Many people, when they first start a business, believe that ‘if they build it, they will come.’ While that may have worked in the movies, however, in business, just opening your business does not guarantee that it will be a success.
Even if you have a brilliant business idea, offer top quality service, and exceptional products, your business can often fail, through no fault of your own. The key to avoiding that lies in doing market research long before you ever open for business, and to keep doing it as your business grows.
Every business has a target market. This could be very general, such as a particular geographical area, or more specific, based on age, interests, gender, or other factors.
Market research allows a business owner, or potential business owner, to figure out whether their target market will be able to sustain their business, and this is done in several ways, all of which are aimed at giving you a better idea of how your sales are likely to look once your doors open for business.
One of the most basic tasks involved in market research would be to determine how many direct and indirect competitors your business will have.
For instance, if you are planning to start a fast food business, you could drive around your neighbourhood, and count how many competing stores there are. If there are five outlets on one block, it is probably not wise to try and compete with an already saturated market, and you would probably want to move your business elsewhere. On the other hand, if there are no stores in the area you have chosen for your business, then you will probably have enough business to sustain your store.
It is not only direct competition that you need to worry about though. Using the fast food example again, you would also need to look at related businesses, that are not direct competitors. Perhaps there are supermarkets that supply ready cooked meals, or maybe there are coffee shops in the area. Either of these could be factors in the success of your business, and should form part of your market research.
Next, there is the issue of passing trade. Some businesses, like doctors, lawyers, plumbers and builders, do not rely on passing trade, so they are not concerned if there is not a lot of traffic in their chosen area. If, however, you are planning to start a retail outlet, a food service business, or another type of business that relies on people passing by for business, then you might want to spend some time monitoring your chosen location, to see just how much business you are likely to get.
Another part of market research involves speaking to your target market themselves. This might be done as a survey, or you could try cold calling potential customers, to find out what their reaction to your proposed business would be.
All of these market research tasks have one goal: to collect enough data about the people that you hope will buy from your company to be able to determine whether your venture is likely to be a success or not.
Extensive market research helps the small business owner to find out whether their current business plan will succeed, or whether it needs work. You may find that while you are doing market research, you discover that a different location will be better for your store, or that your target market would prefer slightly different products to the ones you are planning to offer.
You may discover that your potential customers are more or less affluent than you thought they were, and that may affect your purchasing and pricing strategies.
The reason this is done before you start your business is so that you can alter your business plan to suit the needs of the community or industry you are planning to serve, before you start spending money implementing your business plan. It can also give you insights into what kind of marketing strategies will work best for your business, and show you who your competitors are, and what their strengths and weaknesses are. The more data you can assemble on your chosen market, the easier it will be to address problems, and find new solutions before you make costly mistakes.
In fact, far from being an academic exercise, market research is a means of discovering whether your assumptions about your business are correct, and identifying the main issues you need to address.
Every small business owner has a deep-seated fear of failure, but if you do enough market research, you will know who you are up against, and you will know who you are selling to. From there, there are plenty of things you can do to help prevent that kind of failure. That is why market research is not something that you should do if you have the time, but a crucial part of your business planning process!