As an entrepreneur with a big idea, what’s the best way to determine how potential customers will react to your product? Conducting market research can provide the data needed to decide whether your product fits your target market.
Before launching a new venture, you should understand market research. Here’s how to conduct market research for a startup and why it’s important.
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Market research is the process of gathering information about customers and the market as a whole to determine a product or service’s viability. Market research includes interviews, surveys, focus groups, and industry data analyses.
The goal of market research is to better understand potential customers, how well your product or service fits their needs, and how it compares to competitors’ offerings.
There are two types of research you can conduct: primary and secondary.
Before launching your venture, it’s wise to conduct market research to ensure your product or service will be well received. Feedback from people who fall into your target demographics can be invaluable as you iterate on and improve your product.
Performing market research can also help you determine a pricing strategy by gauging customers’ willingness to pay for your product. Additionally, it can improve the user experience by revealing what features matter most to potential customers.
When assessing which startups to fund, investors place heavy importance on thorough market research that indicates promising potential. Providing tangible proof that your product fulfills a market need and demonstrating you’ve taken the time to iterate on and improve it signal that your startup could be a worthwhile investment.
What questions do you aim to answer through market research? Using those questions, you can make predictions called hypotheses. Defining your hypotheses upfront can help guide your approach to selecting subjects, researching questions, and testing designs.
An example question you may ask is: “How much are people in my target demographic willing to pay for the current version of my product?” Your hypothesis could be: “If my product contains all its current features, customers will be willing to pay $500 for it.”
Another example question you may ask is: “What’s the user’s biggest pain point, and is my product meeting their needs?” Your hypothesis could be: “I believe the user’s biggest pain point is needing an easy, unintimidating way to learn basic car maintenance, and I predict that my product meets that need.”
You can and should test multiple hypotheses, but try to select no more than a few per test, so the research stays focused.
Once you’ve formed your hypotheses, determine which type of research to conduct.
If your hypotheses focus on determining your startup’s place in the broader market, start with secondary research. This can include using existing data to determine market size, how much of that market your startup could reasonably own, who your biggest competitors are, and how your brand and product compare to theirs.
If your hypotheses require primary research, decide which data collection method best fits your needs. These can include one-on-one interviews, surveys, focus groups, and polls. Primary research allows you to gather insights into customer satisfaction and loyalty, brand awareness and perception, and real-time product usability.
To gather meaningful insights, you need to understand your target demographic. Do you aim to cater to working parents, young athletes, or pet owners? Determine the type of person who can benefit from your product.
If you conduct primary research, you need to recruit subjects. This can be done in several ways, including:
However you recruit subjects, ensure they take a screener survey beforehand, which allows you to determine whether they fit the specific demographic you want to study or have a trait that eliminates them from the research pool. It also provides demographic data—such as age and race—that enables you to select a diverse subset of your target demographic.
In addition, you can offer compensation to boost participation, such as money, meal vouchers, gift cards, or early access to your product. Make it clear that compensation is in appreciation for subjects’ time and honest feedback.
Once you’ve determined the type of research and target demographic necessary to test your hypotheses, conduct your research. To reduce bias, enlist someone unfamiliar with your hypotheses to perform interviews or lead focus groups.
Ask questions based on your audience and hypotheses. For instance, if you’re aiming to test existing customers’ purchase motivations, you may ask: “What challenge were you trying to solve when you first bought the product?”
If examining brand perception, your audience should consist of potential customers who don’t yet know your brand. Present them with a list of competitor logos—with yours in the mix—and ask them to rank the brands by perceived reliability.
While the questions you ask are vehicles to prove or disprove hypotheses, ensure they don’t lead subjects in one direction. To craft unbiased research questions, use neutral language and vary the order of options in multiple-choice questions. This can keep subjects from selecting the same option each time if they sense the third option is always mapped to a certain outcome. It also helps account for primacy bias (the tendency to select the first option in a list) and recency bias (the tendency to select the final option in a list).
Once you’ve collected data, ensure it’s organized efficiently and securely so you can protect subjects’ identities.
After you’ve organized your data, analyze it to extract actionable insights. While some of the data will be qualitative rather than quantitative, you can detect patterns in responses to make it quantifiable. For instance, noting that 15 of 20 subjects mentioned feeling overwhelmed when attempting to assemble your product.
Once you’ve analyzed the data and communicated emerging trends using data visualizations, outline action items.
If the majority of users in your target demographic reported feeling overwhelmed while assembling your product, action items might include:
Each round of market research can offer more information about how your product is perceived and experienced by potential users.
While it’s useful to conduct market research before launching your product, you should revisit your hypotheses and form new ones over the course of building your venture.
By conducting market research with each version of your product, you can gradually improve it and ensure it continues to fit target customers’ needs.
Are you interested in bolstering your entrepreneurship skills? Explore our four-week online course Entrepreneurship Essentials and our other entrepreneurship and innovation courses to learn to speak the language of the startup world.
Catherine Cote is a marketing coordinator at Harvard Business School Online. Prior to joining HBS Online, she worked at an early-stage SaaS startup where she found her passion for writing content, and at a digital consulting agency, where she specialized in SEO. Catherine holds a B.A. from Holy Cross, where she studied psychology, education, and Mandarin Chinese. When not at work, you can find her hiking, performing or watching theatre, or hunting for the best burger in Boston.
