Introduction
One of the first questions a would-be investor or lender wants answered by the authors of a business plan is:
How much do you really know about your Market?
And no wonder they ask. If you — as an entrepreneur seeking funding to launch your enterprise — don’t know your market very well:
- How can you be expected to develop and position your products or services for success?
- How can you know who your target customers or clients are?
- How can you develop an effective strategy for dealing with your competitors, both present and future?
As enamored as we may be of our own discoveries, products and/or services, it is ultimately the market that will decide their value. And investors know this all too well.
Market Research — An Essential Key to a Solid Business Plan
Fortunately, this is where market research — and your abilities as a market researcher — can play a valuable role to help insure that your business plan reflects solid thought about the market you propose to enter, the customers or clients you hope to attract, and the strategy you have developed to be and remain competitive.
To many entrepreneurs, market research is perceived as a mystery that we assume relies upon sophisticated surveys, monitoring of our media, and forecasting outcomes ranging from purchasing habits to political races. Many times, decisions made on the basis of poor market research fail, due in large part to poor design and poor quality execution of the research itself.
Such failures of market research don’t have to be the norm — in fact are very avoidable. For example, one of the most important market research resources you have involves direct feedback from your current customers or (in the case of a pure startup) your prospective customers. Notice I said your “potential and current customers,” and not your mother, friends, or enemies who are usually prejudiced one way or the other. Simple surveys of current or prospective customers and clients — well-designed and conducted — can yield a great deal of relevant information about your products and services, your target customers, and your competition. In the pages ahead, I will share with you some of the important aspects and resources you may use to insure that your business plan is grounded in solid market research.
Keys to Effective Market Research
Good market research answers many important questions about your business, your target market, your customers and clients, and your strategy for effective market penetration. Among the key questions regarding your market research are:
- What information do you need?
- What is the best way to gather the information you need? and
- How will you analyze and follow up on the data generated?
The results of market research become the basis of your plan to move forward with your business in a manner that best assures your success (and the success of your funding partners). You need adequate market research to provide you direction about where you should be going with your business in the marketplace. [pullquote]One day, Alice came to a fork in the road and saw a Cheshire cat in a tree. “Which road do I take?” she asked. “Where do you want to go?” was his response. “I don’t know,” Alice answered. “Then,” said the cat, “it doesn’t matter.”[/pullquote]Without such information, you’ll be like Alice in Wonderland, when she “came to a fork in the road,” only to find (from the Cheshire cat) that without knowing which path to pursue, there is little value in proceeding.
Your Target Customer or Client
One of the frustrating aspects of market research is estimating the market and narrowing it down. For example:
- There are about 315 million people in the U.S. split approximately equal between males and females, and 30-50% of whom are too poor to buy many products or services. Approximately 40% of the U.S. population are between the prime purchasing ages of 25-54. Thus, before one analyzes geography, lifestyles, ethnic etc., the total U.S. Market for many products and services that are for one gender or the other is really about only 30-40 million consumers. You can see how rapidly your target customers and clients can be reduced by simply looking at the most basic of demographics.
- Many market studies stop at this simple level of analysis, and they frequently fail to conduct further detailed segmentation, citing millions of potential customers in what are actually very narrow market segments. In defining target consumers accurately and realistically one must consider at least the following:
- Age
- Geography
- Income & Lifestyle
- Ethnic background
- Education, etc.
The transportation industry has many sectors and niches.
Your Industry, Sector, and Niche
Beyond identifying your target consumer market, a second important aspects you need to research are the market and competition for your product or service. It is not sufficient to identify the general industry for your products or services, but also your sector of that industry, and (if appropriate) your niche within that particular sector. For example, your business plan might indicate that you are in the “communications” industry, but fail to focus on the “telecommunications” sector, and the “smart phone” niche.
Your Competition
While many entrepreneurs insist there is no competition for their product or service, this attitude is almost always naïve. The likely reality is that companies are either already meeting the needs of your product or service, or they soon will be. It is essential that you take a long and honest look at your competitors, and not underestimate them. For starters search Google for the industry, product or service you are proposing to bring to market and you will see pages of links, often representing millions of websites. Don’t be discouraged by this, but use it to extract information and develop a comparison of competitors with respect to critical variables such as:
- Volume benefits[pullquote]Analyzing competition is a key to good market positioning. Don’t underestimate your competitors. [/pullquote]
- Performance
- Quality price
- Convenience
- Selection
- Availability
- Brand identity
- Service after the sale
- Presentation, and
- Integrity
Is Your Market Growing, Shrinking or Stagnant?
