Starting a business can be difficult especially if you are not sure if it will work. Market research is vital for ensuring success since 42% of all businesses fail because they lack a market for their product. It’s easy to say you need to do research, but what exactly does that mean? In this video, I will cover how to use free resources to conduct your market research and what to look for in your research to increase your success.
The other aspect of why we are doing the research is what is the goal of your marketing that this research will do? For an existing business, you may have been in business for a few years, but you aren’t growing as fast as you predicted. The market may have changed, so this research is really valuable to pivot or adjust for new competitors.
Let’s start with the industry research in step 2.
Once you have the subscription, you get access to the LA County Library’s databases and that is where we will find our first tool: Business Insights Essentials. This tool is provided by Gale and has a wealth of industry journals and research but we want to scroll down and explore industries.
Here we have a list of industries and you can either expand the larger categories or use the search bar to find the correct industry report. Let’s search for marketing consulting with a NAICS Code 541613.
Now that we have our industry report, what exactly are we looking for? There are few questions your research should answer in this stage:
For example, if you opened a fried chicken restaurant you would be competing with other fried chicken places directly. However, you have indirect competition from taco joints, burger joints and other restaurants at your service level because they offer an alternative to serving chicken.
There are two tools we can use for competitor research. The first is back at the library and this time we will use Data Axle Reference USA. We can search for specific businesses if you are doing prospecting as B2B but we are going to find competitors.
We will search our NAICS codes, county location, revenue, employees and any other pertinent information about the companies you might want to see. We will notice it won't be very many companies and we will need to review if these businesses are actual competitors but it's pretty accurate.
Once I have this short list then I can use google to search websites, social, Google business profiles and understand their place in market, pricing and reputation.
The final part of this step is to create a SWOT Analysis and figure where your business lands and how to create a unique enough selling proposition to start capturing customers.
Once we are there we can search for not only a location but also income, household spending, and a myriad of statistics that you can download for additional number crunching.
I recently did research for a client in the transportation industry. We can search for business data from the census about who might need rides like medical transportation and compile certain ailments that our business can accommodate. We can then gather data about those who are of means to pay out of pocket and even research how many individuals have insurance as an option.
Then we will need to figure out how many people there are and use any competitive research and survey to find out if they are already a customer and if they are willing to switch.
Step 1. Why do the Research?
The first step we need to do is ask: why are we doing this research? Now, for most of our clients who come to the SBDC, they are looking to start a new business. So they need to know what the industry looks like if they are just getting into it or getting more information about the larger industry if they have been in it for a while but may not know the big picture.The other aspect of why we are doing the research is what is the goal of your marketing that this research will do? For an existing business, you may have been in business for a few years, but you aren’t growing as fast as you predicted. The market may have changed, so this research is really valuable to pivot or adjust for new competitors.
Let’s start with the industry research in step 2.
Step 2. Industry
Our first step in doing our marketing research is to look at the industry. You don’t necessarily need any fancy software or subscription to get the information you need. If you are located in LA county we can access the tool that we need from a simple library subscription you can get for free.Once you have the subscription, you get access to the LA County Library’s databases and that is where we will find our first tool: Business Insights Essentials. This tool is provided by Gale and has a wealth of industry journals and research but we want to scroll down and explore industries.
Here we have a list of industries and you can either expand the larger categories or use the search bar to find the correct industry report. Let’s search for marketing consulting with a NAICS Code 541613.
Now that we have our industry report, what exactly are we looking for? There are few questions your research should answer in this stage:
- What is the industry? We can find this in the short overview just under the industry name and verify this is the right one we are involved in.
- What is the industry description? This is the overall insights of the industry where it's at and how it works. To find this information you can check industry reports and go to the U.S. because that is where our business is located.
- How big is the industry in dollars? We need to know if the industry is big enough to support a business like ours. In the same industry report for the U.S., under current conditions talks about the overall size. We can note this information
- Finally, how is the industry doing? We need to know if it is growing or in decline. You want to stay away from a dying industry because eventually you won't exist anymore and will affect your business.
Step 3. Competitor Research
Competitor research is often overlooked by small businesses because many think they are so unique that they have no competitors. Wrong! There are direct competitors who have customers in your direct industry and products and then there are indirect competitors who could be competing with you because they offer an alternative to your product and not necessarily how you are offering it.For example, if you opened a fried chicken restaurant you would be competing with other fried chicken places directly. However, you have indirect competition from taco joints, burger joints and other restaurants at your service level because they offer an alternative to serving chicken.
