How to start a business #2 – Conduct your market research
Last month, we kicked off our series of tips for setting up your own business, helping you to define and refine your business idea. However, a good idea is just the first piece of the puzzle you should form before you start diving headfirst into the ocean of business. And with new business incorporations in the UK reaching 807,000 in 2024 according to Companies House register analysis, competition is real. So how do you ensure it is your business that stays afloat? You conduct market research. Read on to find out more.
Initial questions: Board strokes
Market research might sound technical, but at its heart it simply means understanding the environment your business will operate in before you invest your time and money. For entrepreneurs and SME business owners, this knowledge helps you shape your offering, identify opportunities for business growth, and avoid costly missteps.
Start by clearly defining your industry and niche. Instead of researching a global sector broadly, focus on the customer need your product or service fulfils and the geographic region you plan to serve. A dog grooming studio in Manchester, for example, benefits far more from researching UK pet grooming demand than international markets.
Next, investigate the past, present and potential future of your industry. Ask yourself:
- Is the industry expanding or declining?
- What are average profit levels and barriers to entry?
- How competitive is the market?
Reliable information sources include industry reports from consulting firms, trade associations, and public libraries with business databases. Government data can also provide context. For example, Companies House reported that the UK saw 198,046 business closures in 2024, likely as a result of economic instability and regulatory shifts.
Finally, create clear customer profiles. Avoid assumptions. Use secondary research such as census data, consumer reports or online reviews, combined with primary research like surveys or interviews. If you’re planning to invest heavily in stock, equipment or premises, understanding your customer early is essential.
This stage is also a great opportunity to test ideas using professional meeting environments, such as hiring space for focus groups or presentations.
Close-up considerations: looking at the finer details
Effective market research should build a detailed picture across four main areas:
Your market sector
Explore market size, demand levels and trends. Consider:
- Whether there is sufficient demand, and if not, how you can reposition your products and services.
- Cultural or economic trends that may affect buying behaviour
- Regulatory requirements
- The outlook over the next two to three years
This helps you estimate potential revenue and calculate measures like total addressable market (TAM), serviceable market (SAM) and achievable share (SOM). These projections inform business planning and financial forecasting.
Your customers
Define who your customers are and how they behave:
- Demographics and location
- Purchasing channels and payment preferences
- Budget expectations
- Decision makers
Knowing this shapes marketing, pricing and service delivery, whether you operate from offices, workshops or studios.
Your competitors
Understanding competitors is critical to positioning your business effectively. Analyse:
- Their products, pricing and marketing
- Their strengths and weaknesses
- Market perception and brand identity
- Potential new entrants
This insight enables you to craft a compelling value proposition that differentiates your business.
Your operational environment
Consider supplier costs, staffing availability and external influences. Tools such as SWOT, PESTLE and Porter’s Five Forces help identify opportunities, risks and strategic advantages.
Working within flexible business accommodation can help you respond to research findings quickly, scaling up or down as needed. Capital Space offers adaptable workspace solutions across business centres in the South East, designed to support evolving SME requirements.
What are TAM, SAM and SOM in business? And how do I calculate them?
Don’t be thrown by the fancy acronyms; TAM, SAM and SOM are invaluable calculations used to estimate the size of your potential market and help set realistic expectations for business growth.
- TAM (Total Available Market) is the total demand for your product or service without limitations.
- SAM (Serviceable Available Market) is the portion you can realistically target based on factors such as geography or capacity.
- SOM (Serviceable Obtainable Market) is the share you could realistically win, considering competition and resources.
They are calculated using customer numbers and expected revenue:
- TAM = Total potential customers × average annual revenue per customer
- SAM = Total customers × % you can serve × average revenue
- SOM = Total customers × % you can serve × % you can capture × average revenue
Together, these measures move your planning from broad opportunity to achievable targets, helping you forecast revenue and make informed decisions about scaling your business.
Top tips to master your market
- Document your findings carefully so they inform your business and marketing plans
- Use multiple sources when researching data
- Speak directly to potential customers whenever possible
- Treat research as ongoing, not one-off
Entrepreneurship remains dynamic, and as mentioned before, new players are joining the game every day. Continuous research ensures you remain competitive and relevant in this environment.
Market research pitfalls to avoid
Skipping or rushing research is a common mistake. Without evidence, you risk launching products nobody wants or targeting the wrong audience.
Equally problematic is relying only on desk research. Numbers tell part of the story, but real conversations with customers provide depth and context.
Finally, avoid treating research as complete once you launch. Markets evolve, competitors innovate and customer needs shift. Regular reassessment ensures your strategy stays aligned with reality.
If you’re looking for office space from a provider that wants to support your business success, get in touch.
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