In my previous post, I wrote about importance of considering the viability of your business idea and a number of factors that need to be taken into account before you make a start. In this post, I write about how to conduct research into your target market.
For those in more developed countries, the task of information gathering is considerably easier than other territories, but this is not to say it is impossible. In additions to trade associations and government bodies, there are also market research firms, newspaper articles and industrial reports that can give an idea of what the business environment is like.
Know What You Need
Before you can begin any market research you need to know what sort of
information you hope to gain. Just as you would ask a market research
company to get you certain details about your target markets, so you
need to be clear in your head about you hope to learn. Regardless of
the type of business you hope to start, there are certain things that
you will always need to know:
- The size of your target market, both in terms of number of firms and monetary value
- The trend for the target market (ie. is it expanding or contracting)
- The main players in the target market and their respective market shares
- The general profile of your target consumer and their buying behaviour
- The most profitable way to promote and sell your product or service to consumers
The amount of indirect research that will yield results compared to
direct research will generally depened the type of business you hope to
What Kind of Research?
Generally, your research will fall into one of two broad camps: indirect or direct market research. Indirect research is the type of thing I’ve mentioned already, namely gathering information from a variety of sources to build up a picture of the market you will be entering. Direct research requires a little more legwork, as it is likely to involve generating your own information, usually from person-to-person interactions, such as having members of the public fill in questionnaires, conduct telephone surveys or sit on consumer panels. This kind of research is usually conducted with potential customers, and while it is far more time-intensive and slower to yield information, it can be very useful for highlighting consumer behaviour and buying behaviour that you may not have considered when coming up with your business concept.
Of course, you could always commission a market research firm to do the hard work for you, or even simply buy a recent report from them if it pertains to your market sector. This, however, is a very expensive route to take, and may not necessarily be the most useful. In my experience, market research firms such as Mintel tend to focus on the “top” of the market, dealing with the bigger companies within a particular market sector, with little information on how smaller firms operate, though there is usually useful data on consumer behaviour. At this stage of your business planning, the cost of a report is prohibitive enough to dissuade most new entrepreneurs.
One form of research that can reap rewards for minimal effort is to talk to other businesses in the same field who are operating in different territories. If you’re not going to be a direct competitor, most business owners are more than happy to talk about how they themselves made a start and the challenges they’ve faced. I’m a member of a number of small business and entrepreneur forums and boards, not all of them based in the UK, and they are invaluable for the support they provide in tackling issues that I’m unfamiliar with or that aren’t my area of expertise. What’s more, they are free, and only require a little bit of my browsing time.
While indirect research is a matter of collating information from a number different sources and using them to build a composite picture of the state of your target market, direct research involves you carrying out surveys of your own. I’m not going to lie to you, this is difficult: people have busy lives of their own and (at least here) are sick and tired of being asked to fill in what feels like a never-ending procession of consumer questionnaires. It is also difficult to put together an unbiased and objective series of questions about a business concept that you yourself are doubtless very enthusiastic about.
What you need to do is to be ruthlessly strict with yourself. Avoid the easy path of asking friends or family what they think and whether they’d buy what you’re selling. Instead, take on the persona of a cynic and go out into the big bad world to take the opinions of strangers in your target demographic. Your sample – the people you question – should be representative of your target market in terms of demographics, and purchasing power. Generally, I aim to get 75-100 responses when dealing with consumer products or services, and 25-50 responses for business-to-business.
Funnily enough, businesses are generally easier to get responses from, while consumers can be a little trickier to pin down for answers. Don’t discount bribery when trying to bump up your sample size. I have been known to spend all day every day for a week in my local coffee house, buying customers drinks if they agree to spend a couple of minutes of their time answering my questions beforehand.
Another aspect of direct research is to see what the competition is up to. There is nothing to prevent you visiting other businesses in the same field to see how they are set up and the processes they use. You can also, in a retail setting, get an idea of the prices that they are charging. Marry this with information you get from potential suppliers about the cost of goods sold, and you will not only know how profitable a particular product may be, but also whether you are able to undercut bigger players in the market.
Using Your Research
The market research you undertake can be useful for highlighting opportunities in particular market niches that you may have overlooked, or it might give you cause to go back to your original business idea to modify it to take into account what you have learned. It can also be a good way for building up contacts (in the case of suppliers and business-to-business research) before you get started. Regardless, it should add to your existing knowledge and give you a solid foundation of information on which to start building a business. Use the information you have learned to have another look at your SWOT analysis, to see if you can now overcome any challenges. Again, as mentioned in the previous post, always be willing to change your initial idea in the face of new information. The more planning you do before you begin, the better chance you stand of success.
In the next post I will be writing about how to begin putting together a business plan. This will not be a complete business plan guide, but will include some pointers on how to get started.
[Image by KM & G-Morris]