Start-up businesses succeed or fail for a range of different reasons. That said, reasons related to market potential are high on the list.
Or maybe market demand is big enough, and that’s fine. But your target customers are not willing to pay what you need them to pay in order to run a profitable business.
These are just some of the issues that can arise when starting a business if you don’t have a good enough understanding of the market.
The reality is the market potential of your business idea is as important as the products or services you plan to sell.
In order to determine the market potential of your idea, you need to conduct market research.
Market Research for Start-Ups
As a start-up, you will probably have to take an innovative and creative approach to market research. After all, you won’t have the resources that big companies have available. Instead, you’ll have to work smarter.
This starts by making sure you get answers to the most important questions.
The Most Important Question – Who is My Ideal Target Customer?
Identifying your ideal target customer is sometimes called creating a buyer persona, which is an crucial step in determining your market potential. Importantly, this is not about describing the widest possible range of customers that could potentially purchase your products or services.
Instead, it’s about creating a picture of your ideal customer that includes information like gender, age, location, income band, family circumstance, career, major considerations.
An example of an ideal target customer is:
- Male aged 30 to 50 who is a homeowner and with an above-average household income where he and his partner both works. He has children and his main considerations are related to her family. Those considerations include things like ensuring bills are paid on time, giving her children have as many opportunities as possible, etc.
The above description of the ideal target customer doesn’t mean you will never sell to anyone else. However, identifying your ideal target customer will focus your market research efforts as well as helping to improve your business overall.
For example, you can create more effective advertising campaigns when you know the specifics of who you are trying to reach.
Other Questions Your Market Research Needs to Find the Answer To
1. How many of my ideal target customers exist in my target area?
This is a simple raw number, but it’s important.
2. What will motivate my target customer to purchase my product or service?
Will your ideal target customer buy your product out of need or as a luxury? What are the pain points that exist in your customer that your product or service addresses?
3. What price will my target customer pay?
Remember, your ideal target customer might like your idea, but that doesn’t mean they will pay what you would like them to pay.
4. Can I reach my target customer?
There are lots of situations where businesses can identify market potential for their products or services. The problem is that they are unable to get in front of their target customers to make their sales pitch.
For example, an executive head-hunting start-up targeting CXOs might find it challenging to get in front of their target customers fast enough to get the business off the ground.
5. Who are my competitors?
You need to identify the competitors in your market as well as finding out what are they doing, how are they doing it, and where they are finding success?
6. What is the shelf-life of my business idea?
Is your business idea based on a market trend that could go out of fashion? Are there any other reasons outside your control that could limit the longevity of your business? You shouldn’t necessarily abandon the idea if there is, but it’s important you have this information to make the right decision.
How to Conduct Market Research
Let’s now look at the practical steps you can take to do market research when starting a business.
Research the Market on Google
You can use Google to find various pieces of information that will help you get an understanding of your target market. This includes finding statistics and reports from government agencies, research papers from companies, and results from surveys.
You should also look at the keywords that people search for on Google as this could indicate market demand. The Google Keyword Planner can help with this. It is part of Google’s AdWords advertising product, but you can use it for free and you don’t need to start an advertising campaign.
You can also simply search on Google. You’ll get information from the results Google returns, plus you’ll get other indicators from the related searches section at the bottom of the page.
Use Social Media
You should immediately start building and communicating with an audience on social media. The interactions you have with your new social media audience can help you immensely to determine the market potential for your business idea.
You should also find accounts as well as people that discuss and publish posts on topics related to your business idea.
- Do you know what are these people talking about?
- What are their pain points?
- Can you find out what solutions/products do they currently use?
Conduct Surveys
Surveys can give you valuable information on your new business idea. You can run a general survey covering a wide demographic, or a smaller survey focused only on your ideal customers.
Online tools like Survey Monkey can help.
You can also run informal surveys by, for example, creating a social media post and evaluating the reaction.
Remember these tips when running surveys:
- Make sure you don’t just ask whether people like your idea. You need more information than this.
- Ask if they would buy your products or services and whether they will pay the price you are considering charging.
- Don’t ask Yes/No questions. All the questions you ask in market research should be open questions. You want the person being surveyed to give you information about what they really think rather than them being led by you.
- Don’t just ask people you know to participate in the survey. They might be inclined to give you positive feedback to ensure they don’t hurt your feelings.
Create a Minimum Viable Product (MVP)
Actual feedback from real customers is always going to be better than getting opinions. One way to do this is to create an MVP and launch it on the market. This is a vital step in evaluating market potential for your products and services. You will get information from the process of getting sales, from reading feedback on review sites and social media, and from directly asking for feedback.
Ideas for creating an MVP include:
- Create a listing on a crowdfunding platform like Kickstarter to offer people the opportunity of buying your product before you even develop it
- Create a basic version of your website to start building an email subscriber list and to get followers on social media.
- Produce a single version of your product with minimal features.
Determining market potential: Final step
Once you have finished your market research, you need to analyze the results to determine the market potential of your business idea.
When doing this, remember that not everyone is going to tell you that you are on to something great. In fact, some people will tell you the idea is terrible and a waste of money and time. This doesn’t mean they are right, though.
The reverse is true as well. For various reasons, positive market research doesn’t always translate into real sales and a viable business model.
In other words, you won’t get a black or white answer from market research. You will instead need to evaluate all the feedback you receive to make the best decision you can.
If, after analyzing the market research, you are leaning towards launching the business, don’t get bogged down in assessing the market still further. Adjust your plans where you need to adjust. Refine your ideas where refinements are required.
