How to do market research & build a product strategy

What’s on this page

1. Intro to Research
2. Where to focuse your research effort
3. Define Your Audience
4. Identify your Unique Selling Proposition (USP)
5. Business Plan & Budget

Have you been wanting to start your own business? or maybe you have and you don’t know what to do next? don’t worry, you have come to the right place. For both circumstances, we have arranged a step-by-step guide that will allow you to move forward.

Starting a business is not easy, we understand how scary and unfamiliar it can be when starting from scratch. This is why we have provided you with the best guide and to calm your nerves we have even provided you with some insights from Itzik Levi, CEO of vCita, and how we become so successful.

Here, we have created a full step-by-step guide to help you kick start your business adventure. In this article we will cover the whole loop, all the way from the introduction stage in your research market to budgeting and creating a business plan.

1. Intro to Research

Want to strike oil? Before you start drilling, you need to find out what are the demands are for oil and how much it will cost you to meet the demand. In other words, you need to understand the market from both perspectives as the customer and the supplier – get to know the market.

The aim of doing market research is for you to understand what it takes to run a business in a specific field that you want to enter. It doesn’t matter if you come with prior experience, working as an employee in a specific field or from a different profession. Running a business is quite different, as the latter of demands require a whole new set of skills and knowledge.

In your research, You should aim to get all the basic information to help you understand what it takes to run a business in your field (e.g. rent costs, taxes and regulations, product costs, potential customers). Your research will help you avoid making future mistakes by giving you a clear and precise view of the potential challenges that come with running a business.

In many ways, market research is like a navigation app that guides you to the selected destination, in the best way possible. You wouldn’t start a cross country drive without a GSP, would you? Same thing here, you don’t want to start a business without researching the journey!

2. Where to focuse your research effort

Don’t feel overwhelmed by the idea of market research. Granted, you could research your market for a year and still have plenty to learn and discover. But, at a certain point, research will only get you so far. Eventually, you will simply need to get hands-on experience by running your business and apply what you’ve learned through your research. So, what should you focus on in the research/learning stage?

Focus your research on 3 main goals:

1. Define your audiences and your potential customers’ personas
2. Identify your unique selling point (USP)
3. Get the info needed to create a business plan and budget.

There are three major points that are worth exploring further, but before we start let’s understand how to conduct efficient market research.

Focus your research on 3 main activities:

1. Online search (yes, that means googling!)
2. Learn from others
3. Behave like a customer

I) Online search

You wouldn’t believe how much knowledge you can get within 3 hours of searching the web. For example, doing a simple Google keyword search for your product or service will likely open your eyes to things you never considered before. This will help you prepare for unseen challenges.

Online research will also help you stay up-to-date with the latest news and trends in your industry, so make sure to follow relevant blogs, websites, and other resources.

The web can give answers to the following questions:

• Who are the competitors and what do they offer?
• What are the main keywords and terms used in my field?
• How do people discover your product or service?
• What is the touchpoint with your products/service – where do people encounter your product in their daily lives?
• What is the current price range of the product you are offering?

Start by googling your service/ product and reading the first two result pages.

II) Learn from others

There is no need to reinvent the wheel. Instead, simply talk to others in your industry to find out what to do and which mistakes you can avoid. Even by speaking to other business owners and colleagues in your field, you can get first-hand insight, this is a valuable way to gain knowledge. Use their experience to inform your own strategy.

Key questions you should seek to answer: 

• What does it take to get into the field? (costs, regulations etc)
• What are the main stages a business in the field goes through?
• What is needed to produce the product/deliver the service and how much does it cost?
• What are issues or problems that may occur?

Tips: Set Meetings: Make a goal to set one meeting per week with someone in your field in the first few months. It will not only help you learn but also help you network and discover new opportunities.

III) Behave like a customer

Putting yourself in the customer’s shoes, exploring what the market currently has to offer, will give you a good understanding of what is working and what is not.

When talking about the customer journey, we try to identify the main stages that a potential customer will go through (target audience). From the moment the potential client is aware of the product/service to the moment they purchase it.

