Market research can be split into two categories: primary and secondary.
Market research is essential for biotech and medtech startups to ensure that they develop technologies that will be successful when commercialized. This is true for all industries, but especially for the life sciences. Scientists and engineers focusing on the scientific validity of their technology also need to consider their customers' and end users' needs. Innovative technologies have the greatest success when they solve a significant problem for the customer. Biotech and medtech startups are more likely to commercialize their product if they follow what the market wants.
This is where market research comes in. Market research allows entrepreneurs (and mature companies) to learn about the customers they are targeting, and whether or not they are the right customers to target. Read on to learn more about market research.
Market research is the process of learning about and gathering information on a company’s potential customers to find out if a product or service will be successful among them. Another way to say this is, the process of determining product-market fit. Product-market fit means that a company’s product or service solves a problem for the customer and the customer finds this solution valuable enough to pay for it.
Market research can be split into two categories: primary and secondary. Primary market research is first-hand, whereas secondary research is based on previously gathered data.
Primary research is concerned with asking potential customers questions that a company believes will help them determine if they have product-market fit. The selection of the questions is important, as it determines how useful the resulting information will be. Ideally, questions used in primary market research should be open-ended and directed at finding out what a potential customer’s pain points are. The questions should not be about a company’s product. People usually do not like to criticize others directly, so showing a potential customer a product and asking if they like it will almost always yield more positive responses than are accurate.
Frequent methods of conducting primary research include interviews and surveys. Finding the potential customers to interview or survey can sometimes be complicated depending how big the market is, where the customers are located, and how closely connected the person conducting the market research is with the customer’s community. However, most people are open to interviews as it involves giving their opinions. Surveys tend to get low response rates if they are sent in bulk, but they can still be useful if there are a large number of people contacted all at once.
Primary market research changes over time as a company begins to learn more about their customers’ priorities. It tends to start out more general and become specific as a company hones in on the right customers and the right problem.
For biotech and medtech startups, primary research might seem either premature or inapplicable. However, as long as founders have a good understanding of who their customer really is, primary market research is just as important for these companies as any others. A common misconception by biotech and medtech startups is that the end user of a product is the customer. In the case of a pharmaceutical drug, that would be the patient with the disease or disorder that the drug is designed to treat. However, in most cases the patient is not actually the customer--the insurance company is. Insurance companies pay for most drugs that treat serious conditions, but they choose which ones they will cover. Furthermore, insurance companies frequently use doctors’ opinions on whether or not a new drug is as good as the current standard of treatment. Therefore, primary market research would in this case involve interviewing doctors to find out what factors determine which drugs they prefer to prescribe. Insurance companies are usually looking for treatments that cost less and keep patients from needing ongoing doctor’s visits, so the primary market research questions asked of them would be along the lines of pricing.
Pre-collected data forms the basis of secondary market research. From freely accessible data gathered by governments and other organizations to purchasable databases, secondary market research involves analyzing data sets that have already been collected. This can be especially helpful when looking at competitors, since they are unlikely to answer questions designed to help other companies take part of their market share.
One of the most common pieces of information to gather via secondary market research is the size of a market. Government census data, statistics from patient advocacy groups, and others can be used to determine a likely number of people who suffer from a particular disease, for example.
There are a plethora of companies who gather data of use to many industries and develop reports, which they sell to anyone willing to pay the licensing fee. However it can be challenging to determine which of these reports are the most reliable and worth the sometimes expensive price tags.
Another way to collect secondary data is to look at the information a company has already collected internally. This is not necessarily applicable to startups, but awareness of how important internal data collection is can benefit companies as they grow. It is important to set up data collection methods ahead of time that are predictive of future sales and customer retention.
Biotech and medtech startups can utilize secondary market research to help them make a case to investors (and themselves) that the product or service they are developing is better and cheaper than the existing solutions on the market.
