How to do market research for a startup in 2022
The bootstrapping scene has changed a ton since 2010. It used to be a fringe pursuit that only a few companies, like Basecamp and Fog Creek, did. Now, there are more bootstrapped and independent startups than ever before.
However, one aspect that hasn’t changed much is the importance of market research. Contrary to popular beliefs, you don't need a full business plan, fancy market research tools, or to interview and hire market research firms to get started.
All you need is a business idea, the problem you’re solving, a general idea of who your ideal customer is, and a willingness to talk to them. That's the key to an effective market research process as a founder. Because in the process of conducting in-depth interviews with your target customers, you'll uncover a ton of deeper insights, including a list of direct competitors (as well as indirect competitors), how they make business decisions, and market trends.
Most founders may only go through this process a few times. Courtland Allen, who is the founder of Indie Hackers, has a unique lens since he sees this play out thousands of times each year through the Indie Hackers community.
In this post, we’re taking a closer look at the four frameworks that Courtland developed around idea generation and market research validation.
What is market research?
At its simplest form, market research is the process you use to discover how viable a new startup idea is.
Spending the time upfront doing market research—ideally in the ideation phase— can avoid a lot of pain down the road.
Many founders hide behind online surveys to get intel into market size, competitor analysis, and trends.
However, the best market research method is conducting interviews with potential customers in your primary market. You'll learn more about your customer base and be able to make informed decisions around your business strategy.
Courtland’s startup landscape framework: The El Dorado Landscape
When it comes to evaluating ideas and doing market research, here is a framework that Courtland created: The El Dorado of Ideas.
In this idea framework, El Dorado represents the market. And, coming up with the best startup ideas is a lot like digging holes.
The basic premise is that coming up with good ideas is hard, and many would-be founders spend too much time in the ideation phase.
Most ideas that founders think of are “too obvious” or surface-level ideas. These ideas are not in your favor. It is relying too heavily on their intuition and not doing enough deep customer research.
Some other founders that Courtland sees are shallow diggers. They basically execute on as many ideas as they can find, hoping to strike up easy gold. For example, the founder that sets out to launch 12 startups in a year. Sometimes, these ideas can work, but you are relying too heavily on luck to make it happen. More often than not, the ideas are too surface-level to have any chance of working out long-term.
The best strategy is to dig deeper holes. It is all about really getting to know your market. You’ll come up with lots of ideas that have real potential and aren’t surface-level. That’s how you find gaps in the market.
Here are some questions to ask about your target market:
Who are these people?
Where do they hang out?
What do they complain about?
What makes them really excited?
What do they buy?
What do they never buy?
Who do they follow, trust, and respect?
What do they fear?
What are their goals?
Where do they get their product recommendations?
What do they read, watch, or listen to?
What makes them angry?
These questions will lead to a bunch of potential ideas. As you start to prioritize the most promising ideas, here are more questions to ask:
How much money is changing hands here?
Are the customers reachable?
How long would it take to launch a product?
What are your weaknesses?
What’s your personal runaway like?
Would you like your customers?
What are your personal goals?
What industry would make you happy?
Once you land on a promising idea, you should also do some competitor research.
Who would be your main competitors?
How long have they been around?
What are their core value props?
What do customers of these competitors complain about?
Climbing wall of growth
Many new startup founders think that a successful startup looks like a “rocket ship launch / hockey stick growth.” However, the reality is that most successful startups look more like a rock-climbing wall.
Every single step takes effort. Growth can be a slog and happens one step at a time. These steps add up until it is substantial.
What can you learn from this?
The first step is the simplest. You don’t need an elaborate growth strategy or worry about scale at the start. Instead, start small.
For example, when Courtland started IndieHackers, he emailed the first 200 people personally.
Then, keep climbing. If you stop, your growth will stagnate. In addition, it is important to always keep looking for new steps.
Then, plan your route. Going back to the rock climbing analogy, the best rock climbers are thinking 2 to 3 steps ahead. Great startup founders think the same way.
Finally, stay on track to your destination. It is easy to get distracted by shiny objects and lose focus. Make sure you have a vision so you know what you want to say no to. This becomes increasingly more important the higher your startup climbs as you’ll have more distracting options.
The living room of vision
Having a business vision gives you confidence, and confidence makes you try harder.
In the early days, a vision gives you the confidence to keep going when you hit obstacles. Instead of giving up, you’ll be more willing to try more things until something works.
For instance, IndieHackers’ vision is to:
Inspire people to create Internet businesses and to help these new founders succeed at a scale large enough to have a global impact.
Why new startups fail
The biggest reason that new startups fail is that the founder loses interest or burns out.
Managing your startup runaway
The other reason is mismanaging your startup runaway. That’s why you need to adjust the plan so you can take off without taking unnecessary risks or burning through an insane amount of cash too quickly.
This is something that Courtland learned the hard way with his first business in 2009. He did everything but charge money for the product upfront.
Another way this can manifest is procrastinating in the form of pivoting too much.
Even if you take funding, having the mindset of a bootstrapper can be valuable. This forces you to make decisions based on profitability and cash flow instead of trying to be the next unicorn.
It can also help with a more pragmatic approach to funding decisions. For instance, raising more money than you really need requires you to bet the farm on your company. (i.e. if you have to be a unicorn to have an acceptable outcome for you and your investors, is it worth it? Or should you focus as an indie hacker where you could potentially have $1M, $10M, $50M exit, etc.
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While it might be tempting to just start building once you have an idea, this is rarely the right thing to do. Market research can help you understand not only your market research better but how viable your idea is.