You can understand your target audiences’ experience by simply shopping online for the type of product/service you plan to sell. By acting as a potential customer, you are going through the process of searching and purchasing online, and while doing so try to identify the distinct stages that users go through.

Try to identify the following four stages:

1. Awareness – The moment a customer understands there is a product or service that answers a need there needs. For example, a couple that finds out they’re about to have a baby and suddenly discovers the world of baby products and services.
2. Interest – The process of getting the needed information about the product or service. How do they connect to the need? How does the product/service relate to the customer’s current values and lifestyle? And what are the variables in choosing the right product or service?
3. Consideration – After gathering the needed information and feeling that they can make a knowledgeable decision, in this stage an evaluation of the different alternatives that the market offer occur.
4. Purchase/decision – The process of purchasing the product or service, from the deciding moment until finalizing the payment for it.

Knowledge is power, the more information you gather about your market (from industry news, research and people in the field, type of customers), the more you will be prepared for the upcoming challenges.

For each, write down one thing you liked about the purchase experience and one thing you would improve about it. Once you’ve completed researching your market, you can move on to the next section and start defining your audiences.

3. Define your audience

It sounds obvious, but all businesses need to understand the markets they want to target and operate within. The more knowledge you have about your market(s), the better you’ll be able to identify the market opportunities that are most relevant and profitable to you.

I) Mapping market opportunities

A market opportunity is a need or a demand from the market that can be addressed by a product or service provided by your business. So, what are your market opportunities? This is the time to think big by brainstorming all the different types of needs your service or product can serve.

For example: If you’re a photographer and provide photography services, think of all the different types of products and services in the photography world. You can do entertainment photography like headshots for actors or models.

For families, you can offer baby portraits, weddings, life events, holiday cards. For the corporate world, you can shoot products, staff headshots, advertising materials, and more.

So how do you narrow it down, or do you even have to? By the end of this lesson, you will have a much clearer idea of which opportunities and audiences you feel are worth pursuing. To start, you need to think big. Write down 5 different types of needs for the products or services your business offer.

II) Identify your audience

An audience is the group of people that share the same need or potential need for your product or service. Segmenting your audience into smaller groups (or “personas”) will allow you to address their needs with more specific and direct messaging, as well as differentiate between different types of customers and offer each group the right product or service.

After all, you will likely have a variety of people interested in your product or service—so, it’s important to categorize them and market to them accordingly.

For Example: let’s take a yoga instructor. In order to identify the market segments, she needs to ask herself two main questions: Who wants/needs my yoga services? What is their motivation? Why do they want/need my services?

Let’s take a look. Here are 5 examples of different segments of people who might want to do yoga (these can also be interpreted as different market opportunities):

Who	Why
Fitness-oriented	They want to stay in shape
Pregnant woman	They want a healthy pregnancy
People with health issues	They want activities that physically accommodate them
Parents	They want an after-school activity for their kids
Online yogis	They want to practice yoga from home

III) Define Your Audiences

Now it’s time to think of your potential customers. Write down at least 5-6 audiences (or personas) who would seek your product or service. This includes

• Who are your audiences?
• Define why they would want to patron your business.
• Identify the clients by their demographics, needs, and type of use in your product.
• What can I sell them? (products/service)

Once you’ve completed this list, now choose the three personas you think are the strongest—the ones who are likeliest to purchase from you and why.

Why choose three? Keep in mind that it’s difficult for a business—especially a new business—to address all market segments at once, which is why you need to focus on the ones that are most relevant and valuable when you start out.

IV) Audience Personas

The most effective way to define and understand your target audience is by creating “Personas” for your customers. A “persona” is a profile that your target customer fits. You need to build the persona based on the information you’ve gathered from your market research.

Within your general audience, there will be several personas, which make it easier for you to remember the different customer characteristics and needs. In most cases, your target audience will not be one homogenous group with the same interests and problems. Instead, they will fall into several categories, as they did in our earlier example of a yoga instructor and her varied audience.

You should aim to identify 3-5 personas among your target audience. This is large enough to cover different types of customers and small enough to still be manageable. However, don’t confuse personas with a “niche” audience. Every persona should represent a significant segment of your target audience; not a fringe. The segment must be large enough to justify marketing to it directly.

