’s why founders conduct startup market research. They learn what kind of market demand exists for their product, what price points align with customer expectations, and who is already competing for the same attention.
Here’s a primer on startup market research, including a step-by-step guide for startups of all sizes.
What is startup market research?
Startup market research is the process of gathering, analyzing, and interpreting information about a specific market or industry to inform a startup’s business decisions. Startups conduct market research to better understand their target market. The market research process can help a business understand its potential customers as well as their needs, preferences, and behaviors. Such consumer insights can aid business decisions like product design, store locations, and marketing strategy.
Market research for startups also includes an assessment of emerging trends. Startup founders want to understand what’s popular with their target audience and if those trends are likely temporary or more permanent shifts in behavior.
What does startup market research help you do?
- Validate your new business idea
- Identify your target market size
- Understand your target customers
- Gain competitive intelligence
- Build investor confidence
- Mitigate risk
- Gather data for marketing campaigns
No matter how simple or ambitious your startup idea is, you’ll benefit from thorough market research. Startups routinely use their market research findings to gain a competitive edge for their small business before they even begin operations. Here are some of the things that startups conducting market research can expect to do:
Validate your new business idea
Conducting market research helps startups confirm whether a product or service meets a genuine market need. By identifying demand, competition, and potential objections, you can determine if your idea is viable before investing significant resources.
Identify your target market size
Assuming your idea is viable, you can turn to identifying target consumers. Startups use an array of quantitative research methods, including surveys and commissioned datasets, to figure out who would buy their products and how many of those people exist.
Understand your target customers
Once you decide there are enough prospective customers for your business idea, you can shift to qualitative research about their preferences. Using market research methods like focus groups and in-depth interviews with your research subjects, you can ask these potential customers about their pain points and experiences with existing products.
Gain competitive intelligence
Good market research always involves a competitor analysis. Conduct research to find out who’s already operating in your industry and the degree of customer satisfaction with those offerings.
Build investor confidence
Investors will require abundant data about a business concept and underlying market dynamics before committing money to a startup. This makes market research important for any startup seeking outside capital.
Mitigate risk
Startups that conduct market research use their data to assess risks to their prospective business. Is the market oversaturated with competitors? Will the market support your price point? Too many startups fail after not anticipating pitfalls, but successful businesses leverage their collected data and plan for contingencies.
Gather data for marketing campaigns
Your initial market research will become the foundation for your go-to-market strategy. With a clear understanding of your customers and competitors, you can optimize your product positioning, channel strategy, and marketing messages to stay competitive.
How to conduct startup market research
- Establish your market research goals
- Identify your business’s target market
- Choose your research methods
- Assess the competitive landscape
- Perform data analysis
- Apply your findings to your business
Thorough research can give your startup the boost it needs to thrive in its market segment. By setting goals, assessing your market and competitors, and committing to in-depth analysis of your proprietary data, you can walk away with a comprehensive understanding of what your startup must do to succeed. Here’s how to approach the process:
1. Establish your market research goals
Before gathering data, identify what you want to achieve with your market research. Specificity helps. For example, instead of setting a goal to “understand the market,” focus on something more precise, like “Determine the price range customers are willing to pay for a pet product subscription service” or “Assess the staying-power of this trend.”
Nancy Twine didn’t start Briogeo, a clean hair care company, without serious research into the viability of her business concept. “I did a lot of research to understand, Was clean beauty just gonna be a short-lived trend? Or was it here to stay and … evolve?” explains Nancy. “So, so much of that early research that I was doing was really leveraging these trend reports and insights to make sure that I was doing something that was smart and that was going to have longevity.”
2. Identify your business’s target market
Next, think about the specific customer segment your startup will serve. Where does your target customer live? What’s their age, occupation, and income level? What are their hobbies? Do they have preexisting attitudes toward startup businesses?
There’s an abundance of market research tools that can help you with this step. Google Analytics lets you analyze website visitors’ age, location, and behavior. The Small Business Association (SBA) provides free data on demographics and consumer spending habits.
3. Choose your research methods
Select the type of research that best suits your goals, combining primary market research and secondary market research methods:
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Primary research. Conducted firsthand; includes online surveys, interviews, and focus groups; provides detailed insights into customer preferences, pain points, and pricing sensitivity.
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Secondary research. Existing data from outside sources like the SBA, Census Bureau, and paid market research services used to study industry trends, market saturation, and other brands’ marketing strategies.
Each market research type should involve a mix of quantitative data (based on numbers and hard data) and qualitative data (based on opinions and behaviors).
4. Assess the competitive landscape
Take a look at your potential competitors and ask: who is already serving your market, what do they offer, and what are their unique selling propositions (USP)? Take note of their prices, their customer reviews, and their marketing methods. Perhaps you’ll want to apply some of their approaches to your own business plan. Perhaps you’ll find their methods ineffective, in which case you’ll want to try something different.
When Peter Maldonado and Rashid Ali started Chomps—a healthier version of Slim Jims for the CrossFit crowd—they learned everything they could about their competitors. “We bought every single snack stick on the market, and we researched where each of them were being made,” says Peter. Not only did he and Rashid get a sense of their competition, but they also acquired valuable supply chain intelligence.
5. Perform data analysis
It’s now time to analyze your market research results. The goal of data analysis is to extract actionable insights that can guide your startup’s business decisions. Does your quantitative data indicate the pricing strategy you should take? Did your qualitative data reveal themes about the values your target audience wants to see in your brand messaging?
It can help to organize the data visually to better understand the insights and communicate them to investors. For example, you might organize spending behavior by age group into a bar graph so you can quickly see how much each segment spends. To visualize the frequency of words said in focus groups, you can create a word cloud where the high-frequency words are larger than the lesser-used words.
Consider creating a SWOT analysis that looks at your strengths, weaknesses, opportunities, and threats based on your collected data. This will help your team understand what internal and external factors may impact your business prospects. If your strengths and opportunities outweigh your weaknesses and threats, your startup stands a better chance of succeeding.
6. Apply your findings to your business
With your data collected and analyzed, you’re now able to leverage it to shape your startup’s business plan, product development, and marketing strategy. However, your work is never fully done. Market research is an ongoing process, so even as your startup evolves into a mature business, continue to monitor market trends, customer feedback, and competitor activities.
Just be sure to take breaks along the way and take action when you land on a clear direction. Pop & Bottle cofounder Jash Mehta emphasizes finding a sweet spot between too much research and not enough experimentation, saying, “It’s doing all the research and doing your due diligence, but then putting up a boundary, [because if] you do too much of it, you get analysis paralysis.”
Startup market research FAQ
How do you do a market analysis for a startup?
Perform market research using a mix of primary data collected by you and secondary data collected from outside sources. Commit to a mix of quantitative data based on hard numbers and qualitative data based on customer opinions.
Is market research a key to starting a business?
While market research isn’t a legal requirement for a new business, it’s a very wise endeavor. Research helps you understand the market you’re entering, including a prospective customer base, your competition, supply chain realities, and expected price points.
What are the two main types of market research?
The two main types of market research are primary research, which involves collecting original data, and secondary research, which analyzes existing data.
