For many small business owners, market research serves as an important tool that enables them to predict their potential success by learning about their target audience. However, depending on the stage and financial situation of your small business, hiring an expensive researching firm might not be the wisest investment. In episode #116, Elizabeth Larkin and Gene Marks help small business owners determine whether they would benefit from conducting formal market research.
0:36–Today’s Topic: How Can My Business Benefit from Market Research?
1:19—Market research is gathering information about a specific demographic or target audience in order to determine whether your business should expand into a particular niche.
1:40—Experienced business owners who are familiar with a particular industry might choose to forgo the formal market research and trust their instincts.
3:40—Small business owners who are involved in venture capitalism should strongly consider hiring a marketing research firm to conduct research since they are using money from other investors.
4:19—Business owners also need to consider whether their business will yield high enough profits to warrant both the time and money required to hire a researching firm.
7:26—If you do decide to hire a researching firm, you should check the American Marketing Association’s Annual Gold Report to find out the top 50 market research firms.
8:37—Small businesses that don’t have the budget to hire a market research firm can consult their local small business development centers.
10:01—Other cost-effective alternatives to hiring a research firm include: hiring a qualified freelancer or checking with your national industry association.
Welcome back to the Small Biz Ahead podcast, I’m Elizabeth Larkin, I’m here with Gene Marks. Gene Marks is a small business owner and expert. Welcome Gene.
Gene: Thank you Elizabeth.
Elizabeth: It’s good to be here with you.
Gene: It’s great to be here.
Elizabeth: Today we’re talking about market research. We’re gonna talk about what it is, how a small business owner would conduct market research and then whether or not it’s actually gonna be useful for your business. Cause market research does take time and it is an expense. Whether you do it yourself or you pay someone else to do it. So we’re gonna tackle that topic right after we hear from our sponsor.
This podcast is brought to you by The Hartford. When the unexpected strikes, The Hartford strikes back for over 1 million small business customers with property, liability and worker’s compensation insurance, check out The Hartford’s small business insurance at TheHartford.com.
QUESTION: Should You Conduct Market Research?
Elizabeth: So, Gene what is market research?
Gene: Market research is finding out information about a potential market that you want your company to go into. So I’m starting up business now that’s providing live online training for some of the products that we sell. If I really had my act together I’d be doing better market research into that. I’m doing what a lot of business owners do, we sort of take a hunch. I look around, I searched around a little bit. I’m like, oh it doesn’t seem like there’s much of that out there so this seems like a good thing to do, clients are asking me for it.
So it’s all anecdotal. When you meet marketing people from large companies, I forget the guy’s name but I emailed this … he’s the VP of marketing at Heineken, the brewery. They were doing some campaign, they were gonna be giving away product sub-bars or whatever. They bought a bunch of data and they analyzed what demographic they’re gonna target and the region or whatever. They knew going into this campaign, what the response was gonna be to this campaign.
They spent a bunch of money on the research, on the data, the analysis before they actually spent money on the campaign itself. And that’s why when you deal with … trust me at The Hartford, your VP of Marketing here when she’s gonna be launching campaigns, there’s a lot of thought put in ahead of the game to minimize risk. Small businesses don’t do a good job at that. I don’t do a good job at that. And the reason that we don’t do a good job is just-
Elizabeth: The time.
Gene: We don’t have the time, we don’t have the money, we don’t have the patience. We’re all over the place or whatever. So we all are at that fault. Yes we should be doing more market research. I will never be able to do the kind of research that a large company like Heineken or The Hartford does. But there are some things I could be doing better as a small business owner, that we all could be doing better as small business owners.
Elizabeth: But you’ve done a little bit of market research because you got feedback from your customers.
Gene: Right, it’s anecdotal, anecdotal, anecdotal. There’s still no quantitative, I can’t … I should be able to be launching this new business, this online business platform and telling you I know-
Elizabeth: Exactly how many subscribers-
Gene: How many prospective subscribers and what percentage of people are gonna sign up and what that’s gonna convert into in dollars. I should be able to give you those numbers and I can’t. Now if you’re gonna raise money from venture capitalists or bring in outside investors or even-
Elizabeth: You have to do market research.