How to create a persona?

When building your audience personas try to think of all the different characters that embody it.

Answer the following questions to build a persona:

1. Demographics and general information (name, profession, age, gender, education level, marriage status, where he/she lives, etc.)
2. Life story and main events (hobbies, things he/she likes and dislikes, tech level, etc).
3. The need or problem he/she has and what is motivating this customer to seek your product or service?
4. How can your business solve the need or problem?

When is it useful to address different personas?

When you start to conduct your marketing activities down the line, you will really appreciate having various personas within your audience. It will help you appeal more personally to your customers instead of lumping them all together—after all, their motivations and needs are unique.

Build Audience Personas

Once you’ve sketched out the basic personas amongst your target audience, it’s time to move onto the next stage in identifying your unique selling points.

4. Identify your Unique Selling Proposition (USP)

Now that you’ve researched your market and identified your potential audiences, it’s time to identify your USP—Unique Selling Proposition. Your USP is a special element that sets your business apart from your competitors and motivates customers to come to you over others. It could be something about the products or services you provide or something about the values or ideals you represent.

Your USP will help you move on to your next steps of branding your business (which we’ll explore in our next chapter).

Your USP also helps you focus on your business. Remember, you can’t be everything to everyone. While you may offer different types of related products and services and appeal to different audience segments (as we discussed in previous sections), you do need to focus on the one special thing that sets you apart. This one unique attribute should appeal to your entire audience and apply it to all of your products and services.

If, for example, you are a coffee shop that defines your USP as fair trade and environmentally friendly, the USP should weave into your entire business. It’s not enough that your coffee beans are fair trade. You also need to incorporate your eco-friendly, socially conscious USP into the fabric of your business, meaning the materials you use to serve your beverages, your recycling messaging, how you treat your employees, and more. Ideally, your customers should feel your USP in various aspects of your business.

Define your USP by looking at these 3 major components:

I) Price

How does the price of your product or service compare with that of your competitors? Do you set competitive prices that match theirs or offer more savings?

For example, if you own a coffee shop, is your coffee 20 percent less expensive than your local Starbucks? Keep in mind that in order to offer competitive prices, you need to think creatively about how to reduce your business expenses so that you still turn a profit (we’ll discuss this later on in the Finance chapter).

On the flip side, you can also define your USP with higher price points. This approach is usually seen in the “luxury” market, where consumers associate a higher price point with higher status or quality. For example, let’s look at the wine market.

Research shows that consumers often associate higher quality with higher-priced wine even if the wine is exactly the same. When given a blind taste test of “different” wines that are actually the same but priced differently, consumers overwhelmingly report that they prefer the more expensive sample. This is an example of how price can have a psychological impact on consumer behavior. 

II) Quality of Product/Service

The quality of a product or service can be defined by many different things, which fall onto a spectrum. Here are the most common factors that determine quality:

• Longevity– How long will the impact of the product or service last?
• Efficiency – How quickly will the product or service produce the intended results?
• Responsiveness – How well does the product or service respond to the customer’s needs or challenges?

III) Customer Experience

The quality of your product or service is also determined by what kind of experience your customer or client has with it.

For example, if you are a hairstylist, the quality of your service not only depends on the skills of your hair cutting. It also depends on your interaction with your clients. Being on schedule, friendly, and making them feel comfortable and welcome has a huge impact on customer experience and is what can make you stand out from other hairstylists. Customer experience also applies to products. 

For example, think about your daily cup of coffee and how important the cup is to your experience. A sturdy cup that is designed to contain heat will be more comfortable to hold than a flimsy paper cup.

To sum up, your business can define its USP through various factors, and therefore, you can base your USP around one or multiple attributes. In order to determine your USP, you really need to understand your competitors’ strengths and weaknesses and what you do differently (or ideally what you do better) than they do.

In your research, you will also probably come across the term “value proposition.” Your value proposition is simply a statement that explains your USP. For example, if your USP is based on matching your competitors’ prices, your “value proposition” communicates that: “We will match any price!”

