Note On Market Research

CASE: E-165
DATE: 6/18/04


INTRODUCTION AND OVERVIEW
Market research often is considered a tool used only b y big brand-based companies. While it can
be a ke y to success for large firms that devote extensive resources towards fine-tuning the
slightest variations of a single product – from the combination of colors on the label to the
position of the product on a grocer y store shelf –market research also can drive success for
entrepreneurs. Entrepreneurs can use market research to gain insights on issues such as the
market size, market growth, and customer need for a product or service, and answer fundamental
questions on the viability of their business concept and business model.
While market research for earl y stage companies is limited by the reality of time and mone yconstraints, the value gained through improved insights into the market and customers should not
be underestimated. The goal of this note is to provide entrepreneurs with an understanding of
how to use market research and market information to test the validity of a business concept and
to refine a business plan. It will introduce the key questions entrepreneurs should consider, thetechniques entrepreneurs could use to gather information to address those questions, and the
practical considerations for collecting and interpreting data.
Key questions
At the initial stage of starting a new business, entrepreneurs need to gain a rapid understanding
of the market size, market d ynamics, and customer need for the product or service the y plan to
offer. Even start-up teams with manyyears of industry experience should not rel y solel y on their
collective experience and intuition to develop a viewpoint on these fundamental issues. The best
way to test market assumptions and to develop insight into customer needs is through market
research. Anal ysis of market research data can provide important insights, which increase the
odds that the compan y will be meeting a valuedcustomer need and that the initial strategy will
be successful.

Alicia Seiger prepared this case under the supervision of Robert Chess as the basis for class discussion rather than to illustrate
either effective or ineffective handling of an administrative situation.
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Note on Market Research E-165

p. 2

There are three overarching questions that an entrepreneur should seek to answer with an y
market research plan. They are:
(1) Is the business concept viable from a market and technical perspective?
(2) What are the major risks andinformation holes in this venture and what information is
needed to characterize and minimize these risks?
(3) Is our strategy and business model likely to succeed?
For example, an entrepreneur might be considering starting a business to provide landlords with
eviction, credit, and work record information to enable them to evaluate the credit-worthiness of
potential renters. Before going forward withthis business concept, an entrepreneur would want
to develop enough understanding to feel confident answering questions such as:
• Is there a real need for this service? If so, is the market large enough to justify starting the
business and to interest investors?
• Is the value proposition compelling enough for landlords to buy a new service from a
new compan y?
• Will the sales cycle be...