Other questions that logically arise during the course of market research deal with a wide range of factors that influence both the market and the value your prospective customers and clients might place in your product or service. A good starting list of these questions include:
- Can the market be segmented, and if so how?
- What types of people buy this product/service, and why?
- Does the product/service have limited appeal based on geography or other factors?
- What do potential or existing customers like about my competitor’s products/services?
- What makes my product/service unique relative to others in the marketplace?
- What are current buyers paying for comparable products/services?
- What factors are most important to buyers when selecting a product/service: price, quality, delivery time, etc.?
With these estimates in hand it usually possible to develop a preliminary market estimate and market share goals. Remember that when you focus on your market this is a process both to establish potential forecasts and identify the variables that might influence them.
How Will You Gather Data?
Analyzing competition is a key to good market positioning. Don’t underestimate your competitors.
The good news about data acquisition for your market research is that there are many resources available and most of them are free. While many researchers advocate developing a specific formal plan for their market research, I frequently find a more ad hoc process can be extremely productive, especially in the early stages. The easiest way to execute this is simply to spend a few hours in a good local business library or on the internet. You can frequently find free market data, competitive analyses and even marketing or product trends. These efforts can provide a great deal of valuable information rapidly as well as provide guidance and parameter for further research. Remember, the more credible your market research, the more credible your plan, and the more likely you will be funded for eventual growth and success.
Other potentially valuable sources of market research information include government databases, industry associations, and reputable media. Some key suggestions for research resources include:
- Google and other search engines
- Your Library
- Visit and ask customers and suppliers
- American Advertising Federation (www.aaf.org)
- Larry Chase’s Web Digest for Marketers (www.wdfm.com)
- Marketing Hub (www.marketinghub.com)
- Marketing Research Association (www.mra-net.org)
- https://adwords.google.com/keywordtool
- http://www.census.gov/pub/epcd/www/naics.html — NAICS (was SIC codes)
- www.compete.com for web traffic
- www.grader.com web site reviews
- www.thomasregister.com — Manufacturers
- www.harrisinfo.com — Manufacturers (by state)
- www.tsnn.com — Trade shows
- www.manaonline.org — Sales reps
Indirect resources from others:
- Trade associations
- Census data
- American FactFinder (http://factfinder.census.gov)
- Harris Infosource (www.harrisinfo.com)
- Hoover’s (www.hoovers.com)
- ThomasNet (www.thomasnet.com)
Free market research surveys:
Product Assessment
- Visit trade shows, retail stores and on line sites like amazon and eBay
- Consider developing samples and testing
- Develop surveys of opinions, needs and evaluations though individual and focus group exchanges
What do you do with the Information?
In compiling, analyzing and summarizing information there are some key guidelines to consider:
- Much market research has an in-built positive bias that tries to support its position. If we are not careful, we can go in with a favored option and try to build a case for it. We may deny it, but we all do it, even if unconsciously. This can mean that a less favored alternative might get short shrift, resulting in a less-than objective assessment of the market, competition and target customer or client. And, it’s often in one of these less favorable-seeming alternatives that an optimal strategy for success may be revealed. It’s good to acknowledge up-front that the more there is at stake in our research, the more susceptible we are to Confirmation Bias.
- We can lose focus and research the wrong information, wrong market or wrong data. Ask yourself: do you have the right geography, the right consumers and have you differentiated actual potential buyers and people’s opinions regarding what they might buy?
- Another key question: Have you analyzed the data correctly? Is the body of data you have collected accurate, is your sampling reasonable, and do your findings reflect the data?
Conclusion
In spite of the challenges to conducting good market research, there are many key benefits that will strengthen your business plan, improve your chances of funding, and ultimately enhance your prospects for long-term success. These benefits include:
- Setting realistic goals, requirements, and needs that will keep the process focused and targeted
- Being involved and summarizing the process will ensure greater understanding and rationalization of the effort
- The process required will focus your attention on the market and its potential, on your competition , and on development of the best strategy for your business to succeed
- The final product of good market research involves other quantitative and subjective data which need to be considered in the analysis
- Consideration of distribution, pricing, service and product will combine to result in a solid market research plan and subsequent strategy, and
- Remaining objective means avoiding the common mistake of tossing the results aside just because they did not support the answers you wanted to see.
The bottom line is that you have to “do your homework” in order to have any chance of success. What you can expect from market research includes an assessment of the potential market for your idea, identification of potential competition and competing products or businesses, perhaps some insight into barriers regarding introduction of your idea into the marketplace, and you may even find additional markets you never considered before. You must also be prepared that the market research results may “NOT PROVIDE THE ANSWER YOU WERE LOOKING FOR”.