Small Business Market Research

This month’s newsletter is an excerpt from my new book Startup Marketing – Unconventional. Simple. Brilliant.

Startup_Marketing_Book_Cover

It would be great if small business owners could go with their gut feeling and just say “who cares about doing market research”, but unfortunately, that only works some of the time. Remember that most startups fail. If we are to get past failure in our business we have to stop making mistakes that are easily avoided. That means we have to care about market research.

There are two examples that startups should learn from when it comes to using market research. The first example is when a corporate chain launches a new store. These stores are almost always successful. The second is when a franchisor sells their business model to a franchisee to open a new store. Again there is a very high success rate for new franchises, especially compared to traditional startup businesses. What makes it so much easier for a corporation or franchise to be more successful than a startup? Most people mistakenly think it’s the amount of cash or access to capital. This is a false notion. If you invest a small amount of money into a bad business you will lose a small amount of money. If you take that same bad business and invest lots of money, the only difference is you will now lose a lot of money instead of just a little. It’s true that there are many great businesses that fail because they were underfunded, but no amount of money will take a bad business and make it great. Either it is a business worth investing in or it’s not. The amount of money invested doesn’t change that.

Let’s look at the real difference between your typical startup small business compared to a corporate or franchise model. When an entrepreneur starts a small business, almost always they have some understanding of their market. They usually start a small business in an area where they’ve had previous work experience, they have a personal interest, or have been exposed to the idea through some connection or person they know. The point is, they have a foundation of primary market research. Remember that primary market research is information collected specifically for the use by that small business, so personal experiences, personal contacts, or personal networks all contribute information that entrepreneurs use to get the idea for their startup small business.

However, usually the initial amount of primary market research an individual has to help launch their small business is limited. How can anyone, regardless of the extent of their experience, know everything there is to know about a market opportunity. Since their primary market research is limited, they either launch without any additional information or they go after secondary market research. Entrepreneurs who launch their small business without any additional information fall under the category of guessing. Keep in mind there is a significant number of successful startups that beat the odds by guessing, and there is a marketing principle that makes this possible – luck. Sure you can get lucky, and people get lucky every day. But luck is a difficult thing to predict and luck isn’t fair. As it was said by one small business owner I work with who’s managed to launch over 20 small businesses (most of them successful), “I believe that bad things happen to good people and good things happen to bad people”. So yes, there are small businesses that did everything wrong, made tons of mistakes, and still have a successful small business. And if that’s your strategy all I can say is “good luck, you’re going to need it”.

If that’s not your strategy and you’ve run out of your own personal knowledge or “primary research”, you might be tempted, as so many small business startups are, to gather secondary research. If you are tempted, thinking this is going to help your startup, may I suggest that you don’t do it. Don’t fall into the trap of thinking that secondary market research is the next step you need to help launch your startup.

Here’s what happens. When a small business uses secondary market research, they often forget that the data was created for someone else, not them. Meaning that the small business has to take something designed for a different purpose and re-purpose it to fit their needs. It’s like taking a shovel and using it to chop down a tree because you don’t have access to an ax. It’s the concept of having the right job, but the wrong tool for the job. Think about this. Why can there be two small businesses that both sell the same product to the same market and one small business will thrive while the other will fail? If each small business were to have collected secondary market research to test the feasibility of the market for their product, they would have gotten the same results. Their research would be positive feedback that there was an opportunity in that market for their product. And these results would have been accurate, because one of the small businesses thrived. They couldn’t thrive in a market where there is no demand, so obviously the research would have been correct. So what about the other small business, the one that failed? They would have been in the same market. They would have had the same opportunity. Which means there must be something more.

Let’s take this example one step further and go back to the fact that corporations launching new store locations and franchises launching in a new area have a much higher success rate than typical small businesses. Thus far, this example seems very hypothetical. Sure, somewhere at some point someone has had this situation, but is this really what happens? Yes, it is. But it usually isn’t one startup that thrives while another startup fails. The more common scenario is a startup that is put out of business by either a franchise or corporate business that moves into the same market and squeezes them out. And this is happening at an unprecedented rate. There are entire industries that are greatly dominated by corporations and franchises that it is almost impossible to launch a startup without buying into their model. Think of gas stations, hotels, and big box retail. These industries are so dominated that you probably wouldn’t even consider them as startup options for a small business entrepreneur. But these industries weren’t dominated by sharing secondary market research. These industries were dominated by having their own primary research.

Major corporate businesses and successful franchises share one big thing in common. They both have several stores to analyze and pull data. This doesn’t mean that they don’t use secondary research. They do, but they use it as a supplement to their primary research. As its name suggests, they use it second, after they have the important primary research in place. You see, any small business that focuses on secondary research to validate the feasibility of the market will never actually understand their market.

This is why primary market research is so critical to your startup because without it, your small business will never have the insight into its market that it needs to be successful. And this is why I suggest that small businesses, especially startup small businesses, focus more on primary market research and not worry about secondary market research until after they have fully developed a success formula for their own business.


 

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