It is always disheartening when a business collapses and capital evaporate – not because the owner lacked passion, but due to circumstances beyond their control. While some businesses fail as a result of wider economic shocks, a large number crumble because the owner failed to conduct proper due diligence. At the heart of that due diligence is market research, especially for small and medium enterprises (SMEs).
Globally, studies show that more than 20% of small enterprises fail in their first year, and nearly half do not survive past the first five years. In Nigeria, reports by SMEDAN and the National Bureau of Statistics reveal an even more troubling picture: almost 50% of businesses fail in their first year, and over 95% of SMEs do not survive beyond five years.
Among these failures, more than 40% of small businesses close down simply because there is no real market demand for their product or service. Another 19% attribute failure to being “outcompeted,” while 17% blame poor product offerings.
These numbers underline one thing: market research plays a crucial role in business survival.
Even though conducting market research does not guarantee business success, it remains true that many SMEs would still be standing today if their founders had taken time to understand the market before launching.
Why Most SMEs Do Not Conduct Market Research
According to a 2022 report by IntoTheMinds, 80% of companies are launched without prior market research. The main reasons range from ignorance about the importance of the exercise, to anxiety, limited funds, or lack of skills. But one thing is certain: failing to think strategically about how a business will survive is the first indication that the business is at risk.
Take the food industry, for example. Research shows that 80% of food innovations survive only 12 months. This industry is highly sensitive due to health implications tied to consumption. Entering such a space without in-depth knowledge of consumption patterns is like navigating a forest without a compass.
Market Research Helps You Understand Your Market
Market research expands your thinking and exposes you to insights you may never have considered. Every product or service operates within trends; shifts in consumer behavior, preferences, and economic realities that shape entire industries.
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Every business exists to sell either a product or a service to a specific group – individual consumers (B2C) or other businesses (B2B). If you cannot clearly identify who these people or businesses are, it simply means there is no market for what you want to offer.
Proper market research helps you identify your buyers, understand why they buy, how they buy, how much they are willing to pay, and the most effective way to reach them. With this clarity, you can refine your product or service, set an appropriate price, design the right strategy to reach customers, and package your offer in a way that appeals to them.
In simple terms: before you start any business, study the market.
In the follow-up article, we will discuss the three easiest methods for conducting market research.
