Market Research 101
What’s the opportunity?
At each step from here to launch, you are looking for reasons to stop or change direction (called pivot). It is better to scrap your side gig at the earliest point possible to minimize waste time and money. This doesn’t mean you’ve failed or are done. It just means you move onto the next problem on your initial list.
So, now that you’ve identified a problem you’d like to solve, you need to do a first pass of research to determine if a market opportunity exists.
I’m not talking about product-market fit. That comes later. Let’s just look at the market and see if it makes sense to move on to the next step.
Good is better than perfect.
This early on in the process, you won’t get perfect data. There are too many things you don’t know and right now, you are only working with assumptions.
And, that’s ok so long as you recognize they are assumptions, not facts. As you dig deep later on, you’ll refine your assumptions into data-based hypotheses so you can make better data-driven decisions.
Here are the questions you are looking to answer at this stage:
- Who do you think experiences the problem?
- How many of them exist?
- Do these people have money?
- Do you think the problem one that people would spend money to solve?
You need there to be enough people willing to pay enough money so that your potential income is greater than your potential expenses. Right now, you are simply trying to verify that there is a potential for revenue.
Who and how many?
How you answer these questions depends on the unique problem you are trying to solve. The question of who experiences the problem will evolve through out your research, but start with a basic assumption because you have to start somewhere.
Once you have your estimated target market, you need to measure the size. If you are looking for general census-type data such as US women aged 25-30, you can easily find that on the US Census Bureau site.
If you are trying to measure business-type data, such as the number of UK businesses with 50-100 employees or the number of estate attorneys in the US, that is a bigger challenge. Try looking at national professional organizations and state associations related to your market.
Will they spend?
When evaluating whether the market has money, look for some recent research from think tanks, professional organizations, and other respected sources. Beware of junky content marketing posts that present opinions as facts.
Always follow the links to the original source of the data and read it. You’d be surprised how many respected sites (like Forbes and Inc, for example) publish incorrect data.
I also recommend ignoring pre-recession data. Spending habits changed somewhere between 2007 and 2009, so you can’t trust the older studies.
Time to evaluate
If you appear to have a decent sized market with money to spend, then continue on to the next step. If you aren’t sure, continue on to the next step. If things aren’t looking good, consider moving on to another item on your list that seems more promising.
Real Life Example
I’ve always wanted to open a 100% gluten free restaurant. Eating out with food allergies or celiac disease is stressful. Sometimes it is a big production to find out what is gluten free (I’ve had waiters bring cans and bottles out from the kitchen so I can read the labels). In addition, there is always the possibility of cross-contamination in the kitchen.
Clear problem and a straight forward solution. If everything is gluten free, you can have anything on the menu and not have to worry about getting “glutenized.”
The thing is, I live in a farm town in Idaho with a population of about 6,000. Even though I am only 30 minutes from the “big city,” people in Boise don’t like to drive more than 10 minutes to get anywhere. So, I am starting with a target market of 6,000.
With a quick search, I found a study that says about 20% of the population includes gluten free foods in their diet. This means my target market is immediately cut down to 1,200. I’d probably be better off opening this restaurant in NYC or San Francisco.
So in just a few minutes, I was able to uncover some important facts that tend to show my fantasy restaurant is probably not sustainable in my home town. Next idea.