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Market Research Tips for Startups
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Market research, in the context of startups, refers to the process of systematically examining the viability of the startup idea. Market research helps in understanding the customers, competitors, and the market. It also assists the entrepreneur in creating a business plan, launching new products/services, fine tuning the existing products/services, and expanding into new markets. Thorough market research helps the entrepreneurs and the investors in assessing the risk of startup ideas. Entrepreneurs can raise a bigger investment round by researching the market and demonstrating that the startup is associated with a lesser risk. Ideally, most investors would like to fund startups only after extensive market research.

Although traditional marketing research techniques such as focus groups, surveys, customer interviews, etc. are useful to conceptualize a product, they typically cannot sufficiently address the complexities of high-tech markets. High-tech environments are associated with risks and uncertainty. Customers do not necessarily know what they want unless they are properly educated. They cannot envision how new technologies can solve their problems innovatively. For example, a person who does not know about computer cannot visualize how handicapped s/he is without one. A focus group comprising of such people will not generate any useful information if marketers wanted to test the market potential for computers. Therefore, standard marketing research tools are ineffective in high-tech markets, where customers are generally unfamiliar with the product being researched.

Over the years, business theoreticians have proposed four new market researching techniques by enhancing some of the existing techniques. Entrepreneurs are highly recommended to use these techniques to research their market before approaching investors. The four market researching techniques are as follows:

  1. Concept Testing
  2. Empathic Design
  3. Lead Users/Early adaptors
  4. Quality Function Deployment (QFD)

Concept Testing

Concept testing is the method of gathering information about the business viability of a startup idea by taking feedback from customers and domain experts. Unfortunately, as described above, they might not fully understand the business idea even though the entrepreneur goes to great lengths to explain the idea. Under such situations it is easier for the entrepreneur to convey his/her idea by demonstrating prototypes of the idea rather than tutoring target audiences. Prototypes should mimic real world scenarios and clearly demonstrate how the idea solves a real world business problem. As the saying goes “A picture is worth a thousand words.” Customers can instantly understand the entrepreneur’s vision by watching the prototype demonstration. Once the audience gets the idea, they can then help the entrepreneur in sizing the market.

For example, let’s examine Segway. When Dean Kamen first explained his idea of a “self balancing two wheeled personal transporter,” no one understood what he was talking about. However, the scenario changed when Kamen unveiled his first prototype. Everyone understood it and started talking about the problems it solved and the market potential. As a matter of fact, potential customers and various technology enthusiasts later helped Kamen in defining the market potential.

Empathic Design

The process empathic design is based on the thesis that observing what a customer does is often more useful in developing novel insights than listening to how customers respond to more direct questions.

Generally, users may not be able to articulate their needs clearly. Users unknowingly develop “workarounds” to practical usage situations. These workarounds might not be convenient, but users are so habitual that they are not even conscious of inconveniencies. Under such situations, if an entrepreneur tries to examine the market potential for his business idea that eradicates the need for an inconvenient workaround, customers hardly appreciate the entrepreneur’s vision. Customers tend to get so used to the workarounds that they have a natural resistance to change to a new idea. Under such situations, it is better for the entrepreneur to observe the customer and assess the market potential for his business idea than to hypothesize based on customer feedback.

For example, Intuit’s officials observed that many small business owners were using Quicken as a work around to keep their books. Intuit marketing officials immediately conceptualized a new product called QuickBooks and tried to do a market research. Most small business owners told Intuit officials that they were satisfied with Quicken and that they did not need QuickBooks. However, when Intuit launched QuickBooks, the application quickly took hold as the market leader in small business accounting software sector.

It is therefore always important to observe the customer keeping in mind that the customer does not always know what s/he wants.

Lead Users/Early adaptors

Lead users or early adaptors are the customers who disputatively need innovative solutions months or years before the bulk of the market needs it. Lead users are generally associated with emerging trends in the market. If the entrepreneurs can relate their business ideas when the emerging trends appear, they should meet the lead users and assess the viability of their business ideas.

For example, non-photovoltaic based solar power generation is becoming a major emerging trend. If an entrepreneur envisions a new business idea that is based on this technology, s/he should consult the lead users to that technology to get an idea about the market potential.

Lead users can be visualized as a miniaturized version of the complete market. The lead users can assist the entrepreneur in hypothesizing the commercial viability of the startup idea. Therefore, it is important for the entrepreneur to get feedback from lead users.

Quality Function Deployment (QFD)

Quality Function Deployment is an engineering tool that contains two phases. First, identify what the customer wants through concept testing, empathic design, working with lead users, etc. Second, map the customer requirements onto the product design process. The idea behind the QFD is to use the customers’ requirements to propose product specifications. This process ensures that all the design decisions tightly map to the design requirement from the customer’s perspective. The final result is a new product that offers value to the market place via a customer-informed design team. It is easy to articulate the market potential because the product is something that the customer actually needs.

Although this process is as simple as it sounds, it is by far the most complicated of the market researching techniques primarily because understanding the customer is a Herculean task. It requires close collaboration between marketing, engineering, and customers.

It is imperative that entrepreneurs research the market potential for their business ideas before they establish their businesses. All the market researching techniques explained above assist the entrepreneur in assessing the commercial viability of his/her business idea.

Written By: Pradeep Tumati (Principle, go4funding.com)

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