How to do market research for your new business

Last updated: 3 December 2024. 

Market research is about understanding three key things: your potential customers, your competitors, and your market opportunity. 

It matters for two key reasons:

1. First, it helps you validate your ideas and spot opportunities before investing too much time and money.
2. Second, it's essential to convince investors and stakeholders that your business has real potential.

Excellent research helps you build a realistic business plan, understand your market size, and identify your competitive advantage. 

It's also one of the first things investors will ask about – they'll want to see evidence that you understand your market and have spotted a genuine opportunity.

Essentially, market research prevents building business strategies around assumptions. You need to know your market truly, backing ideas with data and rational analysis. 

Let's look at what you need to cover in your market research, and how to do it effectively.

The true aim of market research

Market research is about gathering and analysing information that helps you make better business decisions.

For startups, this means understanding both facts (like market size and competitor pricing) and less tangible things (like customer behaviours and purchasing decisions).

High-quality research helps you answer questions like: Is there demand for your product? How are people solving this problem now? What would make them switch to your solution? How much competition is there?

You're looking for evidence that supports or challenges your business idea.

The aim isn't just to gather data – it's about building understanding from the ground up.

The output will shape and guide your business strategy. It might confirm your original ideas or reveal that you need to pivot in some way. Either way, you're making decisions based on evidence rather than just gut feelings.

Market research in five key steps

We've distilled the best bits from top market research frameworks (e.g., from Harvard, Columbia, Stanford, etc) and boiled them down into something effective and practical.

Whether you're launching your first product or exploring a new market, these five steps will help you retrieve key insights and develop the bigger picture you need to move your business forward. 

1. Map out who you're up against

Before diving into customer research or testing your ideas, you need to properly understand who's doing what. This means truly understanding who's operating in your space and how.

First, identify your direct competitors – those offering similar solutions. Then search for indirect competitors who are solving the same problems differently.

• What do they emphasise in their marketing?
• Who are they targeting?
• What do customers say about them in reviews?

Study competitor products, pricing and positioning carefully. Where are they strong? Where do they fall short? Most importantly, what gaps have they missed? This context is crucial for the next steps.

We’ve included some resources below to help you map and explore your market and competitors. 

2. Get to know your customers 

Having a rough idea of who might buy your product isn't enough. You need to properly understand their problems, how they're solving them, and what would make them switch to a new solution.

This means diving into real-world conversations.

Check review sites like Trustpilot and G2 to see what people say about existing solutions. Study relevant subreddits and Quora threads where your potential customers discuss their problems. 

Look at X (Twitter) conversations and LinkedIn posts in your space. Join Facebook groups and industry forums where your target audience hangs out.

Focus on understanding:

• The specific problems customers are trying to solve
• How they're solving these problems today
• What frustrates them about current solutions
• Their decision-making process when choosing solutions
• How much they currently spend solving these problems
• Where they go to find and evaluate solutions

If you’re deeper into the research process already, you’ll want to set up interviews with potential and existing customers. 

Industry conferences and trade shows let you meet potential customers face-to-face. Professional meetups often reveal informal insights about how businesses make buying decisions. Ask around for introductions to potential customers. 

And if you have the budget, specialist market research firms can set up focus groups with customers and/or decision-makers. 

In B2B especially, nothing beats talking directly to the people who might one day buy your product.

3. Put your research to the test

After gathering insights about your competition and customers, it's time to test your understanding. The key is being systematic – validating one thing at a time with clear success metrics.

Create focused tests like:

• Build landing pages to test different value propositions
• Run small advertising campaigns to validate messaging
• Create basic prototypes to gather user feedback
• Test different price points with different segments
• Interview potential customers about specific pain points you've identified

Keep each test focused on a specific hypothesis drawn from your research. For instance, if you've noticed customers complaining about complexity in existing solutions, test whether they really value simplicity enough to switch providers.

4. Document evidence systematically

Great market research combines different types of evidence to create a holistic understanding. While conducting your tests, make sure you're documenting:

• Direct feedback from potential customers through interviews and surveys
• Data about current buying behaviour in your market
• Information about market sizes and trends from industry reports
• Insights into competitor pricing and positioning
• Evidence of what similar customers pay for related products

Document everything - even (especially) when it contradicts your initial assumptions.

The most valuable insights often come from discovering where you were wrong.

