Importance of Market Research for Startups
Lego, Starbucks, Coca-Cola are big brands that spend millions of dollars each year on Market research to compete at the highest level and to maintain their point of distinction as a brand and how important it is to get it right even when you are a household name.
Check out this video for a funny perspective on what our life would have been without marketing research:
For startup businesses though, doing proper market research is even more critical but unfortunately, a lot of startups are programmed for failure because they do not conduct sufficient industry research before launching themselves into the competitive market. I think with the invent of e-commerce, small businesses sometimes make the mistake of doing partial research that is skewed towards a certain demographic active on the online community for such products.
Why Startups should do Market Research?
There are many reasons why a startup should conduct market research. Some of the big ones are below:
Uncertainty: Eric Ries in his book “The Lean Startup” defines a startup as “A startup is a human institution designed to create a new product or service under conditions of extreme uncertainty”
Extreme uncertainty is one of the defining features of startup because there is uncertainty about the product, the supply chain, the target customer segment, the business model and almost about every other aspect of the business. But even with all this uncertainty, the startup companies ignore the importance of market research for their enterprise (not understanding the ROI) assuming it is only for large multi-national companies.
Inability to be self-critical: Founders and the team generally believe that they have come up with this fantastic idea or a perfect product that would change the world, yay! With a lack of proper marketing research, the product fails because the target audience didn’t share your idea of this revolutionary and fantastic product and the product fails to register with the target market and receives an underwhelming response.
Competition and Customers: If the startup doesn’t have an intimate understanding of its customers’ needs then the company may not be addressing a real problem in the desired way. If the company doesn’t invest in having a conversation with customers about their product, they will lose the opportunity to refine the product to their needs and to improve chances of the product to be successful in the market. Unless a proper analysis of the market competition is done, the company cannot size the market opportunity and the potential growth in the market. Developing strategies about pricing, marketing, sales etc. needs to be done based on a thorough understanding of the target customers (by asking the right question to the right audience) and the analysis of competition that the firm is going to face in the market.
Here is an interesting YouTube video with tips on how to ask a question better in your customer research
Securing Funding: A big part of some of the startups is to secure funding by getting the big companies or angel investors to invest in your idea and vision of the product. Without proper marketing research, it is hard to base and justify how your product would be successful in the market and why it is worth spending a huge amount of money from an investor.
Why Startups often don’t invest in proper marketing research?
There are several reasons why Startups do not realize the importance of conducting thorough market research and go in blind into the market:
No tangible ROI: A common mistake that startups make is that they perceive market research as a cost that does not generate any tangible return on the investment, unlike advertising that gives the company return in terms of brand awareness. Such infant companies plan to align towards research once they have established a customer base which sometimes does not happen in the first place because the market research was not properly done and the target customer’s point of view was not taken into consideration.
Too Costly: Corporate-level market research can be costly — that’s why there are giant marketing research companies or separate departments in companies to do their own marketing research. The startup companies can’t afford such amount of money. But, luckily there are several options that can work on a budget for startups like — Access to Information and Privacy (ATIP), an ATIP request can provide information for a low price and give some interesting insights. Also, there are certain marketing research companies that can sell research at an affordable price, there are several online tools available that can provide a good market analysis at a low price.
Novel Idea/Product: Another reason that some startups do not focus on the market research is that they are often coming out with products that are completely novel and there is no benchmark or existing market research for such products. That being said, the startups with such products can still find the product closest in the market and get opinions from customers via surveys etc. Talking to the consumers will enable the company to add/remove features in the product, help them understand how much people are willing to pay for such product or if you need to drop the idea because it is perceived useless by the target audience.
Is DIY research enough?
There are several ways, a company can do the marketing research at a budget to get a preliminary sense of what consumers think about the product. Some of the common methods used by the companies are:
Online Research: What do our customers want — Google it!! The problem here is that it is tough to find the right information and the right audience that can give you a proper insight into the information that you need regarding the perception of your potential product. The overwhelming amount of data available online creates problems to separate out the noise. Most of the data available online is generally without any concrete evidence and is based on the opinions of individuals and therefore the quality of the data collected is questionable as well.
Don’t get me wrong, I firmly believe that online research is an integral part of secondary research and can give you some interesting insights about the business from the point of view of different stakeholders, but your businesses’ major decisions shouldn’t be based on just online research.
Online Surveys: A lot of startups do online surveys because they are a cheaper alternative to carrying out comprehensive research including the focus groups, interviews, buying research and other available tools.
The main problem with the online surveys is the Survey Design. Surveys are a direct way of collecting quantitative, qualitative information about the market from customers. But, the companies make the mistake of defining the problem wrong and asking the wrong questions in these surveys and therefore the results from these surveys give the company poor inputs that can be potentially catastrophic for the business.
Another big problem is that there are many big online businesses that pay you for filling out a survey, a lot of time the responses received on such surveys are not being truthfully responded to by the consumers but are only filled out because of the reward. The results are therefore skewed as you are taking feedback from an audience that is not fit to respond in the first place.
Talking to “Friendly Individuals”: At the early stage, the startups generally research by talking to individuals who are willing to give some feedback on the startup idea. The problem here is that these “friendly individuals” in their existing network, have a bias towards the founder and the product, to begin with. In addition, they tend to connect to individuals who are similar to them in terms of age, gender, social status but how representative are these people for the potential use of the company’s product? Getting feedback from their own ecosystem would give the founders a rather poor idea of how their product will be perceived by a regular audience.
Below link has some interesting ways to conduct your market research for your e-commerce ideas:
And the link below shows great analogies and top mistakes to avoid in market research
To summarize, it is more critical than ever for startups to conduct real marketing research and the approach of talking to a limited audience similar to yourself cannot possibly give you enough insights to create a successful business strategy. In an age where being an entrepreneur is “cool”, it is more difficult than ever to be a successful one. In order to be a successful startup, market research cannot be an afterthought for companies.