If you’re considering starting a new business, one of the most important things you can do is take the time to conduct market research to know more about the market you want to enter.
“Market” is a broad concept that can encompass a lot — but for our purposes, it refers to the specific group(s) of people who are your ideal potential customers and your competitors.
In a nutshell, your potential customers are the people who have a need or problem that your business can help them meet or solve. Your competitors are the other businesses offering similar products and services to the same or similar target buyers.
The better you can get at knowing who these two main groups are, the more efficient and focused your sales process can be, and the more likely you’ll be set up for success when you launch.
So How Do You Find Your Ideal Market?
In this article, we’re going to dive into how to research for a new business, and how to do it in a way that’s smart, streamlined, and aligned with your goals.
Read on to learn:
- The first question you should ask when considering starting a new business
- The first exercise you should do to set yourself up for success when it comes to researching your market
- Identifying who you should be selling to and why
- 4 effective market research methods you can use for reliable results
- Why you need to understand your competitors (this approach might surprise you)
- 4 key questions you should ask for solid competitor research
- How you can apply all this market research to your new business practically
- Answering the Biggest Question First
- It might seem obvious, but it’s important … If you're an entrepreneur and you’re considering launching a new business, here’s the biggest question you have to answer first: Is there a market for what you want to sell?
If you’re starting a business that offers a product or service that already exists in similar form elsewhere, then the answer to the question is likely yes. If you’re bringing a truly new offering to the market, this will be a critical question to answer.
So you’ll want to begin with the broadest type of market research for a new business by assessing industry trends.
This involves looking at your industry more closely and getting an overview of its trajectory.
- What is the prognosis for the industry as a whole?
- What trends are affecting this industry?
- What threats does this industry face?
- What are the growth prospects for this industry in the short and long term?
For instance, opening a video-games-on-DVD rental business in 2023 would probably not be a viable idea, as most new games are going to be streaming or download-only. Unless you rebranded as a hub for vintage-game collectors, you likely wouldn’t have enough customers to keep your business going beyond a few years. In contrast, opening a business that, say, connects interested buyers with affordable solar panel installation has a higher chance of being successful as the clean-energy industry is gaining interest, relevance, and market share.
You can easily access trend reports on various industries from respected research companies like McKinsey or Deloitte.
Once you’ve determined with confidence that there are people who will want to buy what you’re selling … the next step is to identify who they are, what they desire and need, where you can find them, what they’re struggling with, and how your offerings can help them.
Phew! That might seem like a lot … but there’s a way to get there.
A Simple Exercise to Help You Get the Best Market Research Results
You might already have a very clear idea of what you want to sell, and why you want to sell it, and that’s great.
And you might also already have an idea of who your market is. That’s also great!
But part of the reason it’s so important to conduct robust market research before you launch is that, in the process, you might actually be surprised by who your target market is. You might discover an unexpected niche, or you might uncover a gap in existing services similar to yours that your business might be uniquely positioned to fill.
As an entrepreneur, it pays (literally!) to have an accurate view of both your ideal client and your competition on the front end. So it’s important to make sure you know which questions you need to be asking in the first place.
The best way to direct your research is to “reverse engineer” your business goals. This involves envisioning your business a year from now and walking backwards until you know which questions you need to answer in order to intimately understand your market.
Check In With Your Future Business
I understand that none of us can predict the future. And of course your business will likely evolve in ways you can’t know now.
BUT … this exercise is critical, because it gets you in touch with your vision and your passion for your business. It clarifies where you want to be so that you can start to imagine the path to get there.
So think about your business one year from now. You’ve been up and running for 12 months, and things are going well.
What do your end products or services look like? Basically, what are you offering and what does that look like out in the world? For example, you may decide that you're going to provide coaching and online courses to teach people how to play guitar.
Now, if one year from now is the milestone … what would you need to accomplish between now and then? Make a list of the stepping stones that would get you from today to one year from now. Following the example above, to get to this point in 12 months, you’d have to develop and begin enrolling paying students in a fun and effective online course.
What business questions do you need to answer in order to be able to accomplish those things? This is going to help you hone and direct your research. As an online guitar coach, one of the business questions you’d have to answer is, What content should my course include?
And finally, what questions would you need to pose to your potential clients in order to get reliable answers to your business questions above? These are your research questions. They become your survey questions and/or prompts for interview or focus-group discussion (which we’ll get into below).
This is where you start to get a clear picture of where you need to begin your market research for a new business. For your guitar coaching business, in order to understand what kind of content your course should include, you’d need to rely partly on your own subject-matter expertise. But you’d also want to hear directly from people in your market, so you might ask questions like:
- What are some aspects of playing the guitar that you want to be really good at?
- What are some things about playing the guitar that are really challenging for you?
- What are the top 3 things you expect from a course on playing the guitar?
- Have you tried other online courses? What about them worked or didn’t work?
