I have an exciting investment opportunity
only for Two Cents viewers: Beard Oil for dogs! I call it Groomio, and it’s a guaranteed success! How do I know? Trust me! I just feel it in my gut! No serious investor will trust their money
to your gut. And you shouldn’t either. No matter how good you think your idea is,
before you mortgage your house or quit your day-job, you owe it to yourself to thoroughly
investigate its market viability—that is, a realistic, data-driven prediction on whether
it can succeed in this marketplace. This applies to Fortune 500 companies and
handmade soap sellers on Easy. One way or another, the market will judge
your product…wouldn’t you rather hear the verdict before you sink your life savings
into it? Ruth here has been giving her homemade artisanal
soaps to her friends and co-workers as gifts for a while now, and getting a lot of positive
feedback… enough that she’s actually entertaining the idea of starting a small business. But before she retires from her office job,
how can she know whether there’s really a market for this? The answer is market research. Marketing research companies generate exhaustive
reports on pretty much any industry you can think of, including the Handmade Global Soap
Market. They include findings like market size, growth
rate, demographics, industry leaders, even how facial scrubs perform vs. liquid body
washes. And it’s all available to Ruth as a downloadable
pdf for… $4,000. Maybe Ruth can afford that, but I can’t. Fortunately, there are plenty of cheaper options. I found this free report from the non-profit
American Pet Products Association, which says that U.S. spending on pet products and services
grew at an average rate of about 5% annually, comfortably above the GDP average, and that
pet ownership is increasing, especially among millennials, with dogs leading the way. This is all good news for Groomio, because the
bigger a market, the more potential customers, and the faster it’s growing, the more new
customers—who are much easier to sell to than older customers already stuck in their
ways. The report also tells me that the average
dog owner spends $84 a year on grooming supplies and services—very useful info as I decide
on a price. A major part of market research is analyzing
competitors. If Ruth wants to get into the homemade soap
market, she needs to know what the successful brands are, how much they cost, what are the
most popular ingredients and scents. She can even request credit reports on these
companies for a fee (unlike personal credit scores, business credit scores are publicly
available) which will tell her whether they’re financially stable, and how much risk there
is in the industry. Search engines and social media have made
collecting this type of information easier than ever. A simple Google or Twitter search will often
tell you who the major players in an industry are. With a GoogleAd account you can see how much
competition there is for your keywords. And Google Trends is an easy, kinda fun way
to find out what’s hot and what’s not. (Seriously, you can burn of lot hours here.) I can see that the search terms “dog grooming”
and “beard oil” have both grown slightly over the last 5 years. I can tell what times of year they’re most
on people’s minds, what geographic regions they live in, even what related searches tend
to overlap. This can all be useful when designing my product
and advertising strategy. All of this is considered secondary market
research, information that already exists that you can purchase or find for free. But if you’re really serious about success,
you need to do primary market research, which means collecting data on your own. It’s often more expensive and time-consuming
than secondary market research, but it always saves you money in the long run, because you
narrow down your audience and focus only on the features that they’re interested in. For example, Martin wants to introduce a new
sandwich at his popular food truck: a double-bacon BLT with garlic aioli and truffle oil. Before rolling it out, he asks his existing
customers to fill out a survey, posts some polls on his company’s social media accounts,
and just to be really thorough, pays a web service to get survey responses from the types
of people who frequent food trucks. Lo and behold, he finds that people who tend
to like bacon DON’T like truffle oil (because it’s disgusting). He almost wasted a lot of money on an expensive
ingredient that would’ve actually lowered sales. Thanks, Primary Market Research! Many experienced market researchers will tell
you that when it comes to collecting data, nothing beats face-to-face conversations. That’s because customers are humans with
emotions, and the most successful products are ones that solve a pain. “Market pains” are anything that causes
frustration or inconvenience in a consumer. It’s a problem that your product could potentially
solve, and the best way to find it is talking directly to people. Big companies conduct interviews with lots
of people of varying demographics and regions, but just because you can’t afford that doesn’t
mean you shouldn’t talk to people when you can. But—don’t bother asking your friends and
family! They’re likely to be nice and encouraging
when what you need is brutal honesty. For instance, Ruth starts taking her handmade
soaps to the local farmer’s market, and makes sure she strikes up a conversation with
anyone who’ll give her the time. She notices a trend in people who say they
wouldn’t buy handmade soap online because they’re concerned about the packaging waste. Aha, market pain! She decides to make sure all her packaging
is made from recyclable materials—and that it’s mentioned prominently in the advertising. For the truly introverted entrepreneur, the
internet does offer a sneaky shortcut to finding market pain: the dreaded comments section. If your competitor has one, you’ll find
people happy to complain about drawbacks or features they wish the product had. There’s even a successful electronics company
that has made its whole business model developing products based on complaints in Amazon reviews. “I love this nose hair trimmer but I wish
it was waterproof!” Bam, market pain. This is a very generalized overview of market
research. There’s a lot more to it: industry lifecycle,
market penetration, federal regulations— Oh shoot! I forgot to check if animal cosmetics require
FDA approval! Thankfully, there are a lot of resources out
there. The Small Business Administration provides
lists of organizations that offer free market reports, and can help connect you with a counselor
or advisor. But be careful of business coaches who think
their job is to just be your cheerleader. While this encouragement is nice, you don’t want
to be encouraged off a cliff. Ooh! The results of my survey are in! The percentage of dog owners who say they’d
be interested in Groom is… 4%. Maybe I shouldn’t take out that loan just
yet. And that’s the most important part of market
research: objective honesty. No matter how much you love your idea, if
the research tells you otherwise, well… that can be a good thing! It means you just saved yourself a lot of
money and effort. And freed up your time to develop an idea
that will work. And that’s our two cents! Thanks to out patrons for keeping Two Cents financially healthy. Click the link in the description if you'd like to support us on Patreon. If you’ve ever conducted market research,
share your experience with us in the comments!