Some specific types of data that market research can illuminate include market segmentation, or the different types of customers within a target market. Frequently by categorizing customers into smaller, more distinct groups, they can be more easily reached. Information on how to price a product or service is another important facet of market research, as pricing too high or too low are both harmful to a company. Competitive analysis tells a company what its competitors are doing, what is working for them, and where there might be opportunities in the market that are currently unfilled. Besides learning about the likelihood of a specific product or service succeeding, a company’s brand also matters. People are more likely to buy from brands they recognize and have positive opinions about, so brand awareness research can inform a company’s strategy. Understanding how potential customers perceive a brand can allow a company to make changes in their messaging and either increase or decrease spending on travel, business development, and other facets of an organization that affect their brand.
Even biotech and medtech startups which often like to work under the radar in the early days of research and development can benefit from brand awareness research, though it may look different. For startups, this might really be founder awareness or Chief Scientific Officer awareness, as investors and potential partners understand that young companies haven’t been around long enough to build brand recognition. The reputations of founders and lead scientists instead can determine people’s opinions of a startup, so if they are well known as experts in their fields that can be a great benefit.
The most important factors in successful market research are the questions that a company sets out to answer. If those questions are thoughtfully crafted, they will be immensely helpful. Luckily, the right questions (especially at first) are pretty broad and open-ended. Especially when conducting the initial primary market research, the more a company can learn about its customers, the better. Therefore, open-ended questions that allow a customer to add the details they consider important are great. For example, a medical device company can ask what a surgeon’s biggest problem is related to a specific procedure. Or if a company gets the chance to shadow a customer, a question might be something like, “why do you do the procedure that way?” Another good open-ended question is, “If you had an ‘easy button,’ at what point would you press it and what would it do?”
None of these questions say anything about the company’s product. As mentioned in the section above titled “Primary Market Research,” asking directly about a product is less valuable than asking broad questions. By taking the approach of letting the customer explain what they see as the most important problems they have in relation to a specific area, answers will be honest, thorough, and useful.
The need to choose questions carefully is also relevant for secondary market research, though data can be analyzed over again if needed. In contrast, reaching out to customers a second time can be difficult especially if they are folks who tend to have demanding schedules. Secondary market research questions must be chosen that reflect the goals of the research. For example, if the goal is to learn about the market size, questions like “how many people have this disease?” and “how many people seek treatment for this disease?” are important, but so are questions such as, “what does the prevailing treatment cost insurance companies?” and “how often does the prevailing treatment fail?” Secondary research must take into account the potential caveats that aren’t captured by single data sets. If a large number of people have a disease but only a subset of those actually seek treatment, the market is smaller than might have been assumed. If the prevailing treatment fails a high percentage of the time, there may be a bigger opportunity than it would seem if only treatment costs were analyzed.
Market research is so important for startup success that a number of government agencies fund programs that take companies through the process. First developed by the NSF, the NIH, DHS, USDA, DOD, DOE, and NASA all fund market research programs called I-Corps, which stands for Innovation Corps. These programs are designed to help companies that were funded by these agencies to move to the next level of their development. Some agencies require companies to be associated with a university, others require that they have SBIR/STTR funding, but all are focused on helping teams complete a significant amount of research on their potential customers.
Doug Crawford, Senior Licensing Officer at UCI Beall Applied Innovation oversees the NSF I-Corps program at UCI. “The mission of I-Corps is for teams to find product-market fit,” says Mr. Crawford. “Teams hypothesize or guess that a specific group of people will want their technology for a specific reason and then they test that hypothesis by asking those people. Teams learn what their potential customers' priorities are and see if their product addresses them. I-Corps teaches teams to listen to their customers.”
The NSF I-Corps program is structured over 4 weeks in which startups interview at least 30 people in their target ecosystem. They don’t pitch their technology--instead they ask open ended questions. The end result is for a company to have a match between what they make, who it’s for, and why those people want the product. This program runs three times per year and is open to startups that have a UC Irvine affiliation.
Although this article covers market research from an early stage company’s perspective, it is actually a process that should be ongoing throughout the development of a product. The solutions that an R&D team might choose to overcome a potential manufacturing obstacle might not be the solutions that work best for the customer or the end user. Without continuing input from those who will ultimately decide whether or not to purchase the product (or recommend its purchase), the chances of success are slim. Biotech and medtech startups that make an effort to continually learn from their target market have a much higher chance of commercializing a technology.