Once you have your list of must-answer questions, let’s look at the most effective methods and tools to get the best answers.
Effective Market Research: Identifying Who You Should Be Selling to and Why
You may have heard the term “client avatar.” A client avatar is a fictional representation of your ideal customer. It’s also sometimes called a customer profile, buyer persona, or marketing persona.
Sometimes, depending on how your target market is segmented, you might have more than one client avatar.
Every business and organization should have a crystal-clear idea of who needs their products or services, and the way you get to that detailed profile is by conducting customer research.
Primary vs. Secondary Research
There are two main ways to approach getting to know your ideal clients.
One is by conducting primary research. This is where you perform or hire your own custom research. It means you assemble a particular audience with your own specific questions.
You can also do secondary research, which is buying and using results from research that others have done on people who are not exactly in your market, but in a similar market. The questions you’ll get answers to might not be as specific as the ones you’d ask yourself, but they might get close and still give you valuable information. Sometimes secondary research is good enough for your purposes, and it does save you time and money.
At other times, especially if you have a niche product or market(s), you’ll want to do your own primary research.
Filling in the Picture of Your Ideal Customer
Once you choose your research approach, you’re going to want to determine key things about your potential clients, like:
- Where they live (and why that’s important)
- Shopping Habits
- Psychographics (these are attitudes, values, aspirations, personality traits, and other psychological and social traits)
- Whether they’re one-time customers or repeat customers
- What specific things they’re struggling with or problems they’re trying to solve (you’ll often hear these referred to as the “pain points” of your customer)
- How your product or service helps solve their problem, end their struggle, and meet their needs
- What adjacent needs they might have (this can give you insights into possible new offerings you can develop down the road)
There can be many more categories you can explore, of course … and you’ll want to figure out which things are most important for you to know based on the one-year vision you are reverse-engineering.
4 Effective Market Research Methods You Can Use for Reliable Results
There are several tools that can help you find and get to know your ideal potential buyer so that you can eventually develop a rock-solid marketing strategy. Let’s look at 4 of them.
These are best for understanding things like:
- The size of your market
- Which subgroups of your market exist (who might also need your products or services),
- How big the subgroups are
- How certain factors (like demographics, attitudes, socioeconomic status, etc.) affect and meet your target market
It’s important to have good screening questions that clearly identify people who are in your market. Typically you’ll have a question for each product and service you offer — something like, How likely are you to purchase [product/service] in the next 6 months?
Then, offer 5 possible responses, ranging from “highly unlikely” to “very likely.” Take the “very likely” and “likely” responses, and then give these people all your other questions.
You usually only want to spend money gathering additional information on people who you know are in your market. When you do a survey, you need to make sure you have a large enough sample size. Generally, having at least 30 respondents from your market (and from each subgroup) is a good rule of thumb.
Here are some companies that offer reliable survey/questionnaire services:
- Survey Monkey has both a survey tool and access to people who can take your survey
- Qualtrics has both a survey tool and access to people who can take your survey
- Facebook Marketing has some questionnaire capabilities that can work in some circumstances (you don’t have as much control over who responds to your surveys, and you usually can’t ask as many questions)
These are best for getting to know who the people in your market actually are at a deep level, which can be powerful tools for marketing and branding. Here you can ask things like:
- What are their challenges and goals?
- How do these things relate to products and services you could/do offer?
- Where do they spend time in real and digital space, specifically when they are looking for the kinds of products and services you offer?
- What do the kinds of products and services you plan to sell actually do for people — practically, emotionally, and socially? (For example, a practical result of a reliable car is that it gets me from point A to point B; an emotional result might be that a Ford truck connects me to my grandfather who is no longer alive; a social result might be that a Porsche makes me look successful to my peer group at the club.)
These are great for testing concepts — products, services, branding ideas, etc. So you’ll want to have a test version of something for your focus group participants to respond to in real time.
- Focus groups work well when you’re in the development and iteration process for either branding/marketing or product/service. Then you can take the feedback you get from the groups and incorporate it into the next iteration of whatever it is you’re developing.
- Work With a Research Company
- You can hire companies to help you with all or some of your market research. These can be especially helpful if you are in a big industry, because some of these companies have existing off-the-shelf research that might be able to get you quite close to your ideal customer.
Again, if you have a very niche market, you’ll be best served by doing your own custom research.
Getting to Know Your Competition
Many entrepreneurs get stressed about the notion of dealing with competitors. There can be a sort of scarcity mindset which can cause some people with great business ideas to choose to not go to market at all.
If you follow me, you know I have a different perspective when it comes to competition.
First, your competition is not a threat to your success! With literally billions of people entering the online marketplace, there are enough people out there who will buy what you’re selling if you do it right.
Second, it’s really smart to get to know your competition … because they will help you hone and refine your own offer in ways that will help you build a stronger business.
With this in mind – let’s look at how you can research your competition, so that when you go to market, you’ve got the info you need to maximize your chances of success.
