You have an idea for a business. But is it a good idea?
Even if you think it’s revolutionary, life-altering, and guaranteed to succeed—the people you hope will buy your product may not see it that way. So, how do you go from an idea that you feel good about to an idea that you know will work? By conducting thorough market research.
Let’s break down what market research is and how to build an effective research framework. One that will help you vet your business idea and prepare you to make confident and strategic business decisions.
What is market research?
Market research is the process of gathering and analyzing information about your potential customers, existing competitors, and the overall market. This information can be used to validate your business idea, inform changes to products or services, and even influence your marketing and communication strategies.
When starting a business, thorough market research can help you answer critical questions, such as:
- Are there existing businesses pursuing your idea?
- What level of competition will you be facing?
- How many potential customers are out there?
- How much can you reasonably anticipate in sales?
- Are there enough potential customers to make your idea a sustainable business?
Types of market research explained
Market research can be broken down into two methods for gathering information—primary and secondary research. Each is valuable in its own way but is most beneficial when used together to verify information.
Research and analysis of information and insights collected directly by a person or business. This can be exploratory, a less structured approach with more open-ended questions, or specific, a more rigid series of questions meant to provide specific data points. 1st party data of this kind can be found through surveys, focus groups, sales data, brand impressions, and any other information that you gather by doing business.
This type of research leverages previously gathered information from an outside entity completely unrelated to your business. This can include census data, industry reports, research from other businesses, and any other source of accredited information. Most of this data is publicly available, but some may require subscriptions or singular purchases to gain access.
How to do market research for your business idea
Jumping into market research can be intimidating. Whether you’re collecting your own data or leveraging 3rd party reports, it’s an overwhelming sea of information that can easily drown your efforts without a firm framework to work from. To make your research efforts effective, try this step-by-step process.
1. Set research goals
It’s tempting to conduct open-ended market research. To sift through reports, talk to people, or run surveys without an end goal in mind. While this may be enriching, it also leads to a lengthy research process that may lead to no valuable information at all.
To keep yourself on task, you need to establish research goals upfront.
- What specifically are you trying to find out?
- What information gaps do you need to be filled?
- How much data do you need to feel confident in your decisions?
- What decisions will you be making with the information gathered?
- What’s your deadline?
One of your goals when conducting market research is to determine whether or not it makes sense to pursue your business idea. For your idea to be successful, there needs to be a big enough market, a bearable level of competition, and consumer demand that can lead to long-term sustainability.
Recommended Reading: 5 Steps to set SMART business goals
2. Get to know the industry
In this step, you’ll focus on defining the industry you intend to enter. You need to know the history, current state, and where it’s headed. To help refine your efforts, be sure that you focus on the following:
Who are the key suppliers, distributors, retailers, regulators, and customers? You should have a clear understanding of how these various entities interact and if there are gaps or deficiencies that you can exploit.
Exploring key industry players will lead you to more detailed competitive research. Remember, while you should understand the market leaders, they may not be your direct competition. Take a deeper look into the entire competitive landscape and identify who you believe you’ll be up against.
How do their businesses compare to your idea? What is their current market share? What makes them competitive? Dig in and try to understand as much as you can about their operations.
How is the industry changing? Are there any disruptions? Could there be? What are the historical trends in sales, marketing, etc?
Understanding how the industry, and companies within it, have responded to consumer sentiment and what they’re currently dealing with is vital. It provides a picture of economic dips and increases, the likelihood for change, and if there are any emerging trends that need to be incorporated into your idea.
A part of industry trends that you should take an especially careful look at is the adoption of technology. How often do technological changes occur? What macro-technology trends are or could affect it? How much of an investment is it for you and your competitors?
Understanding what technology is necessary to compete, what is changing the industry, and how often can give you an idea of the necessary expertise and associated costs.
3. Explore the demographic landscape
People are at the core of every business. So, what is your target market? Who are your ideal customers? You need to identify the people most likely to support your business.
What’s their age, income level, gender, and race? What psychographic factors contribute to their purchasing decisions? Do they feel strongly about environmental support, pricing, quality, etc?
You must ascertain the relevant behaviors, preferences, and perspectives of your target audience. By the end, you should have a very clear picture, and possibly created a persona that creates a real-world personification of this group of people.
Need help identifying your target customers? Start with a breakdown of the market size.
- Estimate the Total Available Market (TAM)—the total market for your product.
- Determine the size of your Serviceable Available Market (SAM)—the portion of the market that you can reach.
- Identify your Service Obtainable Market (SOM)—the likely size of your actual customer base.
Understanding your TAM, SAM, and SOM is a proven method for assessing the viability of your market and the first step in pinpointing your customers.
4. Interview potential customers
It’s not enough to simply identify potential customers, you should talk to them. Their feedback provides powerful insight into what they want and how to position your idea to address their needs. The industry data you collected is a starting point. However, you need to take the target market you’ve identified and start reaching out to them directly.
Potential customers voicing their opinions provide insight into why and what they will spend money on. This is your opportunity to confirm if you have a viable business idea and even improve it.
Not a fan of one-on-one interviews? You can run focus groups, send out surveys, create a landing page, or even create social media accounts focused on your ideal customer to see what sort of traction you get. Ideally, you do a mix of these actions to get direct feedback and numerical data that helps you understand if you’re on the right track.
Recommended Reading: How to conduct a market analysis
5. Conduct a SWOT analysis
After collecting all of this information, it’s time to solidify if your idea will truly work. The easiest way to do this is with a SWOT analysis.
