Got a question? We can help.
If you’ve got a question or comment about the Small Business Centre or any Microsoft product or service, we’d love to hear from you. Contact us
Get an 'A' in Researching a Business Idea
Do your homework properly and you can reduce your chances of being a small business casualty.
|
![[Related Products graphic]](http://img.microsoft.com/australia/smallbusiness/images/Prod-icon.gif "Related Products"){kind=icon}
Related ProductsConsider this a homework assignment for any would-be entrepreneur. Only the grade you'll get at the end of this class determines whether your business succeeds or fails.
The assignment is a research project. You're going to research the validity of your business plan. I'm going to walk you through how to do adequate research before starting a business.
Many businesspeople have wrestled with the notion of what "adequate" really means, so here's a checklist of some elements that any sufficient business research will contain:
Market Research
It may be surprising, but many entrepreneurs start a business without ever really understanding the market they plan on serving. It's critical to know the potential size of your market and, in turn, what sort of response your service or product will attract:
| • | Demographic data. Trying to sell something without knowing if a buyer has any money in his pocket is a perfect path to failure. Know the numbers behind your market, including income levels, age breakdowns and if your target market is growing or shrinking. Sources of demographic information may include various governmental or taxing authorities and, on a more local level, voter rolls (invaluable if you want information on the ages of your market target). |
| • | Customer feedback. An equally important element of market research is getting a personal sense of your customers, be they prospective or existing. Be sure to ask them what they genuinely value, no matter if it's a low price, customer support or a particular element of your product or service. If you're gearing up a new business or modifying an existing product, ask if your business can potentially solve some sort of ongoing problem. "It's really effective research to identify problems that aren't being solved," says Peter Meyer, author of "Creating and Dominating New Markets." "Do informational interviews on a regular basis and, if someone isn't a customer, ask them why not. What product could you offer to make them a customer or what problem could you solve to achieve the same goal?" |
| • | Competition. A third element of market research is knowing who you're going up against. And, rest assured, you will be competing with someone, so never assume that you're the only one on your particular entrepreneurial block. On-site research is particularly helpful. Observe customer traffic patterns, noting ebbs and flows in both the number of customers and what they happen to be buying and, if it's a retail outlet, don't be shy about shopping there yourself. Other research options include visiting a competitor's website or, if a competitor happens to be a public company, obtaining every piece of literature that a publicly held firm must provide. Finally, while it's tempting to focus on a competitor's weak spots, pay close attention to what's working as well. "Understand how they make their money," says David Gumpert, author of "How to Really Start Your Own Business." "Don't just look at what they screw up; find out how they're able to stay in business." |
Pricing
An ancillary element to market research is doing adequate homework on what you're going to charge customers. Naturally, it's important to gain a feel for going rates to remain competitive. In that regard, pricing competitors' services and data from trade and professional associations is exceedingly helpful. But, says Meyer, pay attention to every element that contributes to your eventual prices or fees. "Price really is more of a marketing tool than it is a vehicle for cost recovery," he says. "People will pay more for a high value product or solution, so be sure to research your total value."
Location
Yes, the old "location, location, location" mantra has its merits. This is particularly critical for retail operations. Ask any prospective landlord if they have a foot traffic analysis on hand. Again, first-hand observation is always a good option; check out walk-in traffic, parking spaces and other nearby businesses that may help or hinder your customer flow. And, don't thoroughly dismiss the issue of location if you're not selling jewellery or clothes. A conveniently located office at a prestigious address can be a boon to a start-up consulting firm. Then, review any available buying data and trends for people who live in that area.
Research Your Costs
Knowing how much is going out the door in expenses is essential in estimating how much you'll need to bring in to stay in business. Research prospective costs thoroughly, including everything from salaries to rent and, for at least the first year or two, break down those costs in three-month increments. And, adds Gumpert, it actually helps to be a bit macabre when forecasting expenses: "Things are probably going to cost more than you expect, just like it's probably going to take longer to land your first client than you anticipate."
What's Enough?
Although sufficient research is vital to the growth and success of any business, there is a point where enough can become too much. Don't become so mired in research that an excess of information makes decision-making a Sisyphus-like burden. Watch to see how your research is borne out in reality. If, for instance, you're hitting your income goals or matching what you expected in walk-in traffic, your research is on the mark. And, adds Meyer, take note of repetition: "If you're asking questions and you keep getting the same answers over and over, you know you're in the right place."
