How to Perform Market Research for a New Small Business

What is market research?

At its core, market research is a process of gathering information. When you conduct small business market research, you analyze key details such as consumer behavior, competitor presence, economic conditions, and market trends. 

Market research can give your new company a competitive advantage. It can also help you find and attract new customers (including your target customers) and understand how prospective customers might view your company and the products it offers from the outside.

Why is market research important?

There are numerous reasons why market research is a critical part of starting a new business. Even existing companies may want to conduct market research from time to time to gather additional information before a new product launch, expansion, or for the occasional checkup. 

Here are four key reasons why market research matters for your small business. 

• Reduce business risks. As a small business, releasing a new product that doesn’t perform well could put your entire operation at risk. However, if you test the product with a small audience and receive feedback about what does and doesn’t work, you have the opportunity to make adjustments before your official launch. Safeguards such as this one can protect your small business from potential catastrophes. 
• Identify your audience. You may have an idea in mind regarding who your company’s target audience will be. However, market research can reveal which consumers are actually attracted to the products and services your business offers. As you define your true audience, you can learn more about how to find these customers, how to reach them through customized advertising and marketing materials, and the best ways to meet their needs. 
• Gain a competitive advantage. When your business is successful at market research, it can use the knowledge it gains to outperform competitors. Market research can empower your team to develop relevant add-on products that could help increase business revenue, find customers that your competitors aren’t reaching, and offer solutions to dissatisfied consumers looking for services or products to resolve a need. 
• Maintain focus. It’s easy to fill up your day with busy work as a small business owner. When you conduct market research, however, you can make sure your staff focuses the bulk of their efforts on enhancing the customer’s experience—an essential step to protecting your brand’s reputation and overall profitability.

How can a small business conduct market research?

Larger businesses and major corporations often enlist the help of outside consultants to conduct market research on behalf of their company. Such services, however, tend to be out of reach for small business owners—especially if you’re in the midst of launching a new business and have limited startup funding.  

On a positive note, it’s possible to perform market research on your own. But do-it-yourself market research requires time, effort, and an understanding of the goals you want to achieve.

The goals of market research.

Each business owner may have their own goals where market research is concerned. Some of the most common goals of market research are as follows.

• Identify new business opportunities
• Avoid business failure
• Create a more robust business plan
• Secure business financing 
• Make informed business decisions
• Deliver a better customer experience

These goals can apply to many businesses—large or small—whether your company operates in construction, retail, healthcare, restaurants, or another industry.

Primary vs. secondary research.

Primary market research is a type of research that a small business or an outside consulting firm gathers directly from the source—aka your company’s customers and prospective customers. Common ways to conduct primary research include questionnaires, interviews, surveys, focus groups, and scouting trips to competitor’s locations. 

When gathering data under the primary research umbrella, there are two types of information you can collect to guide your business decisions:

• Qualitative research: Also known as exploratory research, this type of information provides answers to general, open-ended questions about your business, marketplace, customers, etc. Qualitative research may provide you with the opinions that your target audience has about your business, along with their beliefs, values, and more. 
• Quantitative research:  Also known as specific research, this type of information can provide you with numbers and statistics. Quantitative research may provide you with mathematically-based answers to questions about whether there’s a market for your products, consumer buying habits, market awareness, how long visitors remain on your website, etc. 

Secondary market research isn’t specific to your business. Instead, a small business owner or consultant can analyze publicly available data from government agencies, trade associations, industry associations, press releases, and more to get a sense of what’s happening in your industry and market. 

This type of research may be more affordable and less time-restrictive for small businesses. However, the data you collect tends to provide fewer business-specific insights.

The 4 types of primary market research.

If you decide to conduct primary market research for your business (wherein you obtain information directly from the source) there are several ways to gather data. Here’s a closer look at four of the most common types of primary market research—interviews, surveys, focus groups, and customer observation. 

1. Interviews

Market research interviews involve going directly to your potential customers and asking relevant questions about their needs, concerns, and opinions. You may want to ask questions regarding your interview subjects’ demographic—age and gender, for example—to help you better understand your target customer. 

To achieve the best results, plan your questions ahead of time. Take care with each question to ensure you collect information that can help you work toward your market research goals. This advanced effort should give you the best results, and your interview subjects will be grateful for the respect you show for their time as well. 

2. Surveys

Surveys are a bit like interviews, except that they don’t take place in person. When you use surveys for market research, they can help you gain pertinent information from larger groups of people.

User-friendly (and often affordable) survey tools can also make this process accessible for small business owners too, not just larger businesses. SurveyMonkey, for example, offers free market research survey templates to help guide your questions and create the most actionable results possible. 

3. Focus groups

A focus group is an example of primary market research that is usually organized by a market research company. This option can be one of the pricier forms of primary market research.

Focus groups often consist of bringing together six to eight people to share their opinions on a company’s product. If an official focus group isn’t in your budget, however, you can consider hosting an informal focus group yourself. 

The feedback you receive in this situation may not be as impartial—and you need to be sure you’re equipped to receive negative feedback well. Regardless, it may still be worth hearing the different answers you receive in a group vs. an individual setting. 

4. Customer observation

Customer observation is the form of primary research that requires that you observe potential customers without interacting with them. Often this observation might even take place at a competitor’s place of business. 

It’s important to observe how your potential customers behave with products and services that are similar to yours, including:

• How they purchase
• What they say
• What they buy 
• How much they pay 
• How they pay 

Answers to questions such as the ones above can provide valuable insight that you can learn from and put to use in your own organization.

Types of secondary market research.

