Know Your Market: Market Research¹
Ideas are good; viable ideas are great. But how do you determine the difference between a great-sounding idea and a truly great, (meaning profitable) idea?
Conduct market research. Fortunately, conducting your own market research can be easier and less expensive than you might think.
Keep in mind many business plans are based on an assumption like, "The (insert your market here) is a $500 billion market worldwide; to succeed we only need to capture 2% of that market." That level of market research is simply not sufficient. The key is to look past market potential and determine whether a need exists, and whether you can profitably meet that need. So let's look at a few relatively simple ways to determine whether your ideas make sense for your business and your market.
Start with the basics: your company, potential customers, and the competition.
- Your Company. Start by evaluating what your company currently provides: products, services, benefits to customers, your brand, and how your new idea fits into your existing operations. To serve a new market profitably, your operations will need to be able to cost-effectively service that market, especially if you will have competition. Think of this category as the "how" question.
- Potential Customers. The size of your market is important. Look at the number of potential customers and their demographics (age, income levels, spending ability, etc.). Establish a geographic limit on your market that you can effectively service unless you provide e-commerce. Think of this category as the "who" question.
- Competition. Who currently serves this market? Who are your local competitors? Who are your national competitors? Who serves your market remotely, (for example, through e-commerce or online services)? Then take it a step farther: what competitors are likely to enter the market at a later date?
When you complete this process you won't have a full picture of market feasibility, but you will have a much clearer picture of the possibilities. (You may also identify other opportunities as well; that's a great by-product of conducting of market research.)
Take competitive analysis a step farther. Take a closer look at the competition you identified. Work your way down your list. In each case, pretend you are a customer. Visit their stores or websites. Check out prices, delivery, service levels, etc. Note strengths and weaknesses. Pay special attention to opportunities to distinguish your product or service. (Another company's weaknesses can be the foundation of your opportunities.) Do they adequately serve the market? Can you compete on price, service, or delivery?
Most importantly, try to determine if there is room for your business within the space. Here's a simple example: say you are considering whether or not to open up a fitness center in your town. You evaluate a competitor and determine they do a reasonably good job of servicing the market but they don't appear to have a lot of customers. In general terms, if competitors offer reasonable prices and services but do not appear to thrive, there may not be an adequate market for what they (and you) hope to sell. If that's the case, find ways to add additional products or services, to expand your market or simply choose not to enter the market after all. Without customers, there is no business.
Then, if you're still not sure, take additional steps:
- Gather information from databases, market surveys, and competitive intelligence firms. (You will likely pay for the privilege, but some market research companies can provide a wealth of information at a reasonable cost.)
- Talk to prospective customers. Ask how they feel about their current vendors or suppliers. Ask what factors are most important in their buying decisions.
- Talk to potential suppliers. Product suppliers have a great sense of different markets. They can tell you if a market is under- served or over-served, and are typically willing to do so since they have a vested interest in finding good customers like you.
Make sure you use objective data to make decisions. It's easy to get excited about an idea; temper your excitement with data, information, and research. When the result of your market research matches your expectations, your idea has the greatest chance of success.