Thursday, 07 April 2016 07:52

Step 3 for a Successful Startup: The Importance of Market Research


Thank you for joining me for the third segment of The Launching Pad’s Small Steps: Big Leaps series aimed at helping Americans from diverse professional backgrounds embark on successful entrepreneurial careers and thereby revive the U.S. economy. For more information on this series, check out my April 2nd post, and to join this movement to grow the economy through large- and small-scale entrepreneurship, please check out The Startup Stand.

In the first two installments of this series, we have discussed identifying a need in your (broadly defined) community and identifying, utilizing, and developing your talents and skills. The third critical step to launching a successful venture is conducting market research, whether formally or informally.

The potential market for your products or services can be defined as the pool of consumers or businesses who would consider purchasing them. In other words, they have a need that your business might help them address. It is key to clearly define your market before endeavoring to conduct research. For example, if want to open an athletic store, you need to decide if you will cater to runners, swimmers, golfers, tennis players or all of the above as well as if you will focus just on one segment like footwear or broaden to include apparel, equipment and more. Once you define the scope of your potential business and the corresponding potential market for your products and services, you need to determine why a consumer or business would purchase from you rather than a competitor. Do you offer the lowest price? Unparalleled service? A unique product mix not available elsewhere? Before investing significant time and money in actually starting your business you need to find your niche and determine your clients’ willingness to pay for your offering.

To obtain such crucial information, entrepreneurs use a variety of resources to conduct market research. Broad sources of demographic information, such as your local chamber of commerce, the U.S. Census Bureau, and the SBA, provide valuable information to business owners and should be explored thoroughly particularly as you consider where to locate your business (if you will have a customer-facing physical location). One invaluable tool that was made available last September by the SBA is SizeUp. With SizeUp, you can input your business’s industry and city and it maps out your competition, highlighting areas with abundant competition in orange and areas with a lot of potential customers but few competitors in green. Your competitors’ prices and performance are also available which is helpful for new and expanding businesses. SizeUp can also point you to the best channels through which to advertise. The tool will show you areas with the highest annual revenue for your selected industry, and you can tweak the results based on audiences you wish to target; for example, you can use income level and other filters to focus on specific consumers.

Be sure to also conduct your own primary research to get information specific to your particular, unique business and the sub-set of consumers you hope to attract. A few research tools to consider include interviews, surveys, questionnaires, and focus groups, which can identify critical information about the importance of price and certain features as well as the strengths and weaknesses of competitors. For example, before I started my company, Stratus Prep, I held focus groups to determine the market size and willingness to pay for industry-leading test prep and admissions counseling services. This process also helped me identify which specific features were most important to potential customers (such as weekend availability and the unmet need for study space open to students). I then compared the consumer information I gathered to my cost structure to ensure that even after expenses like paying employees, renting space and developing materials, the business would be profitable in the short- or medium-term based on the price consumers were willing to pay. Fortunately, this research paid off as we were profitable within our first four months of operations and have never been in the red since then.

It is important to be open-minded and adaptable when conducting market analysis as some of the feedback you hear may not be exactly what you were expecting and hoping for. You may feel attached to your business idea and wish to change nothing about it, but after conducting a survey maybe you find that customers are looking for a slightly different service or additional features. Do not scrap your idea, but do consider adjustments to accommodate your customers’ demands. Remember that you are just one consumer and likely a slightly idiosyncratic one at that. You want your business to have relatively broad appeal.

A great example of a company which performed such market analysis is JetBlue, which prior to launching, determined that airline passengers cared more about comfortable leather seating and TV entertainment than a hot meal, a first class cabin, and the other “amenities” offered by legacy carriers. JetBlue invested in upgraded seating and TVs and emphasized a relaxing, calm journey at a relatively modest price. The strategy campaign was so successful that other airlines soon followed suit and numerous imitators emerged.

Another example of a business that identified and catered to unmet consumer needs is Starbucks, which turned an everyday beverage into an experience. While Starbucks SBUX +1.29% is known for its quality coffee and other tasty drinks, it is also renowned for its atmosphere, where business professionals, college students, writers and anyone who wants to kick back can set up shop for hours with free wifi and a comfortable workspace. The modifications made to the industry standard drew an enormous and loyal following, which is why today there is a Starbucks on every corner. Starbucks determined what consumers wanted and just how much they would pay for it and revolutionized an industry.

By doing your homework before starting your business, you can be assured that your product or service is properly priced and positioned and you are offering the most sought after attributes. This will make your company a powerful force in a competitive business landscape.

You are now armed with the first three steps to starting your own business and revolutionizing not only your economic future but also that of your community and the nation. Check back next Tuesday for step 4 on finding and leveraging operational efficiencies.

What have you discovered through your market research? Let me know in the comments, email me at This email address is being protected from spambots. You need JavaScript enabled to view it., or contact me via Twitter at @shawnpoconnor. If you would like to be a Startup Stand featured entrepreneur, send me your bio and picture for a chance to be featured in our weekly email and inspire others to pursue entrepreneurship!

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