If you're launching a startup, you really need to know the market thoroughly. You might be confident about your entrepreneurial skills, your business idea and your ability to exploit opportunities, but without effective market research you could find yourself heading into the unknown. Your aim should be to leave as little to chance as possible.
No matter how good the idea for your new business seems in principle, you need to get a realistic picture of whether anyone will actually be prepared to pay for your products or services and, if so, how large that potential customer base is. You need to assess similar offerings on the market, and the advantages and disadvantages of your goods and services compared with those of the competition.
Without proper market research, you can only guess at the answers to the important questions, which could lead to missed opportunities, the wrong strategy and, ultimately, failure.
Also, any business plan that includes sound market research to back up its figures and projections will be looked upon more favourably by potential investors and stakeholders.
### Types of market research
Generally speaking, market research falls into two main categories: quantitative research and qualitative research.
**Quantitative research**, as the name suggests, deals with quantities, numerical analysis and statistics. Therefore, you can use quantitative market research to identify the number of prospective customers in the market or the size of your potential sales revenue.
You can interview a sample of your target demographic – say, 100 people. If 64 of them say they are willing to pay the proposed price for your product – let’s say £20 – and, hypothetically, there are 100,000 people in your target market, then you can project the figures from your quantitative market research to calculate that 64,000 people would be willing to pay £20 for your product. By multiplying £20 by 64,000, you can then infer that the potential market value of your product is £1,280,000.
However, the reliability of your numbers will be affected by the sample size. The bigger the difference between the sample size and the total size, the higher the margin of error will be. Nevertheless, a relatively small sample sizes can give you useful indications.
**Qualitative research**, on the other hand, generally deals with opinions and how people feel about your business and the products and services you offer.
Popular ways for carrying out qualitative market research include customer surveys, questionnaires and focus groups. You might ask a sample of your target customers to express their views on your potential offerings. A list of questions can reveal the prevailing opinions on whether your products are desirable, useful, filling a gap in the market, favourable compared with the competition and realistically priced.
Qualitative research can challenge previously held assumptions about the market potential of your business idea, and the feedback can help you hone your products or services according to the preferences of your prospective customers.
So which type of market research is right for you? The answer is: both. You’ll need to use a mixture of quantitative and qualitative research to obtain the full picture of the potential of your business, and what you have to do to maximise that potential.
Market research might not be able to predict with 100% certainty that your business will be a success – but it certainly beats guesswork!