How and Why Entrepreneurs Should Research Market Demand

1. Start with a problem, not a product

As a leader on our research team, Chelsea analyzes how Mailchimp can help small businesses, as well as what small businesses are doing to help themselves. She's an advocate for market research that begins by identifying a problem rather than a product.

"We go out into the field to talk to small businesses, entrepreneurs, startups, and our service partners who work with small businesses, startups, entrepreneurs, and such. And we just listen," she says. "A lot of times, that uncovers a demand or a signal of demand for a challenge they have or a frustration point, maybe not just with our product but in doing their job."

This research informs the products that Mailchimp builds, and that's been the case from the beginning. The founders actually began as a web design company called the Rocket Science Group, and their focus was on serving big, corporate clients. But as they sought work, talked to people, and started to collect data on what they were doing, they noticed a glaring gap in the market. What they discovered was market demand for an accessible email marketing software that small businesses could use. Mailchimp was born. The business grew steadily, and now we offer way more than email in response to the market's evolving demand.

So once you've identified a problem you think your business could solve take a look at what already exists in your potential market. You need to know:

• Is there evidence for a problem that your concept might solve?
• Who else is trying to solve this problem?
• Who is doing it well?
• Within your market, what doesn't seem to work?

2. Gather qualitative insights

When you know what exists in the market, if there is one, you can start to collect more qualitative data. Start within your own network—try talking with friends or colleagues about the solution you hope your business offers, as well as their own experience with the identified problem. Their reactions can help you develop your concept, and they may point you in the direction of other people with valuable insights.

Outside of your personal relationships, you can also use social networks to find people who you think are in your target demographic. "You can find a captive audience on social media," says Chelsea. "I've seen people do really well with starting an interest group on social media or getting access to an existing group."

When talking with people in this audience, ask them:

• To explain the problem in their own words.
• If something could solve that problem, what would the end result look like?
• How would a solution to that problem help you?
• How important is it for you to solve that problem?
• How much would you be willing to spend to solve it?

During this qualitative analysis, you'll listen for a challenge or frustration point that your business could solve, as well as some indication of what it would need to do so.

Tip: Don't do focus groups. Chelsea suggests talking to people 1-on-1 or in small, comfortable groups. That way, they'll be more inclined to share. Also, by asking open-ended questions you can avoid confirmation bias and get a more honest insight into what matters to them.

3. Back your narrative with numbers

As you conduct interviews, a narrative about market demand should emerge. You can begin to imagine and describe your product or service based on those conversations. After that: You need quantitative data. "You always want to quantify market demand," says Chelsea. "It can't just be a series of conversations. It can in the early days—but eventually you want to know numbers."

At Mailchimp, numbers around market demand are often generated through surveys.

Send a survey to as large a targeted sample as you can find—meaning, as many people as you can access who have demonstrated interest in this market or niche. Ask them to rank on a scale of 1-5:

• How important is finding a solution to this problem?
• How much would it help you?
• How upset would you be if this solution went away?
• How willing are you to pay for a solution to this problem?

Chelsea recommends tools like SurveyMonkey and SurveyGizmo, which make it easy to conduct these surveys, as well as to analyze the results. The hope, of course, is that your hypothesized problem and solution will stand out as the highest ranking. But if not, the higher-scoring problems and solutions may be worth incorporating into your plan. Check out how Mailchimp's free online survey maker compares to the competition.

Tip: Use insights to market. Gathering insights from surveys pays off in more ways than one—you'll not only learn whether your idea is viable, but you'll also be able to market to them when your business launches.

4. Create an offering that sells

Once you've collected qualitative and quantitative data, it's time to develop your product. That might begin with a sketch, prototype, or a trial of some sort.

And with each more fully developed iteration of what you plan to sell, check back in with your audience. Ask:

• How close is this to what you're looking for?
• How likely would you be to buy it?
• How much would you pay for it?
• What about it do you wish was different?

Use that research to fuel what you do next, starting with your launch and continuing as you grow. Although it might seem daunting when you're just getting started, finding a product-market fit can make all the difference.

"Running, growing, and marketing a business are all expensive endeavors—not just in terms of money, but also in terms of time," Chelsea says. "So you want to make sure you're spending your time and money in a way that increases your chances of success."

Continued reading: Want to learn more about researching market demand to identify a product-market fit? Chelsea recommends Just Enough Research by Erika Hall.