I am surprised on how many entrepreneurs I talk to (especially ones who are pitching a new business idea) do not know their market. I can't express enough how important it is know everything about your market - size, profile of ideal customer, number of potential customers, competitors, current market share of each competitor, etc. Over 90% of the business plans I read - essentially sum up their market research in this way - "Gartner reports that our market will be 2 Billion by 2010". This is absolutely useless to the investor, and to the entrepreneur.
Why is knowing your market important? For starters, I think 50% of the startups out there wouldn't even exist if the entrepreneur did research on the market. They would find out quickly that their product ... 1) already exists 2) has no demand or 3) is or will be obsolete before it gets to market.
I encourage everyone really spend time (from the day you start your business, until the day you sell your business) on market research.
Here are some tactics I have learned that can help you kick off your market research, and put together information that can actually help you build your business.
1. Survey 100 people. Find 100 people that you "think" would buy your product and have them fill out a survey. Depending on your product, you can do this online (using a tool like http://www.surveymonkey.com/) or in person through interviews. If you don't know anyone, you can purchase email lists by industry, company size, etc. You will need to send the survey to about 10,000 people, and need to offer something (like an entry to win something). I suggest 15-20 questions that ask direct questions ranging from "would they buy", "what price", "is this a must-have or nice-to-have", etc. Getting feedback from your future customer before you launch the company or product is priceless. It will not only validate your idea, but will give you ideas on how to improve or refine your product.
2. Infiltrate your Competition. You need to know everything about your competition. Size of company, features of their product, revenue, key customers, etc. In fact, don't settle for reading press releases off their website, and "google'ing" the CEO - you need to talk to them. Call them up, and ask them questions about their company. You would be surprised how much a secretary would tell you. It wouldn't hurt talking to the CEO either. Try to understand where they are in their cycle, what they are focusing on. How are they making sales? Where do they get leads? What have they learned in the past year? I know what you are thinking "Why would the competition tell me this?" - Simple, be aggressive. One method I found works a lot is calling up the competition as an independent writer and tell them you are writing a comparison article about the industry on your Blog.
3. Go to a Conference. Conferences and Seminars are a great way to achieve two things - learn about your competition, and get to see the latest and greatest products. You can also have open and insightful conversations with people at the booths. In a few days, you can learn everything about a specific market if you go to the right conference.
4. Hit the Blogosphere. Reading the right blog, can feel like reading the future. So many thought-leaders and innovators post their works, insights and visions on their blog. Another powerful thing about blogs, is you can comment on articles, and open a dialog with the author and other readers. Its a powerful medium to test some theory, expand your ideas and get "industry-expert" validation without paying thousands of dollars to Gartner.
5. Call Customers - Not your customers, your competitors' customers. Call up their customers and ask for the key contact (if its a technology product ask for the IT manager). Tell them you are calling to get a reference, and then have a conversation with the guy who implemented the solution. Ask him what he liked? disliked? Why did they buy it?
These tactics should give you a head start. As you can see, this research will help you in many aspects of your business - product development, sales tactics, marketing programs, etc.
Most importantly - you will validate the need for what you want to build.