How to do market research for your small business

If you’re looking into starting your own business in the UK, you need to know about the market – to get information on not just your potential customers but your competitors too.

As with everything in the world of business, there are right and wrong ways to go about this. In this article, we’ll walk you through the entire process, breaking down how to go about it into six simple steps.

What is market research?

In the simplest terms, market research is exactly what it sounds like: research that gathers information about a market. 

You conduct it when you’re starting a business and then regularly while your business is running – especially if you’re thinking of adjusting your overall strategy. 

Conducting market research can help you answer the following questions: 

• How large is my target market?

• Who are the customers that make it up?

• What do those customers want?

• How much are they willing to pay for what they want?

• Who are my competitors and what are their strengths and weaknesses?

Why is market research important?

Good knowledge of the market is crucial to business success. While there’s a lot to be gained from being willing to experiment with your business, you should always make sure you have reliable information before you act.

Most things your company will do will cost money and good market research can make the difference between productive investment and throwing cash away.

You’ll learn what your customers want and what you can offer them that’s unique – what makes you distinct from the competition.

Six steps to doing market research

Whether you’re doing initial exploratory research or a more specific, targeted analysis, you need to go in with a clear strategy. To ensure you’re gathering the type of information you need and analysing it correctly, follow these six steps.

1. Determine the purpose of your market research

If you’re just setting up, you’ll probably want to gear your market research towards developing a business strategy. This will likely mean beginning with an exploratory study and developing things from there.

Crucially, this is a long process. Don’t expect to get it done overnight, and be ready to adjust your approach in response to your findings. If you discover that customers aren’t interested in a product or service you had in mind, for instance, shift your research to focus on other potential opportunities.

• Internal analysis is for you and other decision makers in your business and will focus on things like cash flow and operations. 

• External analysis is for others outside your business, especially lenders and investors, and will focus on producing a clear, concise summary of your industry and how your company will fit in.

2. Look at the market outlook

Whether you’re doing market research for internal or external purposes, you’ll need to paint a detailed picture of your industry.

You can start from the most important points, such as the overall size of the market and the number of competitors. Then, zoom in on details like your competitors’ market shares or trends in specific areas of the industry.

As always, make sure you back your conclusions up with good, solid data.

3. Identify potential customers

When you’re selling a product or service, you need to have some idea of who’s likely to buy.

It’s easy to see why this is important. You wouldn’t want to spend time and money developing a marketing strategy, for instance, only to find that those who see your marketing have no interest in your product.

Advertising is powerful, but it works best when those you’re advertising to already have some interest in what you’re selling.

To produce a target market analysis, search for ways to categorise potential customers. You’re looking for ways to cut the data and establish trends, so identify dividing lines like:

• income

• occupation

• education level 

• gender

• age 

• location

4. Identify your competitors

With your potential customer base identified and a picture of the overall state of the market, you’re almost ready to go.

But before you do, you need to take a close look at your competition. This means you need to know how much competition you’re likely to face and how your competitors operate.

It’s extremely rare to find a completely untapped market. Even truly novel ideas usually arise in the context of established markets

Keep an eye on:

• your competitors’ offerings

• the customers they target 

• where they are located and how much reach they have

Crucially, you shouldn’t focus exclusively on the biggest and most successful companies in your field.

You want to learn from and emulate the winners, sure, but it can be just as instructive to learn from those who lose out. Identify how and why businesses fail in your industry to avoid doing the same.

5. Analyse your findings

Once you’ve gathered your data, it’s time to get into the fun work of analysing it.

For this stage of the process, be ready to pore over the same findings multiple times. The goal here is to identify patterns and different ones might appear as you look at the data in different ways.

It can help to begin by organising your report into sections. You could focus first on the overall market, then on customers and then on competitors, for instance.

This is also the point at which you should start developing your own responses. You might include the following elements:

• your overall summary of the industry 

• the customers you intend to target

• your projected market share and growth forecasts

To help you do all this, you should build your findings up into models. Develop a customer persona from all the demographic data you gathered earlier, for instance, and look for that persona’s likely interests and desires.

When looking at competitors, conduct a SWOT analysis to identify strengths, weaknesses, opportunities and threats.

6. Put what you’ve learnt into action

It might sound obvious, but it’s worth stressing: once you’ve done all this, you need to put your findings into action.

Market research is a big, daunting task, and on its own it can be pretty thankless. It might be interesting to learn about your industry, but just knowing the state of the market won’t directly help your business.

With all your data gathered and analysed and some projections made for how your business will fit into the industry, you need to develop a formal strategy. 

• For internal purposes, look at how you can use your findings to optimise your operations. If you’ve identified opportunities, devise a strategy to exploit them. If you’ve found threats, think about how your business will overcome them.

• For external purposes, gather your findings together in a way that’ll present your business in the best possible light to potential lenders and investors.

You’ve done market research - what’s next?

Market research is a crucial element of starting your own business, but it’s far from the whole story. To learn more, from budgeting and reporting to developing a business idea in the first place, our guide to starting your own business in the UK can help. Fill out the short questionnaire to get a personalised list of next steps sent straight to your inbox.