3 Simple Steps for Conducting Market Research for Your Startup
The keys to vetting your business idea and strategically positioning yourself among the competition
This is an excerpt from my ebook titled, ‘From Idea to Incubator’. If you’re interested in receiving a free copy when it becomes available later this month, subscribe to my email list here.
I opened my last article, 2 Great Tips for Coming up with Better Startup Ideas, by revealing the number one reason that startups fail: no market need. [1]
I can vouch for the truth of this statistic. As Director of my university’s incubator, I sat through too many walk-in consultations with students who were in love with their ideas for products/services that either already existed or didn’t need to. These are conclusions we often reach together after a few google searches.
I understand the desire to march forward with execution before first pausing to ask the market if you really should. I’ve jumped the gun myself.
Part of you is certain that there are customers already out there just waiting to get their hands on what you’re trying to deliver. Part of you is afraid of the truths that your research might unfold: ‘maybe this idea isn’t worth pursuing…’ or, ‘it’s already being done!’. Part of you is just excited to get working on the fun stuff and doesn’t want to waste time doing google searches and asking people to fill out surveys.
No matter what information your preliminary market research yields, however, it will undoubtedly have positive downstream effects for you, your team, and your startup.
It’s not glamourous…and it’s very rarely enjoyable. Much of the work you do for your startup won’t be. So why not begin with an arduous task to see if you have what it takes to handle the daunting workload that follows?
If you’ve never done market research before, or are in need of advice on how to improve, these 3 simple steps (while completely non-technical) can get you started on the right foot.
I pointedly used the word ‘simple’ instead of ‘easy’ when describing these steps. No matter your experience or formal training, this process should be simple enough to understand and execute on; that does not, however, mean it’s going to be easy.
Stay focused; be patient; most of all, be confident that — if done correctly — diligent market research will significantly decrease your odds of failure and have you well poised to continue with execution.
Step 1: Assess the Competition
I’m going to glaze over the obvious: google your idea to see if anything comes up. If existing companies have placed targeted ads, have earned enough traction, or have worked on their SEO (Search Engine Optimization), you should be able to find them.
I highly recommend that you get in touch with your target customers and users (these can be two different groups of people depending on your idea) to really understand the competitive landscape. Ask them about their problems — specifically the one you’re trying to solve — and find out if there are currently any products and services out there that help them solve this problem. While you’re at it, ask if they have any complaints about their current solutions.
Now if you truly can’t find a single competitor, I caution you from celebrating. Yes, it might be the case that you’re the first to stumble upon this opportunity, but it’s way more likely that (1) others have tried and failed (in which case it’s in your best interest to find out why before moving forward); or (2) no one has tried because the ‘need’ you’re trying to service isn’t really a ‘need’ at all.
It’s also important to remember that if your business is as “disruptive” as you believe it is (and no one else is currently working on it), you still have quite a steep hill to climb, especially on the sales & marketing front: Airbnb had to convince home-owners that having strangers stay in their houses while they were gone was a good idea; Uber had to undo decades of childhood programming to convince people that getting into strangers’ cars was a good idea.
In the highly likely scenario that you do discover some competitors, it’s not the end of the world. In fact, the existence of competitors validates that there is a market for the product/service you’d like to build.
Your task, once you’ve identified your competitors and diligently researched each one, is to find your niche. The next two steps help you do this.
Step 2: Create a Specific Customer Profile
As expressed earlier, competition doesn’t mean you have to give up on your idea, but it does mean that you need to strategically position yourself amongst your competitors in order to succeed.
There are two ways you can do so:
1. By creating and offering a product/service that is better than your competitors’.
2. By targeting a different customer segment (or subgroup of the competitors’ customers)
I’m going to go right ahead and advocate against option #1 here.
Picture your big bad competitor. More specifically, picture their unlimited capital, talented team and industry experience. You might be able to outsmart and/or outwork your competitors to develop new, innovative features for your product, but if they notice you stealing a considerable portion of their market share, you bet your ass they’re going to find a way to reproduce your hard work.
Take, for example, Snapchat’s story feature. What an earth-shattering idea! Everyone was using it. Guess what feature Instagram unrolled a short while later?
Instagram didn’t stop the copy-cat game there…don’t forget where drawing tools, geo-filters, and interactive facial stickers originated.
Instagram killed Vine with the same imitation game several years ago. A reporter for the Verge, Casey Newton, was told by a former Vine executive that,
“Instagram video was the beginning of the end, [Vine] didn’t move fast enough to differentiate.” [2]
The important word here is ‘differentiate’. That’s why Snapchat has managed to survive all these years and even thrive as of this writing. [3]
While they seem to be very similar platforms, there are so many ways that Snapchat differs:
- Demographic: 60% of Snapchat users are under 25 while Instagram is beginning to grow an older audience.