5. Set up a business plan & budget

Having a business is not just about making money. It’s also very much about knowing how to spend money strategically so you can maximize your earnings and minimize your costs. This is where a budget comes in! Your business budget is critical for keeping your business afloat. It’ll help you track your costs, income, net profit, cash flow, debts, and balance it all so you’re always in the red.

It’ll also help you grow down the line. Without a budget that maps your financials, it’ll be nearly impossible to assess how your business is performing from quarter to quarter, year to year. You won’t know where to invest more money and where to trim the fat. Operating a business without a budget is like trying to read a book in the dark!

To make sure your business runs like clockwork, especially if it’s centered around a product, you would want to consider a fitting tool to help you lay down your road map. A sound business is built on a sound plan, and of course, a sound execution.

What your budget should tell you

When you draft a budget, you are basically trying to understand three major financial questions:

• How much money do you have/will you need to initially launch your business?
• How much money will your business cost to operate?
• How much does your business need to earn in order to meet your operating costs and provide you with income?

When you crunch these numbers, you might discover that you won’t have the funds to launch or operate based on your business goals. You can solve this by taking a business loan or using your own credit, but bankers will want to see your budget to determine your loan terms. This also goes for potential investors if you seek investment, shareholders, or some sort of financial partner for your business.

What to include in your 12-month plan

You’ll want to map out your budget within a 12-month plan.

• Initial investment
• Cost of day-to-day operations
• Fixed costs (staff, equipment, materials, etc)
• an estimate of your monthly income

What to include in your budget

A healthy budget needs to keep track of the following:

• Revenues – This is the amount of money flowing into your business. Revenue is a net number of incomes that do not subtract your costs.
• Costs – This is everything you spend on your business from insurance to employee salaries, equipment and materials, services (like web hosting) and even the small stuff like the monthly coffee costs for your office.
• Profits – This is the fun number ( or should be), Your profits measure everything you earn after your expenses are accounted for. The better your budget, the easier it will be for you to figure out how to maximize your profits. With profits, you can pay yourself and/or re-invest in your business to keep it growing.

Ideally, with a well-calculated budget, you’ll be able to maintain a healthy cash flow (the balance of money coming into and out of your business), or easily weather those times where cash flow isn’t so fluid (when more money is coming out).

Getting budgeting help

To get you started, we created a basic budget spreadsheet for you to begin mapping things out. This spreadsheet will help you start to crunch your numbers to get a rough yet solid idea of what your operating costs and incomes will look like.

First and foremost, it’s critical to understand the money you’ll need to spend on a fixed and regular basis. Our spreadsheet helps you wrap your head around those expenses, ones you’ll need to invest in right away and ones you’ll want to consider for growth.

Our spreadsheet is a great way to get started on your budgeting path. Once you’ve completed this basic step, it’s time to think of other resources to help you.

Financial professionals – Most small businesses won’t need an accountant on staff, but it’s a good idea to have one looking after your finances. You can hire an accountant on a monthly retainer to review your finances so you don’t have any surprises hit you.

Accounting Software – There are so many user-friendly, powerful accounting software options on the market specifically for small business owners. We recommend our partner Intuit Quickbooks, which offers all the tools you need to manage your budget like a pro.

Bookkeeper – When it comes to managing your day-to-day financial operations, it’s wise to have a bookkeeper if you can afford one. A bookkeeper will tabulate income and costs to help you have a healthy cash flow.

Just as the value of money ebbs and flows and the stock market soars and dips, so can your budget. Your budget should be a living document that you regularly review and revise.

Has the interest rate on your loan changed? Has your rent gone up? Have you given employees a raise? Are you selling at a higher rate than last quarter? Has the cost of your materials changed at all? Your insurance premiums? All of these financials need to be considered on a quarterly basis at a minimum.

Conclusion

I truly hope this article gave you the know-how and tools you need to set out on your market research. The importance of such research is astounding. Doing your market research correctly and fully may very well determine your ability to create a great product or service that will be loved by people and conquer the hill for a long time to come. Good luck!