After much thought and deliberation, you have identified the perfect home business for you. You even went through the “analytical” process of listing your skills, defining your interests and determining your preferred lifestyle. You are now ready to start the business of your dreams.
But hold on! Before you buy a single inventory or create a web site, you must first ask key questions of your business. You need to know the what, who, where, and how of running and operating your business. Knowing the answers to these questions can be tedious and challenging, but understanding your market can definitely set you off in the right direction. Market research can tell you whether your business idea stands a chance, of if you are better off choosing another line of business.
Here are some of the what, who, where, how and how much questions that you need to ask before starting your business:
What Is Your Product?
Knowing your product or services is one thing – understanding clearly your product concept is another. You may have this life-long business idea of selling flowers. But how will you sell flowers?
To fine-tune your business idea, you need to ask several questions:
- What kind of flowers and floral products will you sell?
- Will you sell to the retail or wholesale market?
- Will you cater to consumers, to businesses, or both?
The goal is to be able to describe your business in a short statement: “I sell flowers and floral arrangements online to both the consumer and corporate markets.” Being able to describe your business in a short statement is an indication that the business concept is clear in your mind.
Knowing your product also entails understanding its characteristics. Here are some important questions to help you understand the nature of your business:
- Is your product or service the kind that customers buy on impulse, or will they buy only a long thoughtful planning?
- If there is existing competition, how different is your product from your competitors? How recognizable are the differences? What makes it a better value?
- Is the demand for it cyclical or steady? If cyclical, what are the peak seasons? What do you intend to do with the business during off-season?
- Are the materials for it predictably available?
- Does your product (or any of its manufacturing process) have proprietary features? Do you need to protect any aspect of your product through patents? Is your product violating intellectual property claims of another company?
Who Will Buy It?
Once you’ve identified your product, your next question is: “Who will buy my product or service?”
Make a list of your potential customers, breaking the information down by age, gender, and economic characteristics. Then make a list of why these potential customers will buy your products.
If you plan to sell floral arrangements on the Internet, your customers tend to be more affluent and better educated than those who buy through other channels (e.g. supermarket, garden center, florist shop, warehouse club, etc.). The typical Internet floral customer is primarily 25 – 54 years of age, is from a household earning more than $75,000/year and has at least a bachelor’s degree.
Where do you get this information? You can get information two ways: through primary or secondary research. Primary research means you gather the data yourself through surveys (whether person-to-person, phone or direct mail), in-depth interviews and focus group discussions. You can do the surveys yourself, or you can hire a market research company to do it for you. However, this is time-consuming and can be very expensive.
Secondary research peruses the data and information gathered by government agencies, industry and trade associations, labor unions, media sources, chambers of commerce, etc. Some of secondary resources that you can use include:
Internet. Search if any market studies on your business is available online. The NPD Group (http://www.npd.com), for example, offers short write-ups on different industries and market. Other useful resources include Business Benchmarks (http://www.bizminer.com) which offers business plans for sale including market studies; and BizStats.com http://www.bizstats.com) provide business statistics and analysis of businesses and industries.
Government publications. Check out the Internet or your public library if they have statistical and census data to help you track down your market. Some useful resources include:
- County Business Patterns prepared by the U.S. Department of Commerce, Bureau of the Census. This site contains data for each state, including the total establishments, payroll, per industry
- Non-Employer Statistics, which is a collection of data on businesses with no paid employees (often self-employed with annual business receipts of $1,000 or more) broken by state and metro areas
- Statistical Abstract of the United States – a compendium of statistics on population, economics, trade, among others. The population data are particularly useful if you want to check the growth of specific market segments.
Other resources include:
- Trade associations. They usually have publications pertaining to their industry including market information.
- Thomas Register http://www.thomasnet.com/ can give you a gauge of the companies in different industries o Magazines and trade publications.
- Check out the “Survey of Buying Power” in the July issue each year of Sales, Marketing and Management Magazine http://www.salesandmanagement.com
- Your Chamber of Commerce
- Your county office of economic development
Who Is the Competition?
Your competition can tell you a lot about your market. By knowing the companies that you are up against, you can effectively plan how you will be able to position yourself.
Begin by making a list of your major competitors. Find out how they run their businesses. This information will be valuable in helping shape your business strategies. (Read the article Do You Know Your Competitors?). You may find that your competitors do not accept rush jobs. To penetrate the market and attract customers to your business, you can accept rush jobs. Any room for improvement in the quality of service can give your start-up business an edge.
Find out what they offer and top it, or take advantage of what they don’t offer. If they don’t offer a particular product or service, it can only mean two things: the profit margins aren’t there (especially if they have already tried it and learned the lesson the hard way), or they are lazy and giving you a legitimate opportunity. Read the article How to Stand Out from the Competition.
To help you better understand your market, ask yourself the following questions:
- Are there any new competitors in the arena? Does everyone think this is a hot idea?
- How many companies have gone out of business recently? Why?
- If there have been no new entries in the market, is it because there are fatal flaws with the concept, or because you are the first in a new idea, or because you have figured out how to overcome problems others didn’t solve?
- Are there a small number of competitors for a large market, or a large number for a small market?
- Who are your competitors? If they are mostly large companies, how would you compete with them? Can you compete head-to-head? Is there a small but profitable niche that you can tap?
Researching the market can be tough work. But at the end of the day, you will have valuable information regarding your potential customers: their habits, needs, preferences, buying cycles; and how to reach them to generate sales.
Recommended Books to Help You Understand Your Market:
- The E-Myth Revisited: Why Most Small Businesses Don’t Work and What to Do About It
- Target Market
- The Market Segmentation Workbook: Target Marketing for Marketing Managers
- The Ultimate Marketing Plan: Target Your Audience! Get Out Your Message! Build Your Brand!
- 12-Step Template to Write an Effective Sales Letter
- Pros and Cons of Financing a Business
- Do You Know Your Competitors?
- How to Raise Money to Finance a Franchise
- How Great Managers Capture Profit Pools