Lean Market Research for Startups: Where to Start?

December 28, 2022

When you start building a digital product, you most probably only have a good idea in mind. Regardless of how brilliant it is, it stands on assumptions. Your first assumption is that: there is a problem with something and you can solve that problem. In other words, you think you find a worthy solution for a pain point. What turns this idea into a product is that there is enough demand for this solution. At this point, you don’t know the market, users, competitors, or anything else, at least you don’t know them exactly until you have data that you can rely on.

In this article, we explained how to conduct market research in a lean way for a new digital product. 

What is Market Research?

Market research can be defined as all efforts organized to get any extra information to understand the target market including potential users, competitors, and stakeholders.

It is, in fact, a very broad notion with numerous possible inputs and outputs depending on the objectives and goals. Market research, at its core, helps product teams in order to fulfill their users’ needs, resulting in achieving strategic business goals. With market research efforts, you seek existing and potential opportunities in a certain market and an understanding to shape the primary decisions about the product.

What is Lean Market Research?

At tio, as we do for any other effort, we implement a lean product perspective to the market research phase. We don’t seek the perfect output. Instead, we focus on gathering required data quickly and frequently as needed. It turns research into a never-ending drive to improve. Since your product should be unprecedentedly flexible, your market research should adapt to its requirements with ever-changing focuses on different objectives.

Types of Market Research

There are 2 main types of market research; primary and secondary. With primary research, you gather the data yourself. These types of research are helpful for creating personas, segmenting the market, and tailoring your ideas. Secondary research, on the other hand, uses data from other resources. Past studies, public databases, and proprietary data from other companies can be leveraged to get insights about your target market and users.

Why Should You Conduct Market Research?

You will face countless uncertainties along the route while building a new product. By conducting proper market research, you aim for two main outcomes as a startup:

  1. Understand if there is enough demand for the solution.
  2. Create necessary documents to attract investors.

With these two main goals in mind, market research can be conducted for a variety of different reasons and could have a variety of different outcomes according to the research focus. Your focus might be identifying the target audience, understanding the demand for a solution, understanding existing solutions, trends, etc. For instance, while researching the market features in your mind, you may find out a particular target audience might respond well to a specific feature. Or another reason for market research would be understanding user habits and expectations. Let’s say you are developing a video-on-demand platform, market research would show you skipping the generic perceived as a privilege in comparison with traditional TV flows, and users definitely expect that feature.

The ultimate purpose of spending time on market research before starting to build a product is basically to understand potential users and their needs so the product you build would provide value for them. Market research is helpful for product development and related strategies but also could create the base for everything else, such as branding, tone of communication, pricing, etc. The method we suggest for startups here is to perceive market research as a continuous process but perform iteratively. We also strongly suggest that market research should start with the determination of objectives and the scope first.

Where to Start for a Lean Market Research?

1. Determine Research Objectives

Founders that fail to define and measure their key objectives struggle to generate traction. It’s easy as pie to end up operating a team with little coordination if they don’t have a clear, measurable target to connect them. 

When you conduct market research, your focus shouldn’t be something unmeasurable and vague like “understanding the user better” or “finding opportunities in the market”. It is always better to start with a hypothesis in mind. (Your product strategy must also be formed around a hypothesis, of course.) Not only the market research but every other detail including solutions, products, and pricing methods should shape around this hypothesis. It will be your north star throughout the research. You will seek data and insight to validate or negate this hypothesis. 

Imagine you want to build a business that makes door-to-door grocery delivery, your fundamental hypothesis could be “White-collar employees in big cities are having trouble grocery shopping because their commute is already long and they don’t have enough time and energy to shop after work.” as we mentioned in the hypothesis section. So as a start, you would check how many employees are working in certain areas and decide which city would have more opportunity for your product to grow during your market research. 

You need to form a hypothesis and you will conduct all market research around this hypothesis. You should answer the following questions:

  • Are there enough people who have this pain point?
  • Who will use the idea and for what? Their demography? Their behaviors? Their habits?
  • How are they solving that problem right now?
  • What’s the problem with current solutions?
  • Are they willing to pay for a new solution?

Then, you turn these questions into measurable ones. There are different methods used for it. For example, TAM SAM SOM analysis used for defining market size, revenue goal and profit potential.

  • How big is the market? What is the total addressable market (TAM)?
  • What is the serviceable available market (SAM)? 
  • What is the share of the market (SOM)?

2. Determine The Research Scope

After you determine your objectives, it’s time to determine your scope which is very related to your objectives. For a startup, the scope could be basically determined by timing such as “we will have answers to these certain questions within 2 weeks”. Since the lean product approach suggests making only necessary efforts, determining scope is where the magic happens at every stage. Deadlines and goals might work. Although, when you follow a lean product approach, which means turning market research into a continuous effort in that sense, you don’t need to worry about not having enough insight. You can always continue to research future iterations because the search never ends.

Your research scope should be narrowed down as much as possible, but meanwhile, you need to make sure you get everything you need. So, you should design the optimum market research. You should aim to reach the most meaningful findings at this point of discovery and skip all other directions you may turn. Keep walking in a defined path for a defined goal in mind.

Briefly, you should determine what you need from the beginning to be able to manage the market research process efficiently. You also should know what type of research you need, which answers you are looking for, which metrics to measure to decide on going further. Knowing these means knowing where to stop, which answers you need to find first, which methods you will use to reach them and how to document those in a scalable way to use again in the future. And this is what makes a research scope.

While your product is growing, you will need to turn back to the market research phase constantly to check if the product uses the opportunities or not. That’s why determining the scope doesn’t mean you stop market research at any point, it just means you have enough information to continue with other steps to develop the product.

