7 Essential Market Research Tools for Growing a Business
Whatever your pathway to small business ownership and being your own boss, you’ll need to position yourself for success. Market research should be step number two, right after having a brilliant idea for a business (step number one). Even if you have an established business, it’s important to keep doing market research regularly. Whatever stage of entrepreneurship you’re at, good research can minimize business risks, help you see business trouble coming, and spot business opportunities.
What is market research?
Before embarking on any project, it’s always best to have a sense of what data you need to know and what analysis you need to complete in order to make the smartest decision. When the project you’re starting is something as personal as a small business, it’s even more important to get the lay of the land first.
Market research is the process of gathering that data and analyzing it in order to get answers to three fundamental questions:
- Where will your product or service fit into the market (Has it been tried before? Who will your competitors be?)
- Who are your target customers and where to find them?
- What sort of profit you might make and on what timeline?
What seems like the bottom line for any entrepreneur is actually a bunch of complexities all bundled up into that one question: Is my business idea any good?
Market research you tell you whether or not your business idea can be turned into a lasting and profitable business. And that’s really what you need to know.
Market research for small businesses
Whether you’re just thinking about starting a business or currently operating one, you’ll be hard-pressed to find a better guide than Paul Mooney. He’s the Director of Small Business Services for Blue Orchid, one of the largest providers of startup and business growth support in the U.K.
Mooney lays out five essential steps for conducting market research. Prospective and current business owners need to decide:
- The questions you need answers to
- What information you need to collect in order to answer those questions
- How you’re going to collect the information
- How you’re going to analyse it
- What you’re going to do with the results
Everything from the questions you need answered to what you do with the results of your research will vary, depending on your industry and stage of business.
Once you’ve got a handle on these basic questions, as well as any others specific to your industry, you’re ready to move on to the next step, and decide what information you need to answer those questions.
The two essentials of market research
Basically, your research will be about two things: your potential competition and your potential customers.
Is there a market for your product or service with enough people who want it? Your gut says yes, but how do you substantiate this feeling with facts? If you wanted to start a tamale food truck, for example, you might start with how many tamales providers are there in your city or in the neighborhood where you want to open your business. If there are already a few tamale shops around, that’s actually a good sign. It means that people are buying tamales. If there are too many, however, then you might find the tamale market saturated, meaning there wouldn’t be a lot of demand for your particular tamales.
You also need to know who your customers would be. Decide what kind of demographic information you need in order to identify your customers. Will you identify them by gender, income, profession, age, or something else? This truly depends on what your product or service is, and what market you’re trying to sell it to.
Be it tamales or notary services, you need to determine what information you need to prove that there is market for your product or service.
Where to find market research information
A great idea can easily get lost in translation when it comes to starting a business. You may know that people love tamales, but that one piece of information is not enough. You need to know how many other places are selling tamales, where they’re located, what the average price point is, what demographic tamales buyers are, what costs are associated with the tamale business, from volume and staffing to food supplies and equipment.
These basics—what, who, where, and how much—are going to hold true across industries, and they need to be the starting point of any serious business research.
There are two types of research—the more general research on the state of the market, and the research you do (or someone you hire does), talking directly with prospective customers.
There are many easily-accessible basic market research resources out there that can provide insight into the state of the market. Here are the free ones that we’ve found most handy:
- The SBA’s SizeUp Tool allows potential small business owners to enter their projected revenue and compare it against similar businesses in their city, county, state, and across the nation. It also allows you to see where industry competitors are located.
- Market Research on a Budget, from SCORE, is a great short guide on how to conduct market research on a shoestring budget. The SCORE program is a longtime and stalwart friend to prospective and current small business owners.
- The ESRI Zip Code LookUp is a nifty mapping program that allows you to enter a zip code and view a wide range of demographic information about that area’s population. This is a very handy tool for knowing the potential spread of your potential customers.
- The Consumer Expenditure Survey from the Bureau of Labor Statistics (BLS) is where you find out what people are spending their money on.
- MyBestSegments is a tool from Nielsen that tells you both what demographics are in a particular zip code and where the highest concentration of a particular demographic lives. (It’s kind of addictive, actually.)
- ZoomProspector is a good companion tool for Nielsen’s, offering more detail about a city’s or region’s demographics, attractively displayed.
- Small Business Snapshots from SBDCNet offers a quick primer on the state of the market in particular industries. It’s a wealth of invaluable statistics and other information.
You may also want to check out major economic indicators from the BLS, which includes the Consumer Price Index (how much people are spending on the things they need), and their statistics on pay and benefits, if you have employees or are considering hiring any.
But don’t forget to talk with folks who might be potential customers. Phone or in-person surveys tend to get the most feedback. Phone surveys are likely to be faster and able to cover a wider geographical area than in-person interviews. But an in-person survey, whether it’s in a group or individually, can offer invaluable, detailed feedback that you aren’t likely to get over the phone.
Either way, make sure that you know what you need to ask before you start. Respondents are doing you a favor and aren’t likely to hang around through hemming and hawing. If you can offer a small incentive to boost participation, that may be worth doing.
Analyzing market research
This is an area that is likely to vary widely by business industry. For some, analyzing market research could be a huge quantitative endeavor, with things like “regression charts” and “multidimensional scaling.” If you’re a statistical wizard, kudos to you. For those less inclined to standard deviation and probabilities, you can actually handle interpreting the data on your own, if you’re sticking with the basics.
For example, I entered my own Greenpoint, Brooklyn, zip code in the ESRI Zip Code LookUp. Apparently, I live in some kind of Orwellian-hipster nightmare-land, but if I wanted to sell tamales, this is actually a good neighborhood for it. That’s because there’s a lot of disposable income and a culture of eating out, but not a lot of competition.
We strongly recommend seeing how your data holds up in the real world. In other words, go out and talk to people! Walk the streets at different times, get a feel for the community. Talk to other businesses in the area. After all, you’ll all be supporting each other. Whatever your data says, if your business is going to rely on a community of people to support it (and what business doesn’t?), be sure to get to know who those people actually are.
What to do with market research
Now you have your data in hand, and you’re ready to make the case for a successful business idea.
If you’re starting a business, you’ll want to use this market research in your business plan, regardless of whether the plan serves as a roadmap for you or if you’re seeking financing. Being able to provide numbers to back up projected revenues is key to understanding your own finances, as well as making you look both credible and like a good investment to a lender.
The same goes for those in the midst of expanding or adding products or services to an existing business model, because of course you’re updating your business plan as your business evolves.
The final key to successful market research is to never stop doing it. Customer tastes and needs can be fickle. It’s essential that you build flexibility into your business model, so that you can to adapt to changes in demographics, your customer base, and the community you serve. For successful businesses, market research is an integral part of providing value to your customers as well as your bottom line.