One of the biggest mistakes made by someone that wants to go into business is not taking the time to do the market research and analysis.
Here’s the most common scenario: 1) a business idea, usually something the entrepreneur is crazy or passionate about occurs. 2) He or she develops a business plan, though the research is flawed because there wasn’t any, but it looks really good on paper. 3) His or her crazy passion ignites the fires of everyone around, especially those of possible investors or the loan officer. 4) The business opens with a flourish and dies an agonizing death over a period of 1 to 3 years.
The reason? Simply put, the necessary market research and analysis was not done and though the idea was sound, there was no target market and the demographics were all wrong and the product was wrong for that particular market and that particular location…get the picture?
Research pays and it pays big! It’s all well and good to be passionate about an idea, but once the idea comes to life, you really need to perform a reality check. So, start putting it all down on paper, or on your notebook or on your PC, and let your passion simmer while you make sure you have all the ingredients to make this idea happen in a big way.
The first step is to identify and define your target market. Who will be most interested in this product? And, more importantly, how many potential consumers are there? If there is local competition, you also have to consider dividing your target market among the number of businesses that are competing for the same market. And in terms of competition, if there is a lot of it, then you either have to be creating a really unique experience of some kind, or consider moving to another location where the competition isn’t so stiff—like someplace where there isn’t another one of your product around for blocks or miles. Location is important, but so is building your business and it may benefit you greatly to carve your niche downtown before moving uptown. So, ask these questions:
- How old is my target market?
- Where do they live?
- Are they male or female?
- Are they families or singles, extended families, with children?
- What motivates them to shop?
- What is their lifestyle like?
- How much money do they make and how much of it is disposable income?
- Are they blue collar or white collar?
- HOW MANY OF THEM ARE THERE? Are there enough to support your business?
And ask and answer any other questions that may arise while doing this research. Just don’t ignore something important because you may not like the answer. You can always change something up or do something different that could change this outcome, but it is always better to know about it in advance…before you spend all that money and while you have the opportunity to affect the outcome.
Next you need to make some realistic projections. You need to be brutally honest here and come up with some realistic predictions on how much of your product or service might be purchased and how your bottom line could be affected by local policies or trends. Some of the questions you might ask are:
- What percentage of your targeted market have purchased or used a product like or similar to yours?
- What outside influences might affect your targeted market? For example, if the local factory closes or if the mall expands to include a business similar to yours.
- How might your targeted market be affected by changes in taxes or the price of gas?
- How about demographic shifts and changes? Is that likely to happen or is the area stable?
- What percentage of your business might be repeat business? Is your product disposable or something that is bought once in five or ten years?
Make a realistic projection, in terms of gross sales or units of your product or service that might be sold. In fact, it is probably a good idea to underestimate, rather than inflating the numbers here.
Now, that you are going into this with your eyes wide open, you are ready to write the business plan. If this is not your forte then by all means spend the money necessary to have it written well. Your business plan can make or break you before you’ve even paid the rent on your location or broken ground. You should be prepared to cite all of your findings and the means by which you came to your conclusions. You should also be proactive in addressing whatever negative aspects there may be by finding solutions for them before they occur.
Following these guidelines will not necessarily guarantee your success, but if your market research and analysis holds up under close scrutiny and honest assessment, your business is much more likely to succeed.