The Startup Myth About Market Research
What is market research
Market research is: information about customer needs and preferences that calibrates our business decisions to match the real world. It’s a map and a compass. It shows us where to go and what to build.
If we don’t know that information, we’re groping around in the dark. So why don’t startups, entrepreneurs, and innovators use market research?
I’m so glad you asked.
Pre-canned market research targets big corporations in mature industries. If General Mills wants to know how cereal prices might impact sales next year, they can buy a report. The report will break down data on past customer behavior. And General Mills can use that to make strategic decisions. Cool.
Why that fails for startups
That works in industries where customer behavior is deeply understood and well mapped. Where data is so abundant that it’s a commodity. But startups, entrepreneurs, and innovators break new ground. That’s the nature of disruptive technology. It has the potential to break those patterns. So—by definition—customer behavior is not well understood.
We can’t just go buy a report that tells us what customers are going to do, because we’re working in uncharted territory.
And this is where people make a crucial mistake:
They mentally leap from: traditional market research is useless for me to the myth: all market research is useless for startups.
So they guess about customer problems. Guess about product features. Guess about pricing. And sales. And competition. And whether there’s a good business opportunity in the first place. They stack guesses on top of guesses. Until the real world breaks in. And everything collapses. Or sags and underperforms for years.
Some founders try to shore up guesswork with trial and error. They build a product and watch what happens.
But think about that. It’s bad experiment design. In the scientific method, we make a prediction and then systematically gather evidence to learn if we're right or wrong. And why we were right or wrong. Trial and error can show what customers do, but it can’t show why they do it. Did they choose not to buy because of a pricing model? Or a bad sales tactic? Or some core feature that was missing? Trial and error is guesswork on a super long timeline.
Some founders try to shore up guesswork with customer interviews. That’s a great impulse, but interviewing takes skill.
There’s a computer science saying that goes: Garbage In, Garbage Out. Bad inputs lead to bad outputs.
Poorly designed interviews can’t uncover patterns across large groups of people. Bad input. So facts can’t drive decisions. Bad output. These interviews create a huge gap between what customers say and what they do. And founders find themselves back at guesswork.
Some people try to shore up guesswork with surveys. But customers who take surveys have to accept founders' assumptions to answer questions. So surveys aren’t great as a first step. Sometimes, surveys help confirm findings from systematic interviews. But when founders start with surveys, the evidence they gather is Garbage In, Garbage Out.
Remember that market research is: information about customer needs and preferences.
The information exists out there in the real world. But it's not stored in some PDF report on soy and cereal prices. It's stored in customers’ minds and beliefs and actions. In their purchasing habits, pricing preferences, impressions of our competition.
Yes, we’re moving into uncharted territory. But the first step is not: run around and guess about shit. The first step is: Chart the territory quickly and correctly.
Create a map and compass.
Interview a cross-section of a market and map its behavior. Understand customer problems, product features, pricing, sales tactics, positioning against competition, and whether there’s a good business opportunity in the first place. Extract information from the real world to make strategic decisions.
Then we understand what would make for a best-selling product, and we build that thing. Of course, we’ll gather new information and adjust over time, but systematic interviewing and analysis upfront calibrates our work to match the real world. So our work in previously uncharted territory becomes directionally correct.
And we gain a huge advantage over anyone who shows up in our space and randomly gropes around in the dark.