Primary & Secondary Research

Kendall Ryan just applied for a bank loan to finance a Greek-style restaurant he plans to open near a large Midwestern university campus. The banker asked Kendall if he conducted any primary research to assess the feasibility of the restaurant; an industry analysis. Kendall replied that he spent countless evenings and weekends in the library and on the Internet collecting data on the feasibility of Greek-style restaurants, and he is confident that his restaurant will be successful. He said that he even did careful research to make sure that Greek-style restaurants do well near large Midwestern university campuses.

If you were the banker, how would you react to Kendall’s statements? Also, are there other ways you can test a proposed business idea, other than just internet research?

If I were the banker, I would clarify the difference between primary and secondary research and allow Kendall to answer the question again. 

Internet and library research from previously collected data is considered “secondary research.” Primary research is novel data collected specifically for the new venture the entrepreneur is developing. This data is analyzed to understand better the landscape the entrepreneur is attempting to enter. These data points could be interviews with industry experts and prospective customers. Another way of gathering and quickly quantifying data is by conducting a survey and examining the results. 

A real-life example of primary research is the actions of Ben Cohen and Jerry Greenfield, founders of Ben & Jerry’s Ice Cream when determining a location for their first store. They stood outside several places in Vermont and would count how many people would walk by during a given week to get a better understanding of the foot traffic before leasing their first store. Due to their primary research results, they landed on renovating a gas station in Burlington, VT.  

Beyond simply conducting primary and secondary research, a formal feasibility analysis should be conducted before approaching an investor- this includes testing the feasibility of the following: product/service, industry/target market, organizational (what team you have in place), and financial (what funds do you need and how much revenue can you generate).

Posted 9/13/23