Gene: You have to do that. If you’re asking for other outsiders to put money into your business then you have got to be spending money with market research firms. It can’t just be anecdotal that like, oh I think this is a great idea and this will work. You have to do it.
Elizabeth: So why do you feel comfortable? I’m kinda putting you on the spot a little bit. You never get upset when I put you on the spot, you’re just like bring it on that’s fine.
Gene: Go ahead.
Elizabeth: So why do you feel comfortable launching this new business, this online course without doing all the market research that you say you would like to do?
Gene: It’s a really good question. So, a few things, I’m gonna be investing in the end probably a couple hundred thousand dollars into this business. And it’s gonna be coming out of my money. Over a period of a few years, I do have that plan.
Elizabeth: That’s a lot.
Gene: It’s a lot of money, because it’s a lot for the platform and then it would be a lot to staff it up a little bit, and then marketing is the big expense. Because if you build it, will they come? So that’s kind of a big gamble. One thing I’m not doing, and this is another topic for another day, is I’m not betting the farm, so I’m not putting my life savings into this. It’s a percentage of what I know I can afford over the next few years, so that’s all good.
So your question is, why am I doing this without having done-
Elizabeth: Why are you comfortable doing it?
Gene: Why am I comfortable doing this? It’s a really good question, I don’t have a good answer for you. Because I don’t have the data to back it up.
Elizabeth: Well I thought you were gonna say because you have so much experience in the industry.
Gene: That is what I was gonna say. I have a pretty good gut. Okay I’ve been running this business for almost 25 years and we have a lot of clients. I know the industry really well and I know there’s a need. I have clients asking me, “can you do this?” And the products that we sell, a lot of people want the training but they don’t want to pay the hourly rates. I think I’ve got a much better solution. And I’ve actually asked clients, if we were to provide these products to you would you be interested? Again it’s anecdotal, yes or whatever.
If I really was doing it right, I would hire a market research firm to across the country, geez I wanna market this around the world as an online platform. And literally take a scientific sample size and come back to me and say, “We interviewed 1,500 prospective business owners and this percentage said this or whatever.” And I would know whether to move. But of course I’m not doing that. And I should do that, and what would that cost me? That would probably cost me I would think 10 or 25 thousand dollars to do. I would rather put that money into the actual product, into the actual platform.
Then I also just don’t have the patience to wait, because my gut tells me otherwise. Don’t do what I’m doing.
Gene: Do you know what I mean? If you had the ability to show more patience and be more mature about it, do what a lot smarter companies do, the VP of Marketing at The Hartford and whatever, Heineken or whatever. If you can afford to spend some money on market research, it’s definitely better than what I’m doing.
Elizabeth: Okay so let’s say you …
Gene: Wanted to do market research.
Elizabeth: You want to. Let’s say you are, I’m trying to think of a good business. Okay let’s say you’re a coffee shop and you wanna start selling your products and shipping them.
Gene: Okay, say you’re a coffee shop and you’re located at Eighth and Chestnut Street in Philadelphia and you wanna open up another coffee shop, you wanna expand your coffee shop. And you wanna open up another one at wherever, Second and Walnut Street. The question is, should you or not?
How many stories do we hear of chains that expanded and then they collapse. So you should hire a research firm that looks at the demographics, the people that are there.
Elizabeth: So how do you find one?
Gene: That’s a good question. I did research firms at one point. The American Marketing Association’s got a really good publication. It’s called, actually they do this every year, it’s called the AMA Gold Report. They did one for 2017, we can put it in the show notes and you can Google AMA Gold Report. They list the top 50 market research firms. These are larger firms so you can always go out and Google ‘market research firms’. But take a look at the top 50 that are out there, they’re gonna cost a little bit more but they might be worth it.
And there’s a firm that if you spend a few thousand bucks with them, maybe more depends on the project, they could scout out Second and Walnut and learn the demographics and look at the competition around there. And the traffic going through there and all that. And would be able to come back and say, “Yeah we can tell you if you opened up a coffee shop there, there would be this demand for it.” And then you’re going into it with your eyes wide open.
