Market Research for Startups


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I had the pleasure of mentoring the 2012 class of entrepreneurs at Founder Institute Chicago. Here is the presentation I delivered on "Market Research for Startups". The lesson provides high level guidance on: (i) what types of markets to pursue; (ii) how to find data on your market; (iii) how to define your competitors; (iv) how to cost-effectively do market research; and (v) how to determine if you can win, or if you should walk away. This lesson helps entrepreneurs with learning how to do the necessary market research upfront, before wasting a ton of money on a bad idea.

Here is a link to the matching video for the audio part of the presentation:

For more lessons, read my 101 Startup Lessons on the Red Rocket website ( or follow me on Twitter (

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Market Research for Startups

  1. 1. Startup Research
  2. 2. About George Deeb
  3. 3. Agenda• What Market Are You Pursuing?• Is The Target Market Big Enough?• Is It Growing or Shrinking?• What Other Characteristics of the Market?• How Do You Define Your Competition?• Inexpensive Tactics for Market Research?• Can You Win, or Should You Walk Away?
  4. 4. What Market to Pursue?• Large – sells everything. Zappos sells just shoes.• Growing – Adventure travel growing 10%. General travel growing 3%.• Limited Competition – Look for first mover advantage. Or, have a better mouse trap.• Defensible – Think about key barriers to competitors (e.g., exclusive contracts).• Easily Scalable – Affordable cost of customer acquisition. Viral product.• Easily Profitable – High margins
  5. 5. Is The Market Big Enough?• Global Travelers >• Global Leisure Travelers >• U.S. Leisure Travelers >• U.S. Adventure Travelers >• U.S. Whitewater Rafters >• Colorado Whitewater Rafters >• Denver Whitewater Rafters >• Affluent Denver Whitewater Rafters >• Affluent Denver Whitewater Rafting Women >• Affluent Denver Whitewater Rafting Women Under 25
  6. 6. Is It Growing or Shrinking?• Create New Markets – Groupon invented the “daily deal” space, from zero to billions• Bias Growth Industries – Markets growing 10-20% (e.g., mobile marketing) are better than 3-5%• Stable Industries are OK too – Provided it is sizable where you can take share away from established players• Avoid Declining Markets – I wouldn’t want to be Blockbuster in the physical DVD business
  7. 7. Other Industry Dynamics?• Does It Serve Consumers or Businesses? – Each require very different sales/marketing strategies and budgets• Any Government Regulations Risk? – Although Jobs Act enacted, risk to Crowdfunding sites given SEC rules• Any Force Majeure Risk? – Operating a business in a hurricane zone• Any Political Climate Risk? – Operating a business in an unstable market (e.g., Syria today)• Does The Industry Lend Itself to Negative Criticism? – Selling furs, selling porn, employs kids in China, etc.• Is It Supported by Venture Community? – Tech, healthcare, education more interest than retail, restaurants, CPG.
  8. 8. Defining Competition?• Who Sells The Exact Same Product or Service? – Netflix vs. Streampix• Who Sells Similar Products or Services? – Netflix streaming vs. Redbox DVDs• Who is Fighting for the Same “Mindshare”? – Use free time for Netflix at home vs. going to a movie theatre• Who is Tangentially in Your Market? – Netflix is nothing without content from Sony, Warner Bros, Paramount, etc.• Who Could Potentially Enter Your Market? – I am sure Netflix wasn’t happy when Amazon unexpectedly showed up
  9. 9. Inexpensive Market Research?• You Can Pretty Much Find Data on Anything in Google – Keyword searches like “apparel industry report”, “apparel industry size”, etc.• Online Surveys and Sample Pools – offers free, unlimited online survey templates + lists for purchase – Lab 42, affordable research for startups (backed by Sandbox) – Crowd Tap, crowdfunded research• Who Better Than Your Friends and Family – Interview them or ask them to ask their friends on social networking sites – Although depending on question, you may not always get an honest answer
  10. 10. Can You Win, or Walk Away?• Do You Have a Better Product or Service Than Competitors? – If not, back to the drawing board• Do Your Prices Offer More Value Than Competitors? – If not, not worth the uphill battle• Can You Easily and Affordably Acquire New Customers? – This is usually the death of many startups, not thinking this thru ahead of time• Are You Asking Customers to Make Too Hard of a Leap? – Rebuilding a whole new social network, when they already use Facebook – Rating all movies they have watched, when already rated on Netflix – Storing all their digital photos, when already stored for free on Flickr• Can You Survive the Competition That Will Follow? – It didn’t take long before Groupon had 100 well-funded copycats on its heels
  11. 11. Does Market Meet VC Needs• Is Your Industry One That VC’s Like?• Do Your Unit Economics Make Sense? – Your pricing is in line with competition – Your marketing COA is credible, tested and affordable• Does Your Financial Model Makes Sense? – Revenues don’t grow faster than marketing can afford – A material profit can be driven with scale over time – No more than 12-24 months of operating losses before B/E – Doesn’t require more than $1MM for first phase of growth• Can a Material ROI Be Achieved by Investors? – VC’s looking for 10x return opportunities within 5 years – Based on reasonable valuation & exit assumptions
  12. 12. Can You Build Scale, Credibly• An Industry is $500MM in Size• A Market Leader Typically Never Exceeds 25% Share – And, that has been built over many, many years• Don’t Model Anything More Than 10% Share by Year 5 – Therefore, a Year 5 goal of $50MM revs is believable – But, only if there is enough marketing in budget to support It• Don’t Show Revenues Bigger or Faster Than Reasonable
  13. 13. Further Reading• Lesson #1: Do I Have a Good Idea?• Lesson #7: Key Components of a Business Plan• Lesson #19: How to Identify Your Competition• Lesson #43: Examples of Barriers to Entry• Lesson #100: Definitive Checklist for Startup Success
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