Four Critical Pieces of Market Research Your Investors Expect to See

Four Critical Pieces of Market Research Your Investors Expect to See

Business Start-ups are often the life blood of an economy. They have the power to stimulate trade and industry by contributing new jobs, finance, goods and services. For many new businesses, funding is required and to apply you need a business plan founded in the four critical elements of market research your investors expect to see.  

When you have a business plan soundly underpinned by market research and analysis, you are well armed to procure investment from sources such as:

Acquiring funding is an emotionally taxing time for a start-up as you feel your business idea is on trial. However, understanding how to do market research for a business plan, the features and objectives of market research and putting together a resolute, robust, well-thought out plan affords you the confidence to obtain resources. It is our aim to help you succeed with your objective by giving clear actionable advice.

Without further ado, let’s begin equipping you with the knowledge you need to win.

Why do you need market research for your business plan anyway?

Business start-ups are typically very knowledgeable in the area of industry they are hoping to explore and continued learning throughout the business cycle lends itself to success. Where you might know your product or service inside out, it is vital to know your market the same.

Market research fills gaps and blind spots in your vision and says to potential investors that you know the entire market and are still certain there is an opportune space to fill. Without market research and analysis, you can look as though you don’t want to see the bigger picture, are poorly prepared or even foolhardy and we don’t want that to happen.

Critical item 1. The ‘size’ of your target market

To have a business at all, one must have a market and customers willing to buy what you have to offer. Proving there is a significant market to capture is music to the ears of an investor.

TAM v SAM v SOM circle funnel chart

Total Addressable Market, or TAM (aka ‘the whole pie’)

Your TAM is every target customer who could potentially buy your product or service locally, nationally or internationally. What revenue could you generate if there were no competitors in your market?

Let’s take the current race for a vaccine. The TAM for the winner of that race is pretty much the entire world as there is nobody in that space at present. Similarly, if you are creating project management software; what industries are likely to use this and what is the market worth overall?

  • Who are the customers that might buy your product or services?
  • What is the combined market share or revenue of all competitors? 

Serviceable Available Market, or SAM (aka ‘the piece of the pie you could eat’)

The serviceable available market is the portion of the whole market that you are actually targeting and intent on serving. While you might believe everyone in the world could be your customer, it is wiser to zero in on client you are hoping to sell to.

If your new project management software could potentially be used by everyone from construction companies to event managers, who do you want to go after? Who can you reach that is going to pay for your service?

Similarly, if you think you and another find the vaccine at the same time but you choose to serve your country first before anywhere else, how many potential clients are you looking at?

Serviceable Obtainable Market, or SOM (aka ‘the bite of the piece of the pie you actually expect to eat’)

SOM or share of market is the percentage of the SAM you can reasonably expect to gain. While the TAM may be a Blue Ocean with no competitors, SOM factors in demographics, geography, trade relations, the capacity of your company, how many competitors you have and what share they hold.

Sticking with our vaccine example, let’s say you are first and are serving your market first, will the vaccine be limited to those with insurance or that can afford it?

Project management software is a rapidly expanding market but what are you doing differently and how many of the possible customers are likely to choose you over your competitors? What is realistically attainable with your current operating system?

Building a marketing plan around your TAM is unrealistic but where there is a significant SOM, you could be on to a winner.

  • What is your production capacity?
  • What is the maximum number of clients or customers you can actually serve and what are the limiting factors?
  • Can you ship or travel internationally?
  • How transferable is your product to other countries or regions?
  • Do you need a physical presence where you might sell?

Critical item 2. A clear picture of your target customer

customer profile snapshot demographics bar chart

Optimism and drive in business are critical but may not be enough to engage customers. Knowing who the buyer is, what problem they are having that you resolve and where they hang out are critical information for communicating your solutions.

Who they are whether there enough of them in your obtainable market

A huge part of developing your SOM is knowing the people likely to buy your product. Build a customer profile of who the likely buyer is and include personal relevant details. The more you know, the better at speaking to them you will be. Engage potential customers, research them and their shopping habits. By the end you should at least know their:

  • Ages
  • Gender
  • Location
  • Income
  • Where and how they consume information

If you have a software tablet suited to 28 year old Mark, living a fast paced life, getting paid twice a month, you should be speaking to him mid-month when he has more wiggle room to make a purchase. You should also know how many "Marks" there are and if there are enough to sustain a business.

How you plan to address them through your marketing

Mark lives a face paced life commuting by train everyday and spends the ride to work meandering through Facebook. He is not reading through the local newspaper so you ought to engage him where he hangs out digitally.

Understanding the channels your customers use is the first step. How you speak to them is the second. In a "benefits sell, features tell" industry, people want to know how you are able to make their lives better. Ask questions they would ask, identify with their experiences and address your audience in the tone they use to gain favor.

How your product service is well positioned to meet their distinct needs

The sophistication of customers today is unparalleled. Access to reviews and information is instantaneous so decisions are not only made on what just looks the most attractive. If you fix a pain point, solve a problem or speed a process up, people are waiting to hear.

The all new project management software can have all the mobile options, color themes and conferencing options it wants but clients ultimately want to know if it will save them time and money.

Critical item 3. A competitive analysis

A Blue Ocean is a market where there is little to no competition which is extremely rare. Taking account of your competition and lessons to learn teaches us so much. You may find the market has a high cost of entry through licenses, there might be many providers vying for the same customer or there might be a large competitor that aggressively approaches new entrants.

Who your key competitors are and their value proposition

Knowing more about your competition prepares you, allows you avoid mistakes and displays under-served markets. What do your competitors do well or what is their strategy for gaining customers? What are they bringing to the table, where are they lacking and what can you capitalize on?

Doing a SWOT analysis is very common when assessing your strengths v. your competitors and the general market opportunity for your business
SWOT analysis quadrant chart

How you plan to do something different than they are

Thorough market research provides an inside track of lesser competitive avenues and tools such as the SWOT or PESTLE analysis can reveal vital insights. Creating an effective strategy to take advantage of available markets improves the chance of success and being able to convey significant market gaps attracts investors.

Many markets feature the same concepts such as lower quality, lower price models vs high price high quality, one-day delivery and healthy options are some of the competition platforms we see across nearly all markets.

brand positioning map price v quality

Critical item 4. Hard data that proves your target customer is interested in your product/service

donut charts with kpis purchase intent overall liking relevancy uniqueness

You may be the best story teller, wonderfully charismatic and persuasive but there is nothing more tangible to investors than having facts and figures to back up every claim. Delivering a pitch and displaying the quantitative figures showing the existence of the demand from customers you have surveyed can make or break negotiations.

It is important to ask questions related to their general interest in your idea and whether they would consider purchasing it. Asking a handful of diagnostic questions can help you better tailor your product or service towards them too.

Imagine bringing every person you gauged into the pitch with you. The image created by sheer weight of numbers would be difficult to deny. Your statistical representation of these people makes the decision of investors less of a grey area instead offering hard data to support your claims that a market of customers are very willing to buy.

It’s a lot of work – but it’s work worth doing

Market research may seem like the 'less pretty' piece of starting a new business but is nonetheless vital. The aims of research and market analysis are to provide you with an effective litmus test of the potential success of your product and service.

By knowing your potential market, customers, competitors and the advantages you deliver give any potential investor tangible proof that you have done the necessary market research to vet your idea and build a road map to success. Covering the four critical pieces of market research helps to build significant confidence and credibility for yourself and your investors.

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