A surprising number of startups don’t research the market early on. A few hours effort can give you great insights and save you headaches later.

You know that feeling. A new idea for a startup suddenly pops into your head. Your mind immediately goes into overdrive thinking about how to build it and how big it could become. “This could be the next Facebook.”

If you decide it’s an idea you want to progress, it pays to do some basic market research first. It may seem obvious, but market research can help you understand:

  • What’s happening in your industry and key factors for doing business successfully
  • How large the market is and whether it’s growing
  • Who your competitors are, and their strengths and weaknesses.

You can get by without any of this knowledge for a while. Often though, growth stalls and you’ll need to understand the bigger picture. Not to mention that investors will expect you to know the market.

This post examines market research at three levels: industry, market and competition. It focuses on desk research, as idea validation gives you plenty of opportunities to talk to customers directly.

Market research doesn’t have to be a painstaking exercise conducted over several days or weeks. There are plenty of tools available to provide insight about the market in a matter of hours. Before you start, have a good think about how you’d describe your idea and who it might appeal to.

 

Industry

Industry level research helps you understand the landscape in which your startup operates. It provides a frame of reference for analysing the market and competition. There are various industry forces which may influence your progress:

  • Is it very competitive?
  • How heavily regulated?
  • What are the growth rates and forecasts?
  • Are there obstacles to going global?
  • What are the business drivers, challenges and emerging trends?

It’s important to examine your industry from a holistic perspective. Many innovations combine multiple industries, so you’ll need to examine what’s happening in each.

How to do it?

Industry research can be sourced from many places:

  • Libraries – typically have subscriptions to business references, journals, etc.
  • Industry associations – often provide publications and statistics free of charge
  • Government agencies – publish national and state level census and business data
  • Community organisations – chambers of commerce are great sources for localised industry information
  • Research firms – provide a range of detailed global and/or national reports. Some examples include: Statista, Marketresearch.com, D&B Hoovers, IBISWorld. They can be costly, but if you locate the title of a relevant report you may be to do a Google search on its name to locate references to the key statistics.
  • Google – you can dig up a wealth of information simply through searching. Searches along the lines of “<industry name> industry in <country>” are a good starting point.

As part of the research, consider the scope of the idea. For example, if you’re only planning to scale nationally it may still be useful to look at global research. This way you can gain insights about trends in other countries that may not have surfaced locally yet.

 

Market

Market level research is about understanding the specific part of the industry you’re trying to target. This includes:

  • What are the market segments?
  • Is there actually a viable segment for your idea and how large is it?
  • Is it growing?
  • How much do customers spend on average?

Some of the key factors when analysing the market include:

  • Are we positioning as budget, premium or somewhere in between?
    E.g. The iPhone was positioned as a premium all-in-one product.
  • Are we focusing on a certain geography or customer segment?
    E.g. Facebook started with university students and eventually opened the platform to everyone.
  • Are we creating a new market?
    E.g. Uber successfully disrupted the taxi industry.
  • Are we trying to change consumer behaviours?
    E.g. Tesla aims to have consumers switch to more environmentally-responsible vehicle purchases.

While your initial assumptions aren’t permanent, they help define your initial focus.

How to do it?

Many of the same industry sources above can be leveraged for market level research also. Be wary that Google searches for industry often provide results about markets interchangeably. It’s important to make sure the numbers are relevant and current. You’ll need to drill down on the industry numbers, since they do not confirm specific needs or sizes of your initial market. In other words, you’re not targeting a whole industry just specific segments of a market within it.

For tech ideas, there are several options for obtaining market research including: Gartner, Forrester, Ovum and IDC. The reports can be costly, but organisations who feature often make the reports available for free in exchange for your email address.

Other free options include:

  • Government census data for understanding how many consumers fit certain demographics
  • National industry associations and chambers of commerce for national and localised market activity
  • Google’s Keyword Planner provides detail on keyword popularity and associated search locations.
  • Google Trends helps with understanding the popularity of keywords over time.

 

Competitors

Competitor level research is all about understanding who you’re up against. While it’s not healthy for startups to obsess over their competition, it is useful to know:

  • How much competition is there?
  • Is the competitive landscape changing? Why?
  • What are competitors’ strengths and weaknesses?
  • What would drive a customer to use your product rather than theirs?

How to do it?

Once again, searching on relevant keywords will identify competitors. Once you’ve identified a couple, a more in-depth analysis can be conducted on Semrush or Similarweb. These tools will provide insight about other keywords and competitors which you might not have considered. It’s relatively easy to find out about larger, more established competitors this way. For startups, these may be listed on Crunchbase.

Once you know who the competition is, you can take a more experiential lens. You can go to where your competitors are located, such as their website, place of business or conferences. Beyond that it can be extremely valuable to become their customer. You’ll gain some insight on their customer experience, strengths of the product/service and identify the areas where you could do better.

 

Example 1 – AirBnB

AirBnB’s 2009 pitch deck provides a good example of market research put into practice:
Note: The link above provides a modified version of AirBnB’s original deck where the research sources are legible.

  • Industry: Travel (slide 5). The ‘number of trips’ figures were obtained from the (now) US Travel Association and the UN World Tourism Organization.
  • Market: Travel accommodation. The target segment was budget accommodation booked online (slide 5) and the figures were obtained from comScore.
  • Competition: Consistent with the market analysis, competitive positioning (slide 9) was based on budget and online criteria. AirBnB used couchsurfing.com and Craigslist’s temporary housing listings to provide validation of the market (slide 4). The value proposition (among other things) was to move those buyers to a more streamlined, online experience. A competitor analysis can be initiated using keywords aligned to the competitive dimensions, such as ‘budget accommodation’ and ‘book hotel’.

AirBnB - Market Validation

AirBnB - Market

AirBnB - Competition

 

Example 2 – Front

Front is tackling the challenge of external messaging for business. Here’s another example of market research in action using their 2016 Series A pitch deck.

  • Industry: Communications
  • Market: External electronic messaging for business. Recognising that email is the current standard, they benchmarked against that. A Google search for ‘emails sent per day worldwide’ will return the Radicati Email Statistics Report. This report identifies 215 billion emails being sent in 2016, where 54% are for business.
  • Competition: Front’s competitive positioning was business messaging, with a first-class user experience. In this case competitors can be identified with searches like ‘consumer messaging’, ‘email alternatives’ and ‘business messaging’.

Front - Problem

Front - Competition

Secondary market research certainly has its limitations. We live in an environment of constant change and disruption, and need to be wary of whether information is current. Research is intended to give you some perspective and insight, not necessarily to draw hard conclusions. However, it does provide a very useful supplement for idea validation to make sure you’re charging ahead on an informed basis.

Has market research saved time for you? What have you learned that you wish you’d known earlier?

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