Secondary market research relies on information that another person or entity (otherwise known as a secondary source) has collected in the past. Secondary market research sources may include libraries, government data, colleges and universities, and trade publications. 

1. Libraries

Even though it may be old school, a library should be one of your first stops when you conduct secondary market research. Libraries are useful because they possess an invaluable resource: librarians.

Your local library (and if you’re near a research library, all the better) can help you launch your market research with books on the topic, journal articles, and other secondary market research sources like government data and trade publications. When you’re starting a small business, you can’t pass up free help from an expert. 

2. Government data

Government data is massive in scope and can provide compelling insights. This information is free to access, but the sheer quantity of government data can be overwhelming for some entrepreneurs. 

Depending on the type of business you’re starting and the industry in which it will operate, there are several government data resources that may be worth reviewing. 

• Census Bureau: Fascinating and informative demographic data. 
• Bureau of Economic Analysis: Statistical data on economic trends, including GDP.
• National Center for Health Statistics: Pertinent healthcare information for those starting a healthcare-related business. 
• Bureau of Transportation Statistics: Data on transportation safety, freight industry trends, airline safety, and other useful information (especially for those who plan to start a trucking business).
• Energy Information Administration: Helpful information for energy-related businesses.

3. Colleges and universities

Similar to libraries, colleges and universities can sometimes provide research expertise to cash-strapped small business owners. With this strategy, you want to find out who is researching your specific field and if they are associated with a specific college or university. Such students (and perhaps graduate students in particular) may be able to provide invaluable data you can use to inform your business decisions.

4. Trade publications

While your specific product or niche may not yet exist, there’s a good chance your small business will be joining a well-established industry. Trade publications can inform you about the issues that industry is tackling and how other experts in the field are approaching those challenges. These same resources can help bring you up to speed on emerging trends and industry innovation.

How to conduct market research.

Now that you’re familiar with the main types of market research, it’s time to learn how to start the research process. The following four steps can help you learn how to conduct primary small business market research for yourself. 

Step 1: Set your goal. 

Before you begin your market research, it’s important to define the goals of your study. For best results, market research should aim to answer specific questions and gather specific types of information. 

For example, your study might be seeking answers to questions such as:

• Who are your target customers? 
• What are your customer’s product preferences? 
• How will the public respond to a new product or service you have to offer? 
• What is the public perception of your brand? 
• How does your company compare to the competition? 

It’s important to know the information you’re seeking in advance. Defining these goals can ensure you stay on the right track with your research. 

Step 2: Find the right people for a sample. 

Next, look for the right people to participate in your primary market research study. Whether you’re conducting an online survey, interview, or focus group, it’s important to choose people with characteristics that match the target customers you’re trying to reach with the products or services your business is trying to sell. And if your business is trying to reach customers in certain locations in the United States, your primary research participants should be located in those same geographic areas as well. 

It’s wise to have multiple participants for each buyer persona you want to analyze. Each sample group should include at least 10 participants or more. Keep in mind that you may need to offer incentives to entice people to participate in the market research process, such as a free gift, a sizable discount, free shipping, etc. 

If you’re having trouble finding participants, consider reaching out to followers on social media or recent customers. Other potential sources for participants include people who abandoned their online cart at checkout or contacts from your own social network. 

Step 3: Prepare research questions. 

Before the focus group, online survey, or interview begins, prepare research questions in advance to ask participants. Remember, it’s important for these questions to line up with the goals you outlined in step one of this process.

You’ll also want to gather some basic background information about your study’s participants. These details can help you learn more about your target audience and how your business can better serve their needs. 

It can also be helpful to include open-ended questions in your study as well. This allows space for helpful insight from participants about your brand and its products that you might miss out on otherwise. 

Finally, ask participants to identify who they consider to be your competitors—companies to which they might turn to when searching for similar products or services (and why). When interviewing customers who have purchased products from you in the past, you can also ask what drove them to buy from you, instead of the competition or vice versa. 

Step 4: Create a summary. 

The final step in the primary research process is to create a market research summary. This report will organize the information from your research, so that you can analyze the data and put it to work for your small business. 

You can outline your market research summary as you see fit. However, some of the key details you’ll want to include are as follows. 

• The goals of the market research 
• Information about participants (including the different buyer personas you analyzed, if applicable) 
• Executive summary detailing the most important takeaways from the study 
• Key reason(s) consumers purchased your product or service instead of buying from the competition
• Key reason(s) consumers purchased goods or services from competitors, instead of your company  
• An action plan identifying how to use the results of the study to improve the business

Other times to perform market research.

The startup phase of a small business isn’t the only time to do market research. Consider market research at the following other critical junctures as well. 

1. To gauge how your customers feel about you.

You never want to adopt a “set it and forget it” approach where customer satisfaction is concerned. Surveying your customer base once you’re established can help you determine how your customers feel about your brand, how they experience your product (what they like, dislike, or struggle with), and how they feel about your competition. This information is essential to helping you grow and maintain a healthy business. 

If you can’t manage an official survey, incorporate market research into your daily business practices. Ask your customers what they like about your business and what you can do better. Listen and take the feedback happily, even (and perhaps especially) if it’s negative. If you receive similar feedback from several people, it can indicate areas where your company needs to adjust. 

2. Before launching a new product or venture.

When it’s time to expand your business, you might be interested in launching a new product or opening a second location. You can use market research to guide you through any of these changes to minimize risks for your business and ensure that the next steps you take to grow your company are just as successful as the first.

Bottom line

As a small business owner, you likely invest a lot of your time (and maybe even your own money) into your company. Market research can be a smart way to protect that investment and improve your odds of success for the long term.