The 2024 ultimate guide: how to do market research for a startup

Conducting market research for a startup can be a daunting task, but it is an essential step that should not be overlooked. Market research for a startup is the process of gathering and analyzing data about the broader industry, competitors, and target market in order to identify potential opportunities and develop a business strategy.

By understanding the dynamics of the market and customer needs, startups can make informed decisions and create effective strategies to compete in the market. In this blog post, we’ll explore how to conduct market research for a startup.

What is market research?

Market research is a crucial step in the process of starting a new business. It allows entrepreneurs to understand their target market, identify potential customers, and gather valuable information about the industry and competition. This, in turn, will give entrepreneurs a solid and more objective assessment of whether their idea will be a success in the real world. After all, a seemingly-innovative product or service that popped into your mind while taking a shower often isn’t as practical as you thought (unfortunately).

Why is market research important for a startup?

Market research is important for a startup for a plethora of reasons. Not least, it helps entrepreneurs make informed decisions about their business venture, starting with whether it’s worthwhile to pursue in the first place. Without market research, a startup is likely to make assumptions about their industry, target market, and market fit that could be incorrect. This could lead to a lack of customer interest, poor product or service offerings, and ultimately, a lack of success for the business.

Market research also helps startups identify opportunities within their industry, as well as potential threats. This information can be used to develop strategies for growth, expansion, and survival in the market. Additionally, it can enable startups to understand their competitors, which can be used to create a competitive advantage and differentiate their offering from others. If you need funding from investors right off the bat or at some time in the future – which is almost inevitable - thorough market research will add to your credibility and at least attract them enough to do their own due diligence.

5-step guide on how to do market research for a startup

1. Define your research objectives

The first step in conducting startup market research is to define your research objectives (or research goals). Simply put: what questions do you need answered before giving the green light to your business idea? This involves identifying the specific information you need to gather in order to make informed decisions about your business.

For example, a startup that is launching a new product or service may want to research consumer preferences and buying habits, as well as gather information about the competition. Ultimately, having concrete research objectives will lay the foundation and shape your entire business plan. If you feel overwhelmed already, don’t fret - many ambitious go-getters have been there before.

You can always use a market research template to streamline the process.

2. Find your target market

When you're launching a startup, it's important to have a clear understanding of your target market. This will enable you to focus your marketing efforts and allocate resources accordingly. Not having a clear target market is basically like shooting in the dark and hoping you hit something.

Good market research should always indicate who your target audience is, what they need, and how to reach them. Start by considering the characteristics of your ideal customer; factors like the age, gender, location, income level, lifestyle, and other demographics of your target customers.

You can also narrow down your target market by looking at their interests and needs. For example, a startup that is launching a new line of organic skincare products may target the market of conscious consumers who are looking for natural, chemical-free skincare options.

Once you have a better understanding of who your customers are, you can start using market research methods to gain insights about their behavior and preferences. These methods include online surveys, interviews, focus groups, and analyzing data from existing sources.

By researching the market, you can gain valuable information that will help you make informed decisions about how to best reach your target customers. We’ll expand on this aspect later.

Consumer profile for startups

Creating a data-led profile of your ideal customer is called consumer profiling. There are 4 main types of consumer profiling, including those we mentioned above:

• Demographic
• Geographic
• Psychographic
• Behavioral

It's really important to be able to support - or even refute - any presumptions you might have about your target audience. Although you may believe that you understand the thoughts of your target audience, having the supporting data ensures that you are focusing on the appropriate audience in the most cost-effective way.

When you’re through with that, you can create so-called “buyer personas” that represent that your company can use as representative customers. Then, as you and your colleagues design everything from the product itself to brand messaging, you can keep these profiles in mind.

With the help of consumer profiles like this, you can give your customer journeys some context and offer an even more personalized product or service.

3. Identify your competitors

This is one of those things that can make any entrepreneur feel uneasy: competitors. However, knowing how to differentiate yourself from the competition is key to finding success with your new business idea; you should always keep an eye on them.

Take some time to research the business environment and find out who your competitors are and what products/services they’re offering. You’ll want to know what features your competitors have that you don’t, so you can come up with a better offering and stay ahead of them. Better yet, you might find an untapped niche that you can capitalize on.

Take a look at their websites, social media accounts, and reviews to get a sense of what they’re doing. Analyze their pricing models and promotions to see how they are trying to differentiate themselves from others in the market.

If possible, talk to customers about their experiences with your competition to find out what their strengths and weaknesses are. Knowing what your competition is doing will help you come up with business strategies that will give you the edge in the marketplace.

4. Utilize the right market research tools

a. Primary research

After you’ve defined your research objectives, identified your target market, and scoped out the competition, the next step is conducting primary research.

So, what is primary market research? It’s essentially information straight from the source which, in this case, is your target market. This can include surveys, focus groups, and interviews with potential customers and industry experts.

Primary research allows you to gather more specific and detailed information about your target market and their needs and preferences. You question and they answer!

b. Secondary research

In addition to primary research, it’s also important to conduct secondary research.

Secondary market research is gathered from existing data. This can include anything from information from industry reports, trade publications, and government statistics. It can provide valuable insights into things like market size, growth trends, and what your competitors are up to.

Primary and secondary research are made simpler with the numerous market research tools that one has access to nowadays – be sure to check out which ones may be handy for you.

5. Develop a business plan

Armed with your market research findings, you can now go ahead and develop a sound business plan. Creating a business plan is the ultimate step in the market research process for any startup that’s trying to achieve their dream.

It helps you to identify and articulate your goals, strategies, and operational plans – in other words, how to execute on your research findings. Not to mention that it will indicate how much money is needed to launch and grow the business.

You might be wondering whether it’s set in stone or something you can adapt along the way…don’t worry, the world is constantly changing, so it’s totally normal to make tweaks here and there. At the end of the day, this practically-holy document will be the cornerstone of your startup and, hopefully, lead to a successful venture.

Conclusion

Effective market research is vital in the process of launching a startup. It allows entrepreneurs to gather valuable information about their target market, industry, and competition, which can be used to make informed decisions and develop effective strategies for success.

Instead of rushing into the process – which can be tempting – it’s highly-advisable to set some research objectives first. This allows you to hone in on what information and data you need to gather.

For most founders, clearly defining their target market is the next step, and the significance of this part can’t be overstated enough. Did you know that lack of product-market fit is one of the top reasons why startups fail? That’s a direct consequence of misreading one’s target market.

With that said, it’s equally important to know what competition is out there; another major cause of failure is getting outcompeted.

Luckily for all of us, there’s no shortage of research methods and tools to employ. The two main ones are primary and secondary research. Primary research is getting your data straight from the source i.e. your (potential) customers. Meanwhile, the latter involves collecting existing data from published research, databases, and so on.

Research for a startup then culminates into a business plan. The Holy Grail for burgeoning entrepreneurs. If all goes well, you’ll be able to put together a substantiated plan for executing your business idea with the success you deserve.