Article - Market Research | Lazarev.
The importance of market research: how it helps to get funding ???
Launching a business is a risk. Launching it without a solid product-market fit and pitching it for investment is like driving with a blindfold over your eyes — also a risk?but purely unnecessary and with a sky-high chance of crashing.
Market research empowers you to avoid the latter by offering a clear vision of how to ?get your foot in a new market and raise your odds of attracting funding.
If you're reading this and thinking: "Why do research if I already know the business landscape, my potential clients, and how my product or service can benefit them?"
Well, that's great. ??
The only thing left is to prove it to investors not just with passionate storytelling but with facts. And this in-depth analysis has the power to be evidence for venture capitalists that your business's product-market fit has a rock-solid foundation and is worth investing in.
Not that bad, right? In this blog post, we'll dive into market research, why it's so critical for investors, ?and how data from it can help you secure funding.
Doing market research for a startup, ?you gain valuable insights into your:
Industry landscape. ??
This type of data ensures you understand your business potential in the current climate and know how to level up the game with your solution. Specifically, you learn about the overall size and composition of the market you aim to enter, the gaps your product can fill in, and new trends that have the power to help you estimate possible opportunities to grow.
Potential customers. ??
This is where your assumptions and hypotheses about your target audience stand the test of validation. You can learn your potential users' needs and what tools they imagine would solve their challenges. And this information, in turn, can help outline your product value proposition that hits the right target.
Competitors. ??
There is a saying, "Know thy enemy," but I prefer "Know thy competitor." No enemies here. Looking at your rivals enables you to spot companies' strengths and weaknesses that can help hone your product at the early stages or turn in a different direction to offer what others haven't and seize an opportunity to outrun them.
All right, we covered the basics of this research. Now let's move on. ??
Arguments on why market research is important??
Market research is homework a business and a startup needs to do before taking further steps toward launching a product or service. Why? Because it empowers you to avoid getting sidetracked and eventually coming up with a solution that misses the target. Without in-depth analysis, these risks snowball into a set of poor decisions that keep your venture from success.
Okay, we settled on how you can benefit from the research. But why are investors so eager for business owners to provide data from it? Well, the answer is that they seek sizable market opportunities.
It's as simple as that and comes down to pure math. Venture capitalists don't just give away millions of dollars for a great idea. They expect?to generate a strong return on investment, and so they set their focus and money on companies that have the potential to achieve it.
Investors also want to see product-market fit. This one is crucial and statistics prove it — 35% of startups fail due to product-market misfit. So it's reasonable that VCs don't really want to risk and fund a project with no or a shaky bridge between an offering and people's pain points.
Critical market research questions investors want you to answer ??
Investors not only have vast sums of money but also have some crucial questions to ensure their investments are worthwhile. They want to know everything that has to do with your business starting from your team management, venture traction to how passionate you are about your initiative. But here, we'll dive into specific questions?that market research can help you answer.
What's the size of your target market? ??
Having a business equals having people who want to buy your offering. Yes, it seems obvious, but that's what investors are looking to find out when considering putting money into your initiative. And they expect to see proof there is a significant market your business has the potential to cover. So how to deliver solid evidence of that? One of the ways is to employ tools with name-like acronyms — TAM, SAM, SOM.
Who is your target customer? ??
Knowing who your potential clients are and what challenges they have your product or service can solve — makes it crucial information for communicating your solution both to your target audience and an investor. For the latter, it serves as evidence that you don't do any guesswork and have reliable data on your end-users, what they need, how they make their decisions about your product, and understand what it takes to convert them into paying clients.
Information that shows demand for your initiative and can get investors' attention comes in a neat package called "customer profile." It includes information like: age, gender, location, income of people you aim to cater as well as their pain points that your product can cover, etc. How to extract as many valuable insights as possible at this stage? Well, you can benefit from tried-and-true surveys, online reviews on social media, theme-related blogs, and user interviews.
What are potential risks ?that can jeopardize your success? ??????
Investors are no strangers to taking risks. They do it every time they fund a new business. Nevertheless, there are some cases when one has to play it safe. So by asking a question I mentioned above, venture capitalists want to know if there are threats that can harm your business and, if so, what precautions you take to reduce them as an entrepreneur.
To provide a detailed answer and stand a chance of getting an investment, you need ?to do some groundwork beforehand. Specifically, conduct SWOT and PEST analysis.?The former will help you spot weaknesses and threats within your venture and industry overall and map out current risks and the ones you can face in the future. The latter evaluates political, economic, social, and technological factors that may impact your product.
For example, with data from PEST analysis, you can be ready to act or adapt to such influences as: government regulations, economic issues, cultural constraints if you aim to reach an international audience, technological advances, and socio-cultural factors like demographics, lifestyle trends, etc. I hope you’ve got the answer to the question, “why should businesses use market research when making important decisions”.
