By Sallie Hyman
Somewhere between that “ah-ha” moment of a great business idea and cashing your first paycheck should be a lot of research to determine what the market is like for your idea.
Many entrepreneurs are very good at coming up with services or products that sound like they fill a need, but fall short in how to enter the market. Often they will blindly jump into the business arena, only to find that they either failed to do any market research or grossly misunderstood the market.
The cold, hard facts are that the majority of small businesses will fail within the first five years. Only a solid look into the market will let you know if there is truly a need for your product or service, if the market is already flooded with similar businesses, and if there are any unique barriers or challenges associated with establishing a particular type of business.
The challenge for many entrepreneurs at this point is what to research. Most people with a great product idea or service do not have formal business training and get lost when it comes to doing anything other than coming up with ideas. However, it’s really not that hard once you break it down into a few simple questions.
- Does my proposed product or service fill a need?
- Who are my competitors?
- How am I different than my competitors?
- Who is my target market?
To run a successful business, you need to learn about your customers, your competitors and your industry. Market research is the process of analyzing data to help you understand which products and services are in demand, and how to be competitive. Market research can also provide valuable insight to help you reduce business risks, be aware of the problems in your industry, and identify sales opportunities.
Fortunately for entrepreneurs, there are resources available, many of which are free, to help investigate the marketplace for your idea or service. A little time spent online or in the library can provide much of the research you require. Unless your business has very specific market research needs, it is usually not necessary to hire a market research company.
Technology today puts many resources at our fingertips. It is very easy to do a search of the service or product you have in mind to see what is already out there. See if someone has already come up with your million-dollar idea. There is no point in spending time and money developing a product that someone else has already put on the market or patented.
Search to see who potential customers are. What demographic group do you
see yourself targeting? Look on websites of similar products/services to see what the demographic of their customers look like. Do you want to try to reach the same or a different demographic? If you are not sure what your customer demographic should be, check out online forums that relate to your product or service. Join the conversation and ask forum members a little about themselves. Are they retirees? College students? You can use these forums and communities like a free online focus group. Ask questions about what consumers liked or didn’t like a about a particular product or service. Knowing who spends time in these forums and what they are saying will help you know who will want your product/service.
Search to see who potential competitors are, both locally if you are a brick and mortar business, as well as in cyberspace. Sites such as Google, Facebook, Twitter, and LinkedIn are a good place to start.
Once you find out who your competition is, you can find out more about them. Most businesses have a website. Check it out. Does it look professional? Does it explain their product or services? How many employees do they have? Review sites such as Yelp and Angie’s List to see what actual customers are saying about these businesses.
NASE Member Theresa Cassiday, owner of Catena Creations, LLC, in Bellevue, Neb., used the Internet to find out what to charge for her services. Said Cassiday, “I actually did my first market research a couple of years before I started my business. I had been offered a couple of very big freelancing projects, and needed to figure out what I should charge. At that time (nearly 7 years ago!), I did a lot of research online, looking for freelancers’ websites to see what they charged and what their skills were.”
David Hollender, online communication strategist at Mind Sky in Reston, Va., says to look at your competitors’ websites from a different perspective as well. Just because a company has a beautiful website doesn’t mean they are a great business. Find out their relevance and credibility by doing a little research. First impression are usually right, if a website looks unpolished, it is probably telling of the business as a whole. Google’s page rank of a website is based on how relevant and credible they are. Credibility is partly based on how many other websites link to a given webpage. This implies that other web entities believe the site to be legitimate. This will let you know if they are a legitimate business competitor.
The Internet can provide you with a lot more information about a business than just its website. You can search any number of review sites such as Yelp and Angie’s List to see what actual customers are saying about these businesses.
We sometimes get caught up in all that we can find searching on our computers, but if your competition has a brick and mortar store within a reasonable distance, go visit in person. Be a customer. See who is shopping there and what their demographics are. This will help you determine if this is the same market demographic you intended to serve or if you were seeking a different group. And talk to other customers as you shop. Not only will you get to experience what the competition has to offer as far as products and customer service, you might even get to speak with the owner and learn about what is working, or not working, for them.
Take a Trip to the Library
The public library is an excellent source of reference and data books that can help you with your research. It is also a great source for business books in general. And it’s free!
Oldies but Goodies
Technology often makes us forget that there were ways of doing market research long before the advent of the computer and those organizations who have been helping for decades have a lot of knowledge. Contact your local Small Business Development Center, Chamber of Commerce, and Better Business Bureau. Many of these groups have data on what types of businesses are in the area, how many there are, and how long they have been in business. Plus, many of these groups offer free or low-cost business mentoring and start-up assistance.
Don’t forget about associations. You can look up what associations are available
for your product or service. Many association websites let you search for members in your area, so you can find local competitors. Join up to reap the benefits of membership which often include the latest news in the business, tips specific to the industry, and access to lots of education, colleagues, and vendors at their annual meeting.
Trade groups, business magazines, academic institutions and other third parties gather and analyze research data about business trends. If you know to whom you wish to target your product or service, but don’t know how to find them, ask at your local printing shop. Many print shops now have access to databases that can pull the mailing addresses of very specific demographic groups. Want to find the 24 to 29-year-old male, extreme sports enthusiasts in a 100-mile radius of your locale to market your new extreme sports snacks to? No problem. Usually for a small fee, they can pull up all the people within a given radius who fit your customer demographic. That can help you decide if there is a large enough customer base in your area (if you are brick and mortar) and you also get your first mailing list.
Starting a business starts with a great idea, but don’t let it end due to poor planning. Take some time to research the marketplace and how you see your business fitting in. A little effort, made much easier with today’s resources, can make the difference as you leap into the entrepreneurial world.
Sally Hyman writes on small business issues and owns and operates her own small business in Purcellville, Va.
Resources For Conducting Market Research