By Sweta Patel
Most startups fail within two years and most businesses don’t even last ten years. What’s keeping them from growing? Is it the sales? Could it be the team and their performance? Or maybe the product or service just suck? Those other factors maybe important, but the most vital factor is market research.
I admire how Ramit Sethi talks about the importance of market research and how his most successful products were rooted in the most in-depth research. He uses the great example of sending resumes in search of a job. Someone can submit thousands of resumes to different places and eventually they burn out and fail. However, if the applicant did some market research beforehand, and submits the resume to just a few targeted companies, success is much more likely.
The initial stages of marketing are tough and not everyone can handle it. What do Google, Kellogg’s, and Coca-Cola have in common? They all spent billions of dollars (most of their marketing budget) in market research to develop a successful company. Here is the method to follow if you want to reduce your risk in the marketplace to a minimum:
The Market Size
This is the toughest part of market research because most business owners are not good at projecting numbers. There has to be a demand for the product or service before you even begin, and the demand has to be growing. Even if you secure 40,000 new customers, 10,000 clicks to your website, and 50 new referrals, it doesn’t necessarily mean you have achieved product-market fit. The product-market fit is created when 40 percent of your current customers say they would be upset if your product or service no longer existed.
Most business owners prefer the “bottom up” model where you study a piece of the market and create a value proposition from it. But I’m sorry to say that anyone who says they want to capture 1 percent of the market and become a millionaire has not done their research.
Here is how you would go about it the right way. Determine how much your product or service will save the target audience in time or money. Estimate an amount per month based on current use of similar products. Then set pricing and sales goals accordingly.
Best Practice: Find out how you will acquire and keep the first 100 users, 1,000 users, 10,000 users and so on.
The Customer Avatar
A lot of entrepreneurs fail because they have not determined their market or developed their product. The market is the more important of the two. I would say it is most important to speak to your customers and find out what they really want before you even develop the product or service. For example, I am currently thinking of creating a course for entrepreneurs. The first thing on my pre-launch list is to create demand for the product. I’ll put it out there and see if anyone is interested. Once I have pre-buyers ready, I’ll create a six-week timeline to roll out my course with a bang. I’ll also run a feedback test to see what the buyers are expecting to receive from the course.
Once I have a pretty good idea of what their expectations are, then the easy part comes in. I get to make the course for them!
Best Practice: Stop spending time and money creating complex products and services without talking to your customers first. I could write a whole book on customer development, but someone already did it. Check out The Entrepreneur’s Guide to Customer Development: A cheat sheet to The Four Steps to the Epiphany.
The Competitors Next Door
Saturation in the market and competition aren’t always bad. They could actually be good things because now you know there is demand for your product or service. There is always competition and those who don’t have competition have not done their research. Think about what the substitutes for your product or service would be. The competition could be simple; it doesn’t have to match your exact product or service.
Market research will help you discover:
- Who are competitors now?
- What makes them faster, more convenient, or cheaper?
- What’s your competitive advantage?
- How can you make your product or service 10 timesbetter?
Best Practice: Create a matrix which shows your major attributes and what makes your business unique. Then place your competitors on the marketing grid, and make sure your business is on the top right.
Market Research Tools You Need To Know About
We can’t do all of this on our own and we know big brands are spending billions for this type of research. What is our best bet? How can aspiring entrepreneurs do this type of research on their own or hire a team to execute it?
Here is a list of my favorite tools and services for market research:
Paid Services:
2. Market Research and Analytics
3. Beta Testing and Customer Reviews
4. Freemium Model Reports
5. Insight Directories
6. App Marketplaces
Market research is the number one item on the marketing to-do list that could actually save your business and create more success than you could ever imagine. Are you on board?
Sweta Patel is a San Diego-based marketing entrepreneur whose company is Global Marketing Tactics.