There are two tools we can use for competitor research. The first is back at the library and this time we will use Data Axle Reference USA. We can search for specific businesses if you are doing prospecting as B2B but we are going to find competitors.
We will search our NAICS codes, county location, revenue, employees and any other pertinent information about the companies you might want to see. We will notice it won't be very many companies and we will need to review if these businesses are actual competitors but it's pretty accurate.
Once I have this short list then I can use google to search websites, social, Google business profiles and understand their place in market, pricing and reputation.
The final part of this step is to create a SWOT Analysis and figure where your business lands and how to create a unique enough selling proposition to start capturing customers.
Step 4. Demographic Research
Once we have figured out what our market is doing and how our competitor fits in it, we need to understand who our customers are. Best free tool for this job is the Census.gov website.Once we are there we can search for not only a location but also income, household spending, and a myriad of statistics that you can download for additional number crunching.
I recently did research for a client in the transportation industry. We can search for business data from the census about who might need rides like medical transportation and compile certain ailments that our business can accommodate. We can then gather data about those who are of means to pay out of pocket and even research how many individuals have insurance as an option.
Then we will need to figure out how many people there are and use any competitive research and survey to find out if they are already a customer and if they are willing to switch.
The other tool for research is primarily if you have a storefront location or restaurant. You can use Caltrans traffic data to find out if there are enough people driving by and combine with your demographic info, drill down even further to more specific potential.
We will just use the map data, choose the closest traffic camera and we can see what our MADT or Monthly Average Drive Traffic counts. There are annual numbers but the monthly numbers can give you a better idea tie it to monthly revenue.
We will just use the map data, choose the closest traffic camera and we can see what our MADT or Monthly Average Drive Traffic counts. There are annual numbers but the monthly numbers can give you a better idea tie it to monthly revenue.
Step 5. Putting it all Together
Now that you have all your information, you need to review your information and make decisions for your business. What do we need to know? Once you are able to answer the questions from your industry you will have a good understanding of industry.As for competitive information you need to know who your competitors are and how they are competing with you. Knowing what the market share of your particular market is essential knowing the
For demographic information we need to drill down who the customers are if they can pay. If we multiply the market demographic who need your product by the percentage in the income bracket for the target demographic we will get a rough ideal market. You can also use primary research like a focus group or survey to get better idea of how reach or price your products
We can then create a Total Addressable Market or TAM which is:
If you are just breaking into the market as a new business you need to assume you're not going to attract a lot of customers in the outset since your competitors will have some existing business so 1%-2% in the first year. If this is enough to run your business then it looks like a decent venture but if you need significant market share to make a decent living then you may want to reconsider the business.
You need to remember this is going to be secondary research which is data not gathered by yourself. So if you need additional surveys or focus groups to get a better idea of what features your product or pricing is, then do that. With something as significant as starting a business you will be investing your time and money in and which most likely be the primary source of income, more data is better than less for success.
Company Revenue / Total Industry Revenue = Company Market Share
For demographic information we need to drill down who the customers are if they can pay. If we multiply the market demographic who need your product by the percentage in the income bracket for the target demographic we will get a rough ideal market. You can also use primary research like a focus group or survey to get better idea of how reach or price your products
We can then create a Total Addressable Market or TAM which is:
Number of target customers x price = annual Revenue
If you are just breaking into the market as a new business you need to assume you're not going to attract a lot of customers in the outset since your competitors will have some existing business so 1%-2% in the first year. If this is enough to run your business then it looks like a decent venture but if you need significant market share to make a decent living then you may want to reconsider the business.
Conclusion
That's how you conduct market research for free. Just make sure you understand the information you gather and put it into a form that makes sense for your business plan and for making decisions that will influence your marketing strategy.You need to remember this is going to be secondary research which is data not gathered by yourself. So if you need additional surveys or focus groups to get a better idea of what features your product or pricing is, then do that. With something as significant as starting a business you will be investing your time and money in and which most likely be the primary source of income, more data is better than less for success.
Funded in part through a Cooperative Agreement with the U.S. Small Business Administration. All opinions, conclusions, and/or recommendations expressed herein are those of the author(s) and do not necessarily reflect the views of the SBA.
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