3. Determine Market Research Methods

It is certain that research will yield some results. But will you have the results you need? Choosing the correct type of research for the right questions at the right time isn’t that simple. There are a variety of market research methods such as interviews, focus groups, product/service use research, observation-based research, buyer persona research, market segmentation research, pricing research, competitive analysis research, etc. Each of these methods has its pitfalls as well as advantages. The trick here is creating combinations and filling gaps that might occur in your research with different methods. This is why every research design should be unique. Although we will focus on a few widely used methods here, there are always other ways to expand your research.

A research design that is supported with both qualitative and quantitative data, works best for a lean startup. Although there are different paradigms and perspectives as well, it would be said that natural conversations and situations bring the most valuable data in user-centric research. It’s simply because your subject is people, their beliefs, their habits, their feelings, etc. Since your output is that fragile, personal and hard to express with zeros and ones, your research wouldn’t be only an experimental scene in laboratory conditions, because users might act differently than they normally do. Additionally, in the beginning, a lean startup needs data for planning the scope of the product and its position in the market. Your go-to methods should have these in mind.

We choose 4 beginner-friendly methods for explaining here; market research interviews, ethnographic and nethnographic research, pricing research and user research. Although we found these 4 methods useful for utilizing when a lean startup approach is used, they may be not enough for every case. 

Lean Market Research Methods for Startups

1. Market Research Interviews:

Market research interviews are qualitative research methods used by startups widely in the market search phase. They can be in many forms according to the objectives of the research, from short interviews with random people to in-depth interviews with target users who represent a specific user persona.

In-depth interviews could differ too, as pre-structured, semi–structured and unstructured. Most of the time, startups could benefit the most from a semi-structured in-depth interview. Because semi-structured interviews also leave an open door for new directions and ideas that might come from the interviewer while they are getting answers in the light of their research objectives. 

Choosing a sample group and method to identify them is another critical decision. Since your case could be stated as a lean startup researching a new product idea, snowball sampling could be handy because it also prevents you from your echo chamber. When you use the snowball sampling method, you find someone who suits your ideal user persona and then ask her/him to suggest another person who you might be interested with. 

Market research interviews also could be conducted with a large number of people with shorter questionnaires such as “Would you use it if there is a product that solves that problem?” or “How much would you pay for that specific solution?”. All types of interviews could be conducted via online chat, email, face-to-face, etc but there is a clear advantage of interviewing face-to-face since you get too many non-verbal signs.

2. Observation-Based Research:

Observation is the key when it comes to new ideas and products. Ethnography and netnography have structured tools for gathering data via observation. Netnography is qualitative social media research that adapts ethnographic methods to social channels. Just as ethnography, netnography uses observation, and structured data gathering from people’s daily conversions as key inputs.

With ethnography and netnography you will be able to gather more accurate data. While there are also many disadvantages you should consider such as it’s challenging to find exactly the same case of your product, it’s beneficial and cost-effective to take time for observation. Ethnography and netnography are generally combined with other methods, such as surveys when used for market research.

A netnographic research might include a variety of other methods such as benchmarking social media profiles that suit your current understanding of potential users for your solution, could be joining online discussion groups about the problem you focused on, or any other similar way that might support you while you develop empathy.

In ethnographic research, you basically start with observation. Observation might be made by two different kinds of observers: one who participates and one doesn’t. Participant observation is beneficial for startups since it’s also a way to reach out to your first potential users and could be perceived as a part of customer development. No matter which one you prefer, you should be careful with time. In ethnographic research, it is very critical to stick with research objectives and know when to stop since it’s easy to just observe forever. 

3. Pricing Research

Pricing research is another critical step for startups since price strategy will determine the base of the product; the demand and the profit.

Pricing research is a type of research that examines and evaluates the influence of price changes on a product’s demand. Startups use pricing research to decide the optimum price for new products. The balance between the quantity of demand and profit should be reasonable. A solid pricing strategy starts with a good grasp of the value your product brings to its users since pricing is about perceived value of the product.

Typically, price for a product is determined with cost or value-based analysis. To decide what is the best for your MVP, you need to analyze a variety of factors and conduct unique pricing research.

There are different methods used for pricing research such as Van Westendorp Price Sensitivity Meter (PSM), Gabor-Granger Technique, Conjoint Analysis and Brand-Price Trade-Off (BPTO).

Van Westendorp Price Sensitivity Meter depends on the idea that there is a correlation between quality and price in customers’ minds. By asking a group of potential users if a dummy price is too expensive, expensive, cheap, or too cheap. The method determines a range of acceptable price points for the product. So that one can see the acceptable price range from the user’s point of view. In this Forbes article, this method was suggested as a supportive method when determining the price.



Too Expensive


“At what price would you begin to think this product is too expensive to consider?”
Expensive

“At what price would you begin to think this product is expensive but worth considering?”


Cheap


“At what price would you begin to think this product is a bargain?”
Too Cheap

“At what price would you begin to think the product is so inexpensive that you would question its quality?”

 4. User Research

And finally, user research aims to reach a better understanding of users including their characteristics, behaviors, habits, etc. A well-conducted user research could provide details about the user’s emotions, feelings, needs, pain points, etc. While almost all of the other research types in new product development ultimately create empathy with the user, user research focuses on them.

Some questions that may be asked in the earlier stage of user research might be these:

  • Who are your target users?
  • What distinguishes them? (demographics, usage patterns, geographies, new vs. old, verticals, mobile vs. web, needs, expectations, pain points, etc.)

Your responses to the questions above will guide you to create user personas.

To sum up, 

Regardless of objectives and sizes, market research is all about finding opportunities and eliminating uncertainty as much as possible. Especially if it’s conducted in a lean way. Market research is the first step to validating your ideas.

We tried to explain where to start briefly. Feel free to contact for any further questions!

Reyda Dönmez

Reyda Dönmez

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