- Primary Uses: 71% of Snapchat-ers use the platform for peer-to-peer messaging and interacting directly with close friends, whereas Instagram’s most popular uses are following celebrities, sharing meme content, and looking at travel photos.
- Content: Instagram photos tend to be high resolution and polished while Snapchat photos tend to be raw and unfiltered.
And here’s the kicker: 46% of Snapchat users in the U.S. don’t use Instagram! They’ve differentiated themselves to the point where, instead of competing, they now coexist. For these stats and more on the differences between Snapchat and Instagram, check out Buffer. [4]
I hope I’ve done a good job of convincing you that option #2 (targeting different customers) is the avenue we should take when faced with competition. Here’s how we can do it:
2.1 Organize your research on each competitor in a way that allows you to discern the differentiating factors between them.
Make feature lists and try to come up with a profile for their user base.
I find ‘who, what, where, when, and why’ to be great prompts for gathering 90% of the info you’ll need. ‘Who are their customers? What problems are they facing? Where are they located and where are they finding your competitor(s)? When are they turning to your competitor(s)? Why are they seeking out your competitor(s)?
Come up with several more questions using ‘who, what, where, when, and why’ as prompts and answer them for each competitor.
2.2 Make up a profile for the customer you want to serve.
At this point, I want you to get a LOT more specific.
Describing your competitors’ user base as ‘young adults ages 15–25 who like paddleboats’ is fine, but in these very early stages, you need to pare your description of your target customer down from a general group to a particular individual.
I want to hear something along the lines of “Melody is a university graduate with an arts degree from a low-tier college in Toronto. She has very little work experience so far and has student loans to pay off. She’s back living with her parents and looking for a job in sales.”
Don’t include arbitrary information if it’s needlessly limiting or really not relevant to the product/service you’re offering (use your best judgment here). But make sure to identify any experiences and circumstances that you believe could greatly influence your customer’s perspective, purchasing power, immediate needs, etc.
Don’t stress out too much about this practice; you can refine and remodel the profile as your research continues. But maintain this level of specificity throughout your pre-revenue activities, as it could really help guide your R&D (Research and Development) and marketing efforts.
Step 3: Compile Research and Iterate
Consider every mobile service provider — for Canadians, you’re thinking about Virgin Mobile, Bell, Rogers, Freedom Mobile, etc. They all do the same thing: provide their customers with cellular service.
But the reason we don’t have a monopoly — where everyone with a cellphone has a contract with, let’s say, Rogers— is because these competing companies differ in who they target. More crucial, however, is that they use their knowledge of who they target to decide how they target.
This is why we must now purposefully compile all the research we can on individuals that fit our ‘customer profile’ (created in step 2). So far, our choice of strategic positioning is solely informed by our own intuitions. It’s time to gather real data so we can validate that we’re targeting the right people the right way.
3.1 Start with secondary research on your customer profile
Secondary research is the collation of existing knowledge on your research topic. For our purposes, ‘secondary research’ loosely translates to ‘google shit’.
Take a good look at the customer profile you created and gather all information you can about their priorities, their tendencies, their problems and their current solutions for solving them.
Note: It goes without saying that you should be documenting all your research and including citations. Not only can these facts and stats be recycled when creating a professional pitch later on, you can also use it to convince potential cofounders, partners and advisors that you’ve done your homework and that they would be wise to ally themselves with you.
3.2 Conduct primary research to fill in gaps and answer specific questions
Primary research is the act of collecting data directly. The reason we do this is two-fold: (1) you might not find enough credible information from online sources to serve your needs, so surveying your target customers yourself can help you fill in the gaps; and (2) primary research enables you to ask your own questions that relate specifically to the startup you’re trying to build.
Note: I can’t stress enough how important it is that you look outside of your immediate network of family and friends to conduct surveys. Even when questionnaires are anonymized, your relationships with respondents will undoubtedly bias their information.
Additionally, avoid asking leading questions (consider the question, ‘Do you have any problems with your boss?’ vs. ‘Tell me about your relationship with your boss’). Look up some best practices for writing questionnaires and have a neutral pair of eyes proofread your questions before sending them out.
3.3 Redesign your idea if necessary
Your research will either confirm to you that your customer profile and value proposition fit, or that something needs to be reworked.
Not a problem.
Return to step 2 (‘Create a Specific Customer Profile’) and iterate as necessary until you’re satisfied that you are offering the right solution to the right group of people.
The purpose of this research is to inform and support your choices as you shape your idea in a way that differentiates it amongst a landscape filled with competition. If you’ve dutifully put in the time and effort to do so, then you’re well-poised to begin recruiting a team, mapping out a plan, and building an MVP.
Thanks for taking the time.
This is an excerpt from my ebook titled, ‘From Idea to Incubator’. If you’re interested in receiving a free copy when it becomes available later this month, subscribe to my email list here.
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