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Market Research. What is it? How To Do It: Step By Step.

One of the most common mistakes that startups (or any business) make in their early stages of development is:
 
Building a product and assuming it will appeal to their target customers without doing enough research to know if there is any real basis for this assumption. 
This is what we’re going to cover:
  • What is market research?
  • Why should I do market research?
  • How to do effective market research quickly
  • What are the most important statistics in market research?
  • Real-life example of market research for iimagine
 
In order to keep everything simple, I decided to break the topic of research down into 3 areas: customer research, competitor research and market research.
 
If you want to see the other videos after you watch this one, check out the links in the description.
 
Now let’s get into it.
 

What is market research?

 
For the purpose of the content that I’m creating for you, market research includes an analysis of things like:
  • Who are your customers?
  • Where are they?
  • How many of them are there?
  • How much are they paying for similar products?
  • What is the size of the market?
 

Why should I do market research?

 
If you’re trying to raise money from a professional investor without presenting any market research you won’t end up raising any money.
 
That’s literally all there is to say about that issue.
 
As for successfully building a business, that involves making decisions and judgment calls all day, every day.
 
You can only make good decisions if you have good information.
 
If you don’t have a detailed understanding of your customer and a detailed understanding of your market and where it’s going, you don’t have good information and you’ll inevitably make bad decisions and you will fail.
 
As entrepreneurs, we all get ideas for new products and better ways to do things and we usually have a strong gut feeling about it so we dive into product development without doing the research.
 
What exactly is that gut feeling and should you trust it? Your gut feeling is almost always right but there’s an important “but”. Your gut feeling is only as good as the information it has to work with.
 
If you do your research and discover new information that makes it obvious that your idea will fail, your gut feeling will change.
 
Now that we’ve got that reality check out of the way, let’s move on.
 
I also want to make the point to make here that market research does NOT have to take an enormous amount of time and detailed research is not always required for businesses.
 
Sometimes you can get all of the data and reports you need by doing a simple Google search and, for most startups, you just need to do enough research to confirm that your assumptions are correct.
 
For example, if you’re starting a business in an industry that you’ve been working in for a long time, then you don’t need to do as much research as someone that’s starting a business in an industry that is new to them.
 
But, if you’re planning to raise capital then you do need to do detailed research because your investors will need it even if you don’t.

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How to do effective market research quickly

 
Step 1: Define your target market
 
This involves researching demographics and psychographics.
 
I’ve created an article/video about how to define your target market by creating a buyer persona.
 
You might need to create multiple target markets for your business if your product will appeal to different types of people for different reasons.
 
This is called segmentation. As the name suggests, you just need to divide up your overall target market into smaller segments that reflect their common characteristics.
 
For example, Microsoft sells its Microsoft Office software to Fortune 500 companies as well as students.
 
It’s the same product but the customers are very different and require their own unique market analysis.
 
Step 2: Talk to your potential customers
 
You can do some of this online by chatting with people in groups and forums and doing surveys but, if possible, get up and physically meet with your potential customer.
 
It would be even better if you could meet with them in their office or whatever their natural environment happens to be.
 
That’s when you can actually imagine them using your product in their workflow.
 
That’s when you can see what else is competing for their attention.
 
You can see how important or not important your product really is to them.
 
It will help you get a reality check about which features are mission critical and which features are just nice to have.
 
Almost all entrepreneurs, including me, are guilty of not doing this or not doing enough of this.
 
This is one of those parts of entrepreneurship where we all need to apply some discipline and do something that we don’t feel like doing but we know is extremely important.
 
Step 3. How big is the market?
 
The obvious question here is whether the market is big enough to make a profit (or achieve your goals – whatever they happen to be).
 
If you’re planning on raising capital then, this is where you need to talk about TAM, SAM and TOM.
 
TAM is Total Addressable Market. It’s the total market for your product.
 
It’s important to make sure you understand what this means.
 
For example, if your product is some kind of advanced dog collar the total amount of money spent on dog accessories is NOT your addressable market.
 
Your addressable market is the amount of money spent on dog collars.
 
SAM is Serviceable available market. I know – it doesn’t exactly roll of the tongue.
 
This is the portion of the total addressable market that you can reasonably acquire.
 
For example, if your advanced dog collar can only be used by people that have an iOS device then your TAM and SAM will not be the same.
 
SOM is Service Obtainable Market. This is the portion of the SAM you can reasonably expect to buy your product.
 
For example, if your advanced dog collar can only be manufactured at a rate of 1,000 per month then your maximum unit sales for a 12-month period will be 12,000 units.
 
How much are they paying?
 
If the average dog collar sells for $20 but your advanced dog collar sells for $100 then you need to estimate what portion of these people will spend 5 x to buy your product.
 
The reason I’m using this example is that this is the difference between theory and reality.
 
You can get data that tells you how many dog collars are sold per year and the average price people will pay for a dog collar but there’s no data that tells you what portion of these will decide to increase their budget by 5x to buy your advanced dog collar.
 
So, what do you do? You make an estimate.
 
But, if you’re trying to raise capital, you have to assume that investors will challenge your assumptions. so, this is what I would do:
 
If I have time, I would find a way to survey a statistically significant number of dog owners to figure out what percentage of them would buy my dog collar and I would use that number in my research.
 
If I need to present to an investor sometime soon and I don’t have time to do a survey, I would include a low, medium, and high scenario and tell investors that you will get more accurate data after you complete your survey.
 
Check out this article from Qualaroo to see a list of market research tools that may be helpful.
 

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Use our “Impact Entrepreneurship” checklist to start your business and make the world better.

  • Adam Radly

    Founder
    Founder of IIMAGINE. More than $100M raised. TEDx Talk about passion > 1 Million views. Founder of World Reconciliation Day with Nelson Mandela. Founder of One Direct Democracy.