Obstacles in Market Research for Startups

A large number of entrepreneurs and startup founders appear to have embraced the well-known quote by Steve Jobs:

 

People don’t know what they want until you show it to them. That’s why I never rely on market research. Our task is to read things that are not yet on the page.

 

Despite Steve Jobs' expertise, disregarding market research can result in various problems, which will be examined later. Is it achievable to prosper without market research? Certainly. However, can market research help save time and money and increase our chances of success? Definitely.

 

The following two statistics effectively demonstrate the significance of market research for startups. According to CB Insights, 42% of startups fail because they do not fulfill market demand, which is a crucial aspect that market research can tackle. What is more astonishing is that 58% of founders regret not conducting more research before starting their business, as revealed by Skynova.

Although there is a frequent demand for understanding, it is not a straightforward task to declare that we will accomplish it. In the following discussion, we will address a few of the difficulties that startups encounter in embracing market research and propose ways to overcome these barriers in order to establish a sustainable startup.

 

Obstacle 1: Inadequate Research Knowledge and Expertise

In many startups, there is a lack of in-house research expertise. The responsibility of conducting research often falls on the founders, product managers, engineers, or marketing managers, or they may rely on intuition. While this may be a convenient and cost-effective approach, it can also result in inaccurate information and poorly-informed decisions. This deficiency in research proficiency can result in various negative consequences:

 

1. The absence of a research leader has caused the idea to be disregarded entirely.

2. Without someone to elevate the proposed research, it tends to only target easily achievable goals and overlook the broader scope.

3. Due to a lack of familiarity with research methodologies, the incorrect approach may be chosen for certain inquiries.

 

Recently, I had a meeting with an aspiring business owner who was in the process of determining the perfect product-market match. She was taking the necessary steps by conducting numerous interviews with potential customers. However, she was perplexed by the fact that although everyone gave positive feedback, they were not willing to make a purchase. In this scenario, she had chosen the correct method, but had overlooked an important detail. People are often hesitant to tell a passionate founder that they are not interested or do not like their product.

 

In the beginning stages of a startup, receiving accurate and genuine feedback is crucial, as biased or misleading feedback can lead the company astray. To avoid this, it is advisable to seek the help of an insights expert who can provide training or assess the current strategies and suggest areas where research may be beneficial.

 

Obstacle 2: Dependence on inaccurate or obsolete information

Utilizing incorrect or outdated information can have a major negative impact on the initial stages of a new business. Many startups often argue that they can simply rely on Google for research, but this statement is indeed valid.

 

To demonstrate the issue, let me go back to a year ago when I was developing my ideas that eventually led to the launch of Aurora. I came across a statistic about the percentage of startups that effectively utilize market research and I wanted to find its source. After searching through various websites, I found the same statistic mentioned but none of them provided a direct link to its origin. It took me a few days, but I eventually discovered that it was originally from a now-deleted article written by a college student who interviewed 25 founders in 2017. While this information may be informative, it should not be considered a definitive statistic as it is based on a small sample size and outdated data. This highlights the importance of carefully evaluating the information we come across and not blindly accepting it. Although we have a strong interest in AI, it should be noted that it can also contribute to a less reliable internet.

 

To ensure the reliability of the information we use from online sources, it is recommended to rely on reputable data providers such as Statista, eMarketer, Morning Consult, and Pitchbook. Although these providers may require payment for access to their data, some institutions and organizations may offer free access, making it worthwhile to inquire within your network. When utilizing data from other online sources, including Google, it is important to verify the original reference to confirm its authenticity, accuracy, and currency.

 

Obstacle 3: Selecting an Inappropriate Methodology

One common issue I frequently encounter when meeting with entrepreneurs, even those who value the importance of research, is a lack of understanding when it comes to methodologies. While research can be beneficial, using the wrong methodology can actually be more detrimental than not conducting any research at all. Different types of methodological approaches should be utilized for specific questions and business decisions, as there is no universal method that fits all situations.

 

Interested in understanding how individuals utilize your product in real-life scenarios? Conducting ethnographic research can yield more accurate insights compared to simply bringing them into a research facility for a focus group. Trying to determine the value of your product? A conjoint analysis can provide a more reliable answer than directly asking. Therefore, it is crucial to carefully assess the main objectives and necessary data before initiating any research in order to confidently make informed decisions based on the results. Before conducting your own research, it is important to check if anyone in your community has prior experience in research and can offer assistance.

 

Obstacle 4: Insufficient Financial Resources

In a startup, limited financial resources can manifest in various ways when it comes to conducting research. When there is a shortage of funds and the need to hire initial employees arises, it is unlikely for a researcher to be among them - and it is not necessary for them to be. Instead, those funds would be better utilized in hiring engineers, designers, marketers, or other essential roles to kickstart the business. During this initial phase, having a full-time dedicated researcher may not be vital, but the importance of research remains.

 

Market research can greatly benefit from the assistance of agencies, contractors, and specialized platforms such as Aurora, Brox.AI, and Insight7. In addition, there are several smaller research firms like Underground Research, Garrison Research, and InnerSights that can provide valuable insights at a faster and more cost-effective rate compared to larger agencies. If budget is a concern, it is worthwhile to consider reaching out to these boutique shops for a better understanding of the available options.

 

Obstacle 5: Shifting the Perspective of Market Research as a Cost Center

Due to limited financial resources, numerous businesses perceive market research as a "cost center" without connecting it to potential revenue. Although it may not directly result in profits, this perspective is somewhat reasonable. However, the purpose of market research is to position ourselves for triumph by comprehending the target audience and promoting our product/service to the appropriate individuals at the appropriate moment.

 

Around one year ago, I was employed by a newly established company that intended to set a price of $50 for their product launch, which was based on the pricing strategy of their nearest competitor. However, after conducting a thorough pricing analysis on their behalf, I discovered that their product had the potential to be priced at $75, and potentially even as high as $99. As a result, the leadership team decided to launch at $75 and managed to sell out within just 48 hours. Let's take a brief look at how this pricing study aided in boosting their profit margins.

 

• No research conducted: The total sellout would be $100,000 for 2k units at a price of $50 each.

• With research conducted: By conducting research, the sellout would increase to $150,000 for 2k units at a price of $75 each.

• Cost of research: The research would cost $15,000.

• Increased revenue due to research: As a result of conducting research, the revenue would increase by $35,000.

 

While it may not always be obvious, a significant amount of research may not have a direct impact on revenue. However, it serves as a prime example of how a 'cost center' such as research can ultimately result in revenue growth, improved customer satisfaction, and other positive outcomes. The focus should not be on changing the label of the research function within the organization, but rather on altering people's perception of its value.