This four-by-four grid condenses everything down into potential strengths, weaknesses, opportunities, and threats to your business idea. Not only will it visualize the reality of your business situation, but it also helps you better position yourself to succeed in the market.
It can also tell you if your small business idea simply has too much against it. Do the potential weaknesses and threats far outweigh any strengths or opportunities? You may need to rethink aspects of the idea or be prepared to take on far more challenges if you choose to launch as is.
6. Test your idea
Even if the research you’ve conducted heavily favors your business idea, it’s still worth taking the time to test it. This can take the form of pre-orders, a limited batch of products, a beta test for your service, or even an MVP that you leverage in additional one-on-one interviews or focus groups. The goal is to create something tangible that customers can invest in or interact with.
The feedback you receive will further confirm whether or not you have a solid idea. It’s also one last chance to identify anything that should be adjusted or better positioned to resonate with your customers. It may also show that in practice your idea defies the research and simply doesn’t work or far surpasses expectations.
How to find out if your business idea is taken
It’s difficult to come up with an original business idea. More than likely, as you research the viability of your idea, you’ll uncover that it’s very similar to another business. If you’re worried that your startup idea is taken and want that answer upfront, there are two simple methods you can use:
Simple Google Search
The first step you should take, before investing a large amount of time researching, is to conduct a quick Google search. More than likely, you’ll immediately be presented with several business or service options. If not, try other searches using variations to determine if someone is offering a similar product and service, but describing it differently.
If your idea has already been tried, it doesn’t mean that it shouldn’t be pursued. However, you need to know “how,” “when,” and “by whom” your idea was brought to market. Using Google is a fast, easy way to get answers.
Patent and Trademarks
If a web search doesn’t bring up any similar ideas, the next step is to review the United States Patent and Trademark Office, or similar national database, listings. Just know that it isn’t as simple as searching for specific names and descriptions. Additionally, this still isn’t an exhaustive list, and businesses that haven’t filed an application may still be protected.
So, if you’re worried about a potentially valuable idea infringing on a current patent or trademark, it may be worth connecting with an attorney to do the search for you. Likewise, people may infringe on your idea if you don’t protect it. If your idea is completely original and valuable, you should seek protection from the start.
Recommended Reading: Real reasons why people start businesses
What to do if your business idea already exists
Is every idea you have taken? That can actually be a good thing. Use the existence of a similar idea to frame your industry and competitive research to better position your own idea. To help you with this process, be sure to focus on the following:
1. Determine if the idea exists but failed
So, someone previously tried your idea. However, as part of your research, you uncover that they went out of business.
What did they do wrong? Did they target the wrong customers? Were there supply chain issues or extensive costs? Maybe their ad spend or messaging were misaligned?
Now, what should you do differently?
Is a healthy amount of upfront cash necessary to succeed? Should you attempt to target an entirely different customer base? Would a simple pricing or feature change resonate with the customers they failed to attract?
Use the specific areas you identify as part of their failure to fuel your research and testing. If you can, it may even be worth reaching out to former employees or business owners to get first-hand details.
2. Hone in on a niche
Even if a business exists and is targeting your ideal customers, it doesn’t mean you can’t carve out a piece of that pie. Rather than going for the entire customer base, you can focus on personalization and the needs of a subset of that customer group. A niche.
Starting with a smaller niche will allow you to save money with more cost-effective marketing and more focused sales strategies. Once you’ve captured the initial market share, you can, if the opportunity is available, expand your target market.
3. Differentiate your revenue model
How your business intends to make money is critical to its sustainability. However, the business model of current or previous businesses isn’t the only way. In fact, it may be an opportunity for you to do things differently.
Maybe the business should operate on credit, or perhaps cash upfront is better? Or could the service be offered free to users, if advertisers came on board? Understand what has been done and if there is an opportunity to provide alternatives that benefit customers or your operational efficiency.
4. Create a better customer experience
There is no substitute for great customer service. If you’re considering a business idea that is taken, providing an exceptional customer experience can set you apart.
Maybe you provide greater personalization, different options to communicate, a no-hassle return policy, or any number of benefits that the competition simply doesn’t care about. So, rather than attempting to compete on price or scale, focus on building relationships. Where you provide more value and in return, your customers become more valuable.
Sometimes there’s a reason that previous businesses failed—it’s simply not a good idea. Or, maybe an idea is so good that the market is simply too competitive to enter. In either of these cases, rather than moving forward with your idea, it may be best to pivot.
This doesn’t mean your research was a waste of time, in fact, you likely came across possible alternative ventures. And you don’t need to start all over with researching a new idea. You’ve already done some of the leg work and can jump into some of the later steps focused on testing.
Recommended Reading: How to pivot your business during a crisis
Your business idea is just the first step
You have an idea for a business. Now, by conducting market research, you know that it’s a good idea. So, what’s next?
Now, it’s time to put that research into action. Learn how to apply your learnings to a one-page plan and establish your business goals. Then forecast your initial sales volume and explore potential pricing options to determine how you’ll establish a sustainable business.
With a plan and forecast in place, all fueled by your initial research, you’ll be ready to pursue business growth. To test, review, and adapt your business to better manage external issues and take advantage of emerging opportunities.
And if you want a tool that helps you do all of that, from testing an idea to tracking and analyzing performance, then you should try LivePlan. It’s business planning and financial management software built to help small businesses grow through a simple but powerful four-step process.
Learn how you can drive business success and start growth planning with LivePlan from the very beginning of your business.