5. Adjust your strategy based on findings

Use what you learn to refine your approach and test new hypotheses. You might find that:

• Your target market is different from who you initially imagined
• The problem you're solving isn't quite what you thought
• Customers value different features than you expected
• The price point that works is higher or lower than planned
• There are market segments you hadn't considered

Be prepared to pivot based on what you learn. The most successful founders are those who can adapt their ideas based on real market feedback rather than sticking rigidly to their initial vision.

Keep testing, keep learning, and keep refining your approach based on what you discover.

Essential market research resources

When you're researching your market, knowing where to look is half the battle. Here are some of the most valuable resources for understanding your market:

Government and official sources

The government maintains several invaluable databases that are completely free:

• Companies House offers company information, detailed financial accounts, shareholder structures, and director histories. Look for patterns in your competitors' growth and how they're structured.
• The Office for National Statistics (ONS) business data hub provides robust industry data and trends. Their quarterly reports break down revenue, employment, and growth metrics by sector.
• YouGov's public opinion and consumer research offers free access to valuable consumer trend data. 
• Data.gov.uk houses thousands of public datasets covering everything from consumer spending to regional business activity. Their search function helps you find sector-specific information. Try filtering by the business category and sorting by most recent. 

Investment intelligence platforms

Want to know who's getting funded and where that funding comes from? Investment intelligence platforms track everything from small angel rounds to major acquisitions. 

While some require subscriptions, they're invaluable for understanding the money flows in your market – and who might become a serious competitor in the next few years. These are worth checking out:

• Crunchbase offers insight into funding rounds, acquisitions, and company growth metrics. The free tier gives you basic company information and funding data, while Pro unlocks comprehensive tracking of companies and sectors.
• Crowdcube and Republic Europe (formerly Seedrs) showcase successful fundraising campaigns in your sector. Beyond just viewing valuations, you can see what messaging resonates with investors and what business metrics matter most.
• Beauhurst tracks high-growth companies with incredibly detailed reports. Their platform shows funding rounds, scaleup trends, accelerator programs, and key company milestones.
• Dealroom's free database covers European startup ecosystems. While less detailed than Crunchbase, it often catches smaller deals and early-stage companies that others miss. 

Search tools and SEO platforms

Google isn't just for finding businesses – it's a powerful market research tool. Start with basic searches using terms your potential customers might use.

Look at who appears in search results, "People also ask" sections (Tip: if you click on the drop-down a few times, more sections will appear). 

For example, if you're launching accounting software, searching terms like "startup bookkeeping" and "self-employed tax help" reveals different competitors solving pieces of your target customers' problems.

Professional SEO tools like Ahrefs, SEMrush, or Moz take this further. They show you:

• Which keywords drive traffic to competitor websites
• What content performs best for your competitors
• Where the biggest market opportunities lie
• Geographic variations in demand
• Market trends and changes over time

Most offer free trials, perfect for initial competitor research. They help build a complete account of your competitive landscape alongside other market research resources.

Professional market research: Costs and how it works

You can do effective market research on a shoestring budget. However, a specialist market research agency could potentially unlock insights you're unable to.

If you're considering professional services, here’s an overview of typical costs associated with various methods:

• Professional Surveys: £750–£1,000, depending on the number of participants and the complexity of the survey design.
• In-Person Focus Groups: £500–£700 per 90-minute session, including facilitation, venue hire, and participant incentives.
• Telephone Interviews: Approximately £35 per interview, ideal for gathering qualitative insights from a larger audience.
• Field Research Days: Around £1,500+ per day, offering direct observations and real-world insights into consumer behaviour.

Professional market research services allow you to address specific questions that require thorough analysis or larger sample sizes, offering clarity and confidence in decision-making. 

However, the fact is that spending more doesn’t always equate to better results – success hinges on asking the right questions and paying close attention to the answers.

To maximise your budget, begin with free or low-cost options to outline your primary questions.

Professional research should only come into play when those questions require deeper exploration or validation that free methods can’t provide.

Recap

There’s no doubt that market research is vital for any new business. It allows you to better understand your target market and customers, validate your product idea, and stand out from your competition.

By following these tips, you can set your new business up for success. Once your business starts to gain traction and you're ready to start fundraising, check out InVestd Raise.

Later, you can look at implementing a share scheme to attract, retain and motivate your talent - you won't regret it!