Market Research for Start-Ups: How and when to apply it to new products and solutions.
For many first time entrepreneurs, the toughest thing is deciding whether or not an idea is a good one. The art and science of market research is usually something people turn to as a way to find the answer.
Market research is particularly good at analysing past performance to predict the future. If we were researching teapots for example, there might be reports out there on how many teapots there are in the world, how quickly they were being produced, in what colour and of what materials. No doubt the numbers could also be segmented into those with round stout bodies versus those coming in octagonal shapes. You could then conceivably predict how many round stout, red teapots will be produced over the next 3 to 5 years.
The Problem for Entrepreneurs
The problem though is entrepreneurs don’t particularly care for the teapots already sitting on shelves at the nearest ‘Teapots R Us’ store. They want to make new types that brew coffee as well as tea at the same time. Maybe even an all-in-one solution that infuses the leaves at exactly the right temperature for the right amount of time – so you get tea at the desired strength, all at the press of a button.
Where then should an entrepreneur begin? As Donald Rumsfeld famously stated, there are ‘known knowns’, ‘known unknowns’ and ‘unknown unknowns’. At the start of any venture, there is usually more of the latter than the former. How do you use market research to turn as many of the ‘unknowns’ to ‘knowns’ as possible?
Asking the Right Questions
The secret to market research is knowing what questions to ask and when.
For start-ups, the first and most important of these is whether there is a market for your product. In the case of the teapot, we can’t obviously answer this directly as the product doesn’t yet exist. We do however know people drink tea and there is at least a market for teapots, if not of the type we are proposing. We also know how many teapots are sold each year. So at the very least, a ‘super duper’ teapot has some potential. That is, there is an ‘addressable market’ out there.
The second question then is how many could we potentially sell? Well, that depends on which group of buyers we think are most likely to love our teapots. Let’s say it is young professionals living extremely busy lives, with no time to ‘perform tea ceremonies’ when friends drop by. How you define this ‘target market’ is critical to helping you decide whether it’s worth taking it further. After all, if it ends up being quite a small number, it may not be worth the effort.
If on the other hand, the figures suggest you are onto somewhat of a gold mine, then you need to think about how to clarify what remains of the ‘unknowns’. Determining how your business will operate – or a model of it – will help you do this. Think about your customers, suppliers, partners, activities and resources. What are their dependencies and how will they interact? Some questions you might want to ask are: Who retails teapots and where do they get them from? How much does it cost to manufacture and ship a teapot? Are there some really big teapot ‘gorillas’ out there you should watch out for?
At the end of the process, you will hopefully be in a better position to realistically assess your idea – but still have a load of assumptions lingering in the back of your head. Those assumptions need to be tested. As you’ve probably also hit the limits of what can be Google’d, it’s best to get it straight from the horse’s mouth. Whether you choose to do it through face to face interviews or another means is entirely up to you.
Making an Informed Decision
The good news though is the people and questions you ask at this stage, are probably going to be much more targeted than when you first started out. So the answers you get back are not only going to tell you exactly what you need to know, it will also be at the level of granularity you need to make an informed decision on – whether it be moving forward or stopping altogether.
Market research is a great tool to help assess ideas. Like any tool though, it needs to be applied with thought and skill to get the results you are after. Spend the time doing it properly at beginning and you’ll avoid committing yourself to a mistake you might have easily picked up with a bit of research.
Chris Tia is Principal of Lean Market Research, a boutique advisory service that focuses on start-up ventures, the commercialisation industry and new product development initiatives.