After considering your own capacity to run a business, you need to ask yourself whether a market exists for your product or service. The market may be incredibly tough to break into but, as long as it exists, you can fight for your share of it. If there is no market at all for your product, it is clearly a non-starter.
You are not yet attempting to measure the size or location of the market, nor to distinguish its characteristics. What you want are the answers to the following questions:
• Do others already offer the same product or service as I intend to offer?
• Is my product / service an improvement on what already exists?
• What evidence is there that customers want to buy my improved product / service?
If your product / service is new to the market, you need to ask:
• What evidence is there that the market wants to buy this product / service?
• What evidence is there that the market is aware of its need for my product / service?
You may be able to find answers to these questions quite easily. For example, the market for ready-mixed concrete is quite visible but is dominated by a few big companies. So the question here quickly changes from whether a market exists to whether it is feasible to enter that market when there are already strong competitors in place.
On the other hand, the inventor of a solar-powered bicycle might have more difficulty assessing the existence of a market. All the cyclists he talks to may tell him that they only cycle for the exercise value, since they cannot depend on sufficient sun in their country to make any difference to the energy they must expend in cycling. They might have no interest in any source of power beyond their own muscles. Yet, in environmentally-conscious (and sunnier) countries that encourage the use of a bicycle and / or solar power, the product could be greeted with cries of delight and massive demand. However, if the inventor does not know where to look, he or she may never get their business off the ground.
This quick feasibility review will tell you whether it’s worth progressing to more formal market research, or whether you should go back to the drawing board to think of a new product or service.
Once you have provided yourself with proof – not just a gut feeling – of the existence of the market, you can move on to more detailed research. Analysing the nature of the market, competition and customer base will tell you whether your idea is feasible. The information you compile will allow you to develop your business plan in more detail.
Although a professional market research company will conduct research for you, at a price, you can often do your own research without too much difficulty, time or cost.
In collecting information during this research stage, remember that, as well as satisfying yourself, you may have to prove to outside investors that your figures and findings are valid. For this reason, independent proof is worth collecting wherever you can find it. Sources include:
• Talking to potential customers and even competitors.
• Questionnaires and surveys.
• Official government statistics or statistics compiled by trade associations and consumer bodies.
You need to sift carefully through the information you collect:
• To understand the business you are in.
• To work out the size and location of the market for your product / service.
• To build up a profile of your customers and their needs.
• To understand how competition operates in your market.
• To establish a reasonable price for your product / service – one at which your customers will buy.
• To forecast sales – both volume and value.
• To establish the cost of making your product or delivering your service – and how it will be done – and the profit margins you can expect.
• To establish the investment needed to start your business.
• To decide what form your business must take.
What is your business?
This may seem an obvious question, one not worth asking, but setting it down in writing may provide a useful reference exercise.
For example, Waterford Crystal is not in the market of providing everyday glassware. Despite the fact that it produces glasses, bowls and vases, it does not compete with the producer of the everyday glass tumbler that you find in the supermarket or department store. Rather, it is in the international market for luxury goods and special occasion gifts. It will look to growth trends in these luxury markets, mainly overseas, rather than to growth in glassware sales generally.
In contrast, a contract carpet-cleaning business in New York is providing a very specific service in the city, or possibly even only in one area of the city.
Be aware that if you are a manufacturer, you are a manufacturer, not a retailer. You may sell your product to or through a dealer, but you are not a dealer, nor are you selling direct to the public. To try to be more than you are can spell doom for a small business, because your business may not have the resources and you may not have the necessary skills to take on your new ideas.
For example, a manufacturer of farm trailers might wish to sell them to the end customer himself (perhaps, in order to avoid losing a large share of the retail price to middlemen). But manufacturing and retailing are essentially two separate businesses. People in one part of the country are unlikely to travel long distances to buy a trailer, when there is probably a supplier of a range of comparable trailers already based nearby. Even if the manufacturer sets up a shop in another location, people may still be inclined to visit other retailers who offer a wider range of choice, or have local contacts. More sales will be achieved by sticking firmly to the core activity of manufacturing, and developing a distribution network through dealers around the country.
In time, your business may have the resources to expand its operation and become something else, but, initially, if you try to start two businesses, you will have to generate the cash flow and return for both, which is (at least) twice as difficult as generating them for one.
Where is your market?
Starting out, you are unlikely to be able to tackle the whole market for your product or service. You will instead look for a suitable segment of that market. That might be defined geographically – a region, city, suburb or even a specific housing development.
Alternatively, your segment might be defined as a product niche. For example, specialised stop-watches for use in sports, but not all sorts of watches or clocks.
However, even though you may decide only to tackle a small part of a market, you cannot afford to ignore what is happening in the whole market. For example, if you are opening the first small corner shop on a new housing development, you should foresee that any one of several chains of supermarkets might open a shop nearby and become your main competition. Perhaps you could overcome this by becoming a franchisee of one of the chains yourself.