Market research methods to help you get your startup funded, save your time and save your investors’ money.
I’ve been a market research consultant for over 20 years, and I’m a co-founder here at RESPONSE:AI. I want to offer some tips on the various methods — some free and some more expensive — you can use to improve your chances at attracting and securing investment. I will also give you some idea of what questions you need to get answers to before you begin your initial market research.
Getting professional investor money behind your idea isn’t easy. I’ve been there. You don’t want to find yourself in front of potential investors without clear answers. If you’re serious about success, then spending a little time at the earliest stages to get a more accurate insight into the needs and wants of the market is well worth it. Especially when you find yourself in the Dragon’s den.
MY THREE STEPS:
In order to present yourself in the best light to both potential investors and your target market, you first need to understand your future “ecosystem”. This mainly means customers — what they use, wish for, what they appreciate and criticize, issues they may face using existing products, etc. Then go to the competition — what they offer, how they price it, how they communicate, etc. when you have all of this info, defining your new product or service becomes maybe not be easier, but it does become more focused.
Next, you need to be able to describe your product or service so that you can ask the key questions of your potential market. You may try to develop a minimum viable product (MVP) or simple demo so that you can get advanced feedback, but that is quite expensive and takes some time. In many situations, it’s beneficial to describe what you want to offer and list the key elements of your future value proposition. Try to make the proposition concise and differentiated so that you can clearly articulate why and how this product or service is different from other existing ones.
Finally, you will be ready to ask your potential market and customers about your idea, your competitors, pricing, naming, etc. While some “market research” is undoubtedly useful and key for any startup to verify and potentially adjust initial assumptions or even seeking investors and cofounders, there are a variety of methods available for this purpose. Some are free and some more expensive but all are worthwhile at least during this initial phase.
- The “Starbucks method” (a.k.a. “Ask a Random Stranger)
You walk into a coffee shop and ask someone what they think of your idea. It’s great for getting personalized feedback, but it’s time-consuming, fairly subjective, and anecdotal.
- Posting on Reddit and in Online forums
You have the chance to get far more respondents than from the Starbucks method. Having said that, online forums and places like Reddit, where the respondents are anonymous, means you can be subjected to some brutal comments. As always — beware of the trolls.
- In-depth, face-to-face interviews
This is similar to the Starbucks method in that what you are gaining in personalized and fairly specific feedback, you are losing in both time and any sort of quantitative objectivity.
- DIY survey tools
Companies like Survey Monkey are great for delivering broad, plentiful data. The speed and low cost are also wonderful, but, because there is no expert backing you up, and no control over the method of data collection, it can actually hurt your potential target market in the same way spam can.
- Market research agencies
Without a doubt, this is the most tried and true method, but costs can be high due to the sheer amount of time it takes to customize the research, run the data collection, analyze it, and produce a full report. Luckily, thanks to advances in automation, there are some companies that have managed to automate a large part of this process and reduce the time it takes by roughly a third… I suppose you can guess who. 😉
All of these are worthwhile but remember no potential investor will be interested in anecdotal evidence when evaluating the potential success of your business. So the more people you ask, the more quantitative research you do, the more you will be able to talk about patterns.
PROFESSIONAL MARKET RESEARCH VS. DIY TOOLS
1. Experience matters — You need to have experience doing market research — otherwise you may define the scope or target group incorrectly and more. Market research agencies will make sure the expertise is there, will use proven methodologies, and will know from experience how to define the study, how to define the target group, and also how many people you should ask to get answers and required granularity.
2. Speed — You may do it fast and 80/20, or use an agency. Traditional agencies used to take weeks, but today, thanks to automation and technology, some agencies deliver within a few days asking hundreds of respondents and providing statistically significant outcomes.
3. Cost — As usual, quality goes with significance — you can do a high-level test for free, or use a sample. But, rather than using only your own expertise to define a simple survey, you may prefer to take a professional approach and it might be worth the investment — automation drives the cost lower for basic studies. For example, with sample size of 200 people from your target audience, it could be as low as $1250, which is a reasonable cost to get some data behind your ideas and assumptions.
Approaching potential investors with a professional market research report, complete with analysis and insight based on hard data, will help establish both your credibility, as well as the market value proposition of your idea.
A NOTE ABOUT SUCCESS
Entrepreneurs, investors, and industry analysts always talk about passion and motivation. Sorry to insert a proverbial Steve Jobs here, but he talked about it all the time.
Unsurprisingly, it is often the first thing investors mention as their prime reason for investing. As an entrepreneur, you probably already believe what you are doing is going to work, but there is no doubt going to be tough times that will test this. Being able to back up your beliefs with the hard data can make a huge difference in both your own motivation and that of your investors.
Successful people believe in what they are doing…
…this belief can only be strengthened when the numbers back that up.
To sum up, startups that rely on market research to test their ideas, can not only present the data to validate or improve their initial idea but also to lend credibility when approaching potential investors. Once you get off the ground market research can help you monitor and increased consumer satisfaction, customer retention, brand loyalty, and ultimately profit!