What Is Market Research?

What market research means in plain words

Before you open a shop, build an app or print a menu, you want to know three things. Do enough people have this problem? What are they doing about it now? Would they pay you to do it better? Market research is the name for the work of finding out.

You will also see the words qualitative and quantitative. Qualitative research is about reasons, in people's own words, and comes mostly from conversations. Quantitative research is about counts and comes from surveys and data. Most founders need the reasons first, then the counts.

How to do market research step by step

1. Write the decision. For example: "Should I offer this in my town, and at what price?"
2. Describe the customer. A short ideal customer profile keeps you from researching everyone.
3. Read what exists. Look up population and business counts from official statistics, and note the source and year for every figure.
4. Estimate the market size. Work out your TAM, SAM and SOM, or use the TAM SAM SOM calculator.
5. Talk to customers. Run customer interviews to hear how they deal with the problem and what they spend.
6. Study the alternatives with a competitive analysis.
7. Decide. Write down what you learned, what is still unknown and what you will do next.

A worked example: a mobile dog grooming van

Every number here is invented to show the method. In real research each one would come from a source you can name or from your own survey.

• Say your town has 20,000 households and you estimate that 40% own a dog. That is 8,000 dog-owning households.
• You survey 50 local dog owners and 10 say they pay for grooming at least four times a year. That is 20%, or about 1,600 households.
• At $60 a visit and four visits a year, each of those households spends $240. Local spending is about 1,600 x $240 = $384,000 a year.
• One van grooming 5 dogs a day, 5 days a week, 48 weeks a year does 1,200 visits, or $72,000 a year.

So a full van would need about 19% of all local grooming spending. That is a large share to win from existing groomers, which tells you something before you buy a van: you either need a wider area, a higher price for the convenience of home visits, or proof that many owners who do not use a groomer today would use one that comes to them. A survey of 50 is a rough guide only. The survey sample size calculator shows how many responses you need for a result you can rely on.

Why it matters for a first-time founder

Market research comes early, between having an idea and committing to it. It is the least costly point at which to find out an idea is weak. It comes back later too: the market chapter of a business plan is built from it, and investors will ask how you know the market is as big as you say.

In Fonda, Market is the first step of the Validate phase, followed by key risks and interviews with real customers before you get a Verdict of go, refine or pivot. Reports cite their sources so you can check the figures yourself. The approach is described on the research behind Fonda.

Common mistakes

• Asking friends and family. They want to encourage you, so their answers lean positive.
• Asking "would you buy this?" People say yes to be polite. Ask what they did and spent last time the problem came up.
• Quoting a huge market figure. A national industry total says little about how many customers you can reach from your town or niche.
• Using old or unsourced numbers. If you cannot say where a figure came from and when, do not base a decision on it.
• Researching forever. Research is done when you can make the decision you wrote in step one.