Guest Post by Alex Pejak, follow Alex on Twitter: @AlexPejak
Every would-be business owner usually runs a business idea by their friends and family, and assumes what they hear back is useful information. Though this process can uncover objections and ideas which they didn’t expect, it’s important not to assume this is the end of the process: both the entrepreneur’s own enthusiasm as well as their personal connections to those they ask mean that this data usually isn’t as useful or relevant as expected.
As a result, the launch of a successful business is best done based on a three-step process: identifying your skills and abilities, identifying a potential need in the marketplace which you can serve, and finally conducting market research to ensure there is in fact demand for your idea.
Who is your market?
The potential market for services or products is simply those who would consider spending money on them. They’re the people who have a need your business can help address. Key is clearly defining your market before you conduct research. Someone opening an athletic store, for example, would have to decide whether to focus on golfers, runners, tennis players, all three, or even more. Perhaps they might want to focus on footwear, or expand their offering to sports equipment.
After defining the scope of a potential business and, as a result, the potential market for it, you define why people might be interested in buying from you instead of competitors — or not at all. Do you offer the best service? The lowest price? A unique mix of products they can’t get anywhere else?
The basic idea is that, before you invest a great deal of time or money in starting your business, you must find your niche and then make sure enough clients are willing to give you money.
Conducting market research
To get this critical information, there are a number of resources you can use. The simplest kind of market research is “secondary research,” which is looking at published information on your potential market. This may be put out by your local or state government, or by the federal government. There may also be industry or trade organizations which can give you a useful perspective.
However, you shouldn’t stop there. Key to any major business decision is testing, and this is particularly the case when starting a new business. In market research parlance this is known as “primary research,” which is research targeted to gather information which is specific to your unique business as well as the specific consumers you’re hoping to bring in.
Common primary research tools include surveys, interviews, questionnaires, focus groups, and more. These can highlight crucial information that go well beyond whether a business concept is viable: this kind of research can tell you whether certain features or prices are important to your prospective customers, as well as how strong (or how weak) your competitors will be.
A common way of doing this is focus groups, which can give you a sense of the market’s willingness to pay and the potential size of the market, and done right which features will be most important.
Based on the results of your research, you can then look at your cost structure and make sure that once you’ve paid off your expenses (such as salaries, renting space, and more) that your business will be profitable at least in the medium if not in the short term based on what people will pay.
The feedback you get might not be what you’re expecting, or even what you’re hoping to hear. Though you may be attached to a particular business idea and prefer not to change anything, but a survey may reveal that customers want a different service or different features.
Don’t scrap your idea, but consider making adjustments to accommodate the desires of your customers. Remember, you are just one customer, and you want to make sure your business has broad appeal.
A good example of market research is JetBlue, which did market research before they launched and determined passengers considered TV entertainment and comfortable leather seats more important than hot meals, first class cabins, or other common “amenities.” By investing in TVs and leather seats, and emphasizing relaxing journeys at modest prices, they were able to take over a significant share of the market.
5 steps to do market research for startups
Alex Pejak is an economist currently working on a few projects in Australia. She is interested in topics related to project management and business improvement.