Quick and easy ways to check out your business idea

Robert Ashton, The Barefoot Entrepreneur

The more you research your business idea before starting out, the better your chances of success. However, it is wise to keep a sense of proportion and not get bogged down in detailed statistics.

Here are the key factors to consider.

Market size

You need to be totally confident that there is a market out there for what you are planning to do. That means that people:
• need what you provide and are currently not supplied with it;
• buy what you do elsewhere and are likely to change;
• are not yet ‘in the market’ but are likely to become interested.

To determine your market size you also need to work out realistically how big a territory your business can service. For example:
• How far will people travel to visit your shop?
• How large are the online communities you can service via the internet (and what are the physical constraints that might limit delivery)?

In some markets this will be easy, while in others it will be virtually impossible. For example:
• an artificial limb maker can access health statistics that accurately predict the number of amputations carried out each year;
• a maker of snack foods faces a far more complicated exercise as demand is largely stimulated by advertising and the way the products are displayed in supermarkets.

To work out your potential market size, consider all or some of the following activities.
• Look online for relevant published statistics.
• Look at the advertising ‘media packs’ of publications read by your target audience (these usually define market size and state their share of it to justify the rates they charge).
• Visit the places your target customers go and literally see who’s there.
• Look for online communities frequented by your target customers.
• Get copies of the annual reports of listed suppliers to your marketplace. These may define market size, and the narrative might also reveal market issues you are not currently aware of.

Top tip: University students are good at research. Consider recruiting one via your local university careers office to carry out a research project for you.

Market trends

You don’t need a growing market to succeed but it helps. All markets are constantly evolving. This is due to:
• changing user behaviour (e.g. people are buying smaller cars now);
• fashion (e.g. more men are growing beards);
• legislation (e.g. public buildings have to be wheelchair accessible);
• economic factors (e.g. rising metal prices makes recycling more profitable).

These trends might influence your decision about the products or services you are going to market. For example, it’s as easy to distribute beard trimmers as electric razors. You might give both equal focus in recognition of the trend towards beard wearing.

To work out how your market is changing, consider all or some of the following activities:
• Read trade journals and see what’s being hailed as new.
• Visit relevant exhibitions and see what’s being promoted.
• Search online for new patents/technology in your sector.
• Ask journalists who write about your marketplace (buy them lunch).
• Talk to academics and researchers working in your market sector.
• Carry out (or commission) a consumer survey.

Market analysis

Trends show you where a market is going. Analysis helps you to find your place within the marketplace. Inevitably you will be competing with existing providers. You need to balance your understanding of market size and trends against what’s already there. From this you will pick out the ways in which you can be different from your rivals.

The way you do this is by looking hard at your competitors. Work out their strengths and weaknesses. How have they become complacent and not moved with the times? What are their specialities and how might yours differ?

Your activities might include:
• reviewing competitor websites and literature;
• mystery shopping and buying from your rivals;
• interviewing your target customers about their buying experiences.

Top tip: The UK Government publishes a lot of statistical data under a number of themes. This is useful for your market research. It is also very credible if quoted in your business plan. See http://www.statistics.gov.uk

Remember that you want to differentiate yourself clearly from others. This makes marketing easier and helps customers see the value of giving you a try. Sometimes this will mean changing your plan slightly, perhaps specialising in an area you’ve found is not well covered elsewhere. Conversely, you might simply decide to offer the same products or services as everyone else, but make the customer experience more pleasurable.

Taken from 'How to Start Your Own Business; For Entrepreneurs'

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