Who Are Your Competitors?
Your competitors are any businesses that offer the same or similar products or services to your target market.
When you know what they’re offering, where they hang out (in digital space), and how they reach and serve their customers, you’ll be able to get a better idea of how you fit uniquely into your market and how you can attract your ideal clients.
Competitor research for a new business idea is almost always going to be secondary, which makes it a fairly straightforward process. You can start by simply Googling your product or service, and read through the results that come up.
It can be helpful to do a SWOT analysis, where you research the Strengths, Weaknesses, Opportunities, and Threats that a given business poses for you. (Remember, though, to hold that word “threat” pretty lightly. This doesn’t have to be dire for your business — it’s just more great and useful information to have.)
4 Key Questions to Ask About Your Competition
When you have an idea of who your competition is, you can begin looking more closely at how they are similar to and different from you, and where your opportunities might be.
These questions are a great place to start:
- What is the market share of each of your competitors, for each of the products and services you will offer? Are there already lots of players in your space, or is it relatively open? If there is still plenty of headroom in the market for the products and services you offer, then selling to people who have not yet bought the products and services you offer can be a significant part of your growth strategy. On the other hand, if your competitors already have significant market penetration for the products and services you offer, then getting people to switch from your competitors to you will need to be a part of your growth strategy.
- How satisfied are customers with them? Understanding what customers like and don’t like about your competitors can give you ideas for product features, customer experience, and marketing messaging that can help you better meet the needs of your audience.
- Are there gaps in what they offer? This is part of understanding the subtle differences between you and your competitors. It also helps clarify how you specifically want to be of service. When you know the gaps, you can think of ways that your particular approach helps address client needs that aren’t being met, and you can develop targeted messaging that speaks to these needs.
- How do they go to market? When you’re starting out, emulating the effective things your competitors are doing can generate business for you. As you mature, you’ll want to push beyond what your competitors are doing to generate leads, and find opportunities they haven’t.
So you’ll want to pay attention to what channels they’re using — whether they’re going directly to consumers or going through retailers or partners. And you’ll want to understand how they generate leads and traffic — whether they’re using paid, organic (or likely some combination) to attract new potential customers.
When you have a solid understanding of both your market and your competitors, you can take that wealth of information and begin applying it directly to your new business idea.
How You Can Make Practical Use of All This Market Research for Your New Business
Now that you have gained all these customer, competitor, and industry-trend insights through your various kinds of research … what do you do with them?
How can you use what you know to increase your chances of a strong launch?
Create a Business Plan
While your research can’t give you perfect numbers, it can get you pretty close and can help you craft a plan for a way forward towards your one-year goal.
Your business plan will include details on how big your market is, how big each of your submarkets are, how much headroom exists in your market/submarkets, and how many new customers per year is a reasonable upper limit for your business.
Your competitor research will give you the range of prices your market will bear for the products and services you are offering. This will give you an idea of what to charge and what your expenses will be, along with goals and major milestones you want to hit along the way.
Create a Marketing Strategy
The information you get from your primary and secondary market research, including all those surveys and interviews, should give you important insights into how to communicate with your ideal clients.
When you know where people in your market(s) spend time in real and digital space, you can craft a plan for how to most effectively reach them with your message so you can generate more high-quality leads.
You’ll want to create a strategy for the subgroups in your market that you plan to focus on, and you’ll use that to inform your branding, messaging, and collateral.
When you are done, you will have a good understanding of which competitors are in your space, the market penetration of each, and how much of your growth will come from acquiring brand new customers in the industry vs. acquiring customers who switched from a competitor.
Find Good Partners
Doing the work up front with all this great research will also allow you to create a compelling case based on data that you can present to potential partners or investors. You’ll be able to show that there is a market for what you offer, that there is room to grow in that market, that you have a plan to offer something that differentiates you from your competition, and so much more.
Educate Your Employees
Whether you’re planning on forming a team as you go, or you’ve already got people on board, this research is critical for making sure everyone on your team understands your vision and your mission.
You can use the insights you gained on your customers, competitors, and industry to create internal resources that clearly communicate to your employees everything they need to know about your market and your business.
This will help them do their jobs in ways that meet your customers and genuinely contribute to growth. Employees are more engaged and satisfied when they feel like more than just a cog in a machine. This information gives them a picture of what your business does and who you want to serve. It offers a clear vision they can connect with, care about, and give their best effort to.
Ready to Start Your Business Research?
Having a great business idea is awesome, and feeling excited and passionate about your work is critical. I can understand the urge to jump right in.
But taking the time you need to do this “behind the scenes” research before you launch might be the smartest thing you can do to increase your chances of success.
You know that one-year vision of your successful business we talked about at the very beginning? When you do a thorough job researching, you can add this satisfying scene: knowing with confidence that all that work you put into gaining insights about your industry, your market, and your competition really did pay off!