According to the Small Business Administration (SBA), there’s a 50% chance your business will fail in the first five years. But what can entrepreneurs do to maximize the chances that their businesses will succeed? Arthur Blank and his partner Bernie Marcus wrote a detailed business plan, and researched the market place for nearly two years before they launched Home Depot. Jennifer Hyman from Rent the Runway conducted market research and proof of concept testing long before she went to investors for funding. All of these activities raised the odds that these companies would make it past five years and inspired investor confidence.
As a serial research technology entrepreneur myself I can personally attest to the power of market research as a success strategy. Not only does research serve to ensure you have a robust business plan, it also validates your go to market positioning and strategy for potential investors.
Market research can serve you in your quest for funding regardless of where you are in your entrepreneurial journey but for the purposes of this article we’ll focus on market research practices that best support preparing for Seed or Series A funding.
Preparing for your Seed Round
Pre-seed research activities can include market sizing, proof of concept/concept testing and positioning research – all of which serve to gauge market opportunity and demand. Consumer sentiment and opinion research can ensure that startups launch products and services that land with their core target audience, enabling you to hone in on market fit versus spending the first 18+ months of a business’s inception chasing various scenarios.
The challenge however is that bootstrapped startups generally don’t have internal insights departments or the expertise to run primary research surveys.
For time and cash strapped founders (which, let’s face it, is nearly ALL founders!), look online for free market sizing reports and check out free or low cost platforms like SurveyMonkey and Zappistore. For a fraction of the cost of traditional market research Zappistore provides a marketplace of turnkey research solutions like concept or claims testing and ad testing that can help you greenlight the right ideas.
Ryan Barry, Chief Revenue Officer of Zappistore said “At Zappi, we are finding that having pre-packaged tools derived at helping answer questions around product market fit, pricing, positioning and logos names for just a few hundred dollars can help early stage businesses save a bunch of time and money by aligning with their customer before going too far down a path.”
Your seed round is just that….you’re planting an idea and your seed round is designed to raise funds that will allow you to nurture your idea to grow. Seed funding is specifically designed to give you the capital to conduct market research and development work. This work will determine what your product actually IS and, most importantly, who will buy it.
Research methods like Awareness & Usage (A&U) studies or Segmentation research can help you identify key market trends and behaviors and target the consumers most likely to buy.
For instance, Humm Kombucha, the fastest growing kombucha company in the US today, funded their seed round through a “friends and family” investment and had limited budget to spend on marketing and research. Through a combination of market research methods using shopper insights firm Alter Agents, Humm was able to hone in on consumer behaviors in the fast growing alternative beverage marketplace. Then they optimized their marketing spend to focus on key customer segments that could deliver the greatest ROI.
Likewise, Sali Christensen, co-Founder of women’s workwear line Argent said “We leveraged a combination of market research methods to gain a better understanding of our customer and refine our go-to-market strategy through the use of hard data. A custom survey, 1:1 interviews and mining census data informed our strategy and the story we shared with investors. Through extensive, upfront market research, we were able to quantify the size of the market, be more methodical in our go-to-market approach and be smarter with our cash, which impressed investors and streamlined our ability to fundraise.”
Series A is all about optimization. You’ve got a track record from your Seed round and now you’re looking to optimize your product and consumer base. The research conducted leading up to or following your A round is designed to maximize how you’ll monetize a business that generates long term profit.
Bree McKeen, Founder and CEO of tech apparel company, Evelyn & Bobbie, utilizes both qualitative and quantitative research heavily to holistically innovate design, manufacturing and distribution and product.
Since receiving funding Evelyn & Bobbie has conducted research with thousands of women to build a data driven sizing algorithm that also served to identify their key consumers and gauge market demand. Bree said “Of course investors want to hear your vision and how you plan to get there. But numbers are the best story-telling device you can employ in your pitch. The more numbers you include in your story, the more credible your story. The more grounded in quantification your business plan is, the more real it becomes in the mind of a prospective investor. Furthermore, presenting research repeatedly sends the message that you are a data-driven entrepreneur. We’ve used a complimentary mix of qualitative and quantitative research, internally and externally collected, in order to raise $13.5 million so far. Even something as simple as ‘8 out of 10 women interviewed last week said this is a problem they think about daily. All 10 said it was a problem they thought about weekly…’ That’s compelling.”
Research to support your A-series funding and subsequent growth strategy can include A&U, Segmentation, Packaging and/or Pricing Testing as well as the use of syndicated data sources like Nielsen consumer panel or IRI data to monitor growth (and competitor growth!).
The Investor Perspective
How important is market research to investors?
John Almeida, Co-Founder and Managing Partner of Reimagine Holdings Group, a growth equity firm, looks for growth oriented companies focused on large market opportunities where they can drive operating and strategic enhancements through ownership or investment. John said “We use research to quantify the size of an addressable market, to validate the value proposition of a product or service and to establish the attractiveness of an economic model. We start with a theme based (driven by market research) approach to a vertical market, complete intensive research and target companies that fit our criteria for investment.”
As I mentioned earlier, you don’t need big budgets to gather data that will inform your business strategy. Look online for articles or free trends reports from firms like Forrester, McKinsey or Gartner, which may include market sizing or other data relevant to your business vertical.
Need to conduct primary research? Again, platforms like Survey Monkey and Zappistore offer free or low cost solutions. You can also use marketplaces like Savio to connect with professional research freelancers or visit Collaborata to find syndicated research sharing services.
Have some money to invest in a more robust research approach? Look for Insights Association or ESOMAR accredited market research firms that have experience working with, and can address the unique needs of, early stage firms.
Regardless of where you are in your funding journey, market research can play an instrumental role in inspiring investor confidence and guiding you through long term business growth.