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Starting a business is exciting, but it comes with its fair share of risk. Entrepreneurs must deal with uncertainty around finances, market demand, competition, and operations. But what is one way for an entrepreneur to decrease risk effectively?
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ToggleAnswer: By conducting thorough market research before launching or scaling a business.
In this blog post, we’ll explore why market research is a game-changing strategy, how it works, and how entrepreneurs can use it to safeguard their startup from common risks.
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Entrepreneurial risk can take many forms, including:
– Financial Risk – investing capital without guaranteed returns
– Market Risk – entering a market with little demand
– Operational Risk – inefficiencies in processes
– Reputational Risk – negative brand perception
– Legal Risk – regulatory and compliance issues
According to Forbes, over 90% of startups fail, often due to poor market fit and lack of customer understanding. This is why reducing uncertainty through market research is essential.
Market research is the process of gathering, analyzing, and interpreting data about a target market, consumers, and competition. It helps entrepreneurs make informed decisions about their products, pricing, and marketing strategies.
1. Validates demand for your product or service
2. Identifies customer needs and preferences
3. Analyzes competitors to uncover market gaps
4. Helps forecast trends and potential challenges
5. Supports strategic decision-making and positioning
Let’s break down how market research directly reduces different types of risk:
By validating your business idea through surveys or focus groups, you can avoid investing in a product no one wants.
Example: Before launching Airbnb, the founders conducted user interviews to ensure people would be willing to rent out rooms to strangers.
Researching demographics and psychographics helps you define your ideal customer and avoid launching into an uninterested market.
Learn how to define buyer personas from HubSpot’s guide.
By collecting feedback from potential users in the prototype or MVP stage, entrepreneurs can fine-tune their offerings.
Competitive analysis reveals what others are doing and what they’re missing, helping you create a Unique Selling Proposition (USP).
To decrease risk effectively, entrepreneurs should combine multiple types of research:
Dropbox famously started with a simple explainer video to gauge interest. Within 24 hours, their email list jumped from 5,000 to 75,000+, proving demand before developing the product fully.
Glossier used customer feedback from the beauty blog “Into The Gloss” to develop its first product line. This community-first market research approach led to $100M in annual revenue within a few years.
While market research is one of the most effective ways to decrease risk, other strategies can complement it:
Launch a simplified version of your product to test the market. Learn more from the Lean Startup methodology.
A detailed business plan outlines your value proposition, target market, financial projections, and contingency plans.
Protect against unforeseen events like lawsuits, accidents, or property damage.
Don’t depend on a single source of income. Explore multiple products or services, strategic partnerships, or affiliate marketing.
Early-stage businesses should build a lean team and outsource where needed to reduce overhead costs.
So, what is one way for an entrepreneur to decrease risk?
The answer is market research—the foundation of informed decision-making. Whether you’re validating a startup idea, launching a product, or expanding into new markets, understanding your audience, competition, and demand is the smartest investment you can make.
By combining market research with complementary strategies like MVPs and lean operations, entrepreneurs can significantly increase their chances of success while minimizing financial, operational, and reputational risks.
1. Can market research guarantee business success?
Not entirely, but it significantly improves your odds by reducing guesswork and helping you make data-driven decisions.
2. How much does market research cost for startups?
It varies. DIY surveys and Google Trends are free, while professional market research firms can cost thousands. Start small and scale your research.
3. What if I skip market research?
You risk building something no one wants, wasting time, money, and resources—ultimately leading to business failure.
4. How often should market research be conducted?
Continuously. Customer needs and market conditions evolve, so regular research is essential for long-term growth.
Explore free market research templates on Typeform or get started with customer discovery interviews today.
