“For which of you, desiring to build a tower, does not first sit down and count the cost, whether he has enough to complete it?”
-Luke 14: 28 ESV
Around 2009 the instant noodles market in Nigeria started to blow up, all of a sudden, some 7 new companies sprang up all offering the same thing, instant noodles. At the time, the only player & consequently market leader was Dufil foods, the makers of Indomie which till today remains one of the most profitable businesses in Nigeria.
Now on the surface, it does make sense, Nigeria is a country of around 180 million people, there should be space for at least 10 major noodle companies to make bank consistently year in year out not to speak of the space for more niche brands. But that’s not what happened, none of these companies managed to capture a significant part of the market, most closed down within 5 years and the rest just sort of faded away into oblivion. Today there are only 3 of those companies left, and Indomie still controls a highly disproportionate size of the market.
So what happened? Why did these businesses fail in a market that seemed wide open to a casual observer? What could they have done differently? Was failure always inevitable?
The failure of a business can never be distilled down into one tidy reason, There will typically be one overarching reason and a couple of minor reasons contributing to the failure of the business. But in the final analysis, lack of or inadequate market research is usually a huge reason for why a business venture will fail. In fact, investors will usually be listening for how well you know your market when you are pitching to them as this usually a good indicator of how much research you carried out.
What is market research?
Market research is the action or activity of gathering information about consumers’ needs and preferences.
As human beings, you are constantly gathering data about any and everything you come in contact with. This data then informs how you interact in future with these bodies later.
As an entrepreneur that is what you are called to do on a more deliberate and structured basis in order to be able to increase the chances that your business is successful.
Market research is a very broad field so in this write up we will focus on primary research.
Primary research is defined as a methodology used by a researcher to collect data directly, rather than depending on data collected from previously done research. Technically, they “own” the data.
While not necessarily the first stage in the research process, a lot of researchers tend to start with primary research.
Primary research is important for
- Validation of the business idea
- Validating the need
- Validating the pricing
- And sometimes validating the data from secondary research.
As a small business, you will most likely be conducting your primary research yourself, this is extremely important as it will give you key insights you need to understand about your product, your market & your customers which will put the business you eventually build in a much stronger position than it would be without this research.
A few examples of market research methods are;
- Focus groups
- Direct observations
- Field trials
Granted a couple of these methods might have cost implications and depending on your business might not be suitable for you. However, surveys, interviews, direct observations and questionnaires can be carried out with minimal cost and at the barest minimum should be carried out by anyone looking to launch a business or product.
Cheap or free services like Google forms, Survey monkey, MailChimp, Typeform etc have automated the survey process, by automatically analysing the results you get and creating easy to read and understand charts.
After the process of primary research, you will find your self changing a lot about your business, your assumptions, business model, revenue model etc and if not, you most likely did not do your market research properly. Your business will change after market research. Usually for the better.
In the 2000’s Microsoft decided to embark on a CSR project in East Africa, there was a small village where the women used to walk hundreds of miles every day in order to be able to get water for their families. So in comes Microsoft to save the “natives” and solve their water problems once and for all. An engineering team moved in and started working on the Well project, they dug wells throughout the village and moved out. Within 3 months all the wells had been poisoned making them unsuitable for use, and the women resumed going to the stream hundreds of miles away to get water to drink.
The investigation by Microsoft revealed that the wells were poisoned by the women in the village, it turned out that the long distance to get water was not a problem for the women in the town. They used that time to get away from all the issues they had at home, with their husbands, children etc. The long trek to the stream was a decompressing time for them, so the wells came to solve a problem that just did not exist. A few hours of talking to residents of the village would have shown them that the direction they were headed in was not going to work, and would have revealed deeper and more urgent problems that they could have solved with the resources that were “wasted” on the wells
And that’s the benefit of primary research, it lets you know right off the bat if this business is worth spending so much effort and time on or if you are looking at the issues from the right angle. It also forces you to speak directly to the people that you expect to be customers. That could be hard but ultimately will do your business good and improve the chances that you don’t turn into a statistic or example of a failed business.
other benefits of primary research are;
- Data collected is first hand and is accurate. In other words, there is no dilution of data.
- It allows you to go in depth of a matter and study all foreseeable options.
- Primary research gives the means to control how data is collected and used. It’s up to the discretion of businesses or organizations who are collecting data how to best make use of data to get meaningful research insights.
- Primary research is a time-tested method, therefore, one can rely on the results that are obtained from conducting this type of research.
- Gives you confidence in making business decisions since you are making them based on insights from data collected by you.
Things to keep in mind when conducting primary market research
Be as unbiased as possible; There is the temptation to try to lead your audience in the direction that you want to so you can get results that confirm the ideas and plan you want to implement. The problem with that is it will severely taint your data and make the whole exercise pointless. Do less of the talking and ask a lot of open-ended questions, the idea is to listen to what they have to say.
Analyse the data in pairs; Perception is everything, it is advisable to analyse the data with 2 or 3 people so you understand it from different perspectives. Different eyes will greatly increase the quality of the analysis.
Size matters; The more people you talk to during the primary research stage, the more solid the results will be. You cannot build a business on primary research done on 5 subjects. As much as possible try to increase your reach as much as possible
Leave the possibility of follow up questions open; When analysing the information gotten from the research process, you might see some interesting points brought up by 1 or 2 of the participants. It is important to leave the option of contacting them with further questions and conversations open.
Think about primary market research (or the lack thereof) as the foundation on which any business is built. If the research that was carried out in launching the business is weak, there is a very high chance of building a weak business which will collapse at some point when it faces pressure from market forces.
In conclusion, YCombinator the worlds most successful startup accelerator has a mantra which they believe is the formula for a successful business; “Build something people want”, and how do you know what people want? Primary market research.it's that simple.