That’s the right way to do it. Now the problem with doing it that way is if you hire one of those firms, you might spend $25,000. And if you’re a coffee shop that’s-
Elizabeth: You don’t have that money.
Gene: Yeah, that’s a lot of money to spend. So how about some alternatives? Well, I’ve had some clients that have really good success with small business development centers. So the SBDC’s – there are many of them around the country – they’re funded by the Small Business Administration and they attach themselves to local universities.
I had a client that was making, they were actually a company that made panels, electrical panels. And they wanted to go into the business of making solar panels, and they didn’t know what the market would be to sell these solar panels. So they went to the Small Business Development Center, true story, here in Philadelphia at the Wharton School. The Wharton school has an SBDC associated with it. And they got two undergrads and two grad students, Wharton is like way smarter than me. And they did a whole analytical study of the solar board market in North America. And delivered them a written report. These kids get college credit for doing it and all that’s awesome, and it’s all free, it’s completely free.
So if you’re looking, as long as you’re okay to rely on students doing the work, they’re supervised, but they’re still students. The Small Business Development Centers are great places – free – to get a market research study done.
Elizabeth: That’s great.
Gene: Yeah, a couple of my clients used them and really liked them.
Elizabeth: Any other alternatives to hiring a firm?
Gene: You could hire individuals to work along with you. You could just find them on LinkedIn. So professionals that just do freelance market research. Now again, you gotta get referrals or whatever. You’re gonna pay, but they’re usually just paying them by the hour to do it. And they’re potentially a lot less money.
Elizabeth: I have a friend whose sister does that.
Gene: Yeah, and there are a lot of people out there that love to just research stuff. And of course, nowadays online there’s so many different capabilities. And these people they do a good job. They subscribe to a lot of sites that you and I wouldn’t subscribe to because we would never use them. But if it’s part of their business they do it. And again, they’ll charge you 100 bucks an hour, 200 bucks an hour and they’ll spend 10 hours doing it, or 20 hours. A lot less than if you were to hire a larger firm. So individual freelancers are really good.
Then the final place is your industry association. So again, if you’re a retailer, if you’re a coffee shop and you’re looking to expand. If I was a coffee shop, first of all I would hope I would belong to some national retail association, national restaurant association. Whatever association I belong to I would go to the association and say, “I wanna do some market research, who do you recommend?” A lot of times those associations have those resources or can refer you to those resources.
Elizabeth: Okay so this is kind of a weird question since we’re talking about market research-
Gene: Wouldn’t be the first time from you Elizabeth so go ahead.
Elizabeth: Is there ever a time when you should not do market research?
Gene: If you can’t afford it, and if you can afford to lose the bet. My situation is that if I lose my bet, although I’m planning on spending a couple hundred thousand dollars on the site. If things aren’t going the way I plan on going within the first six months to a year, I probably won’t be spending all that money at that point. This is what I’m planning over the next couple of years. And then again, I really can say that if I lost all that money, of course I’d be pretty upset but it’s not gonna … I’m not betting the house on it, do you know what I’m saying?
Elizabeth: Yeah, you’re not gonna end up homeless.
Gene: Yeah, right. So that’s the way most, again when we talk about what smart business owners do. But they do, when they make bets they don’t bet the farm. They make calculated bets with a certain amount of capital that they are fully willing to lose. It’s just like if you’re going to Atlantic City or Vegas you bring your money you know you’re gonna lose it. But if you win, you win. Hopefully your odds are little bit better than going to Atlantic City or Vegas. So if you can’t afford to do it, don’t do it as long as you can’t afford to lose your investment.
Download Our Free eBooks
- Ultimate Guide to Business Credit Cards: The Small Business Owner’s Handbook
- How to Keep Customers Coming Back for More—Customer Retention Strategies
- How to Safeguard Your Small Business From Data Breaches
- 21 Days to Be a More Productive Small Business Owner
- Opportunity Knocks: How to Find—and Pursue—a Business Idea That’s Right for You
- 99 New Small Business Ideas