Before you start a business, you must carry out market research - it can be the difference between success and failure. Author Kevin Duncan explains how to find out more about your competitors, your potential customers and - crucially - your pricing strategy
Do I really need to do market research?
If you believe you have an excellent idea for a business, you mustn't allow yourself to get fooled into a false sense of optimism. You need to test it thoroughly, by doing some basic market research. Only then can you move forward on a sound basis.
Starting a new business is a dream that many people have, but try to assess your idea through another person's eyes. If you were them, would you embark on such a venture?
How can I honestly size up my business idea?
Be honest with yourself. Responses from friends and family are likely to be positive, because they'll want to show their support, but, ultimately, your idea must appeal to other people.
One of the best pieces of advice I can give is to be like an inquisitive child. Ask 'Why?' in relation to every crucial factor. You must be able to justify your thinking.
I'm hard-working and have bags of enthusiasm, surely that's enough?
There's nothing wrong with either attribute, of course. In fact, you'll need loads of both if you are to be successful at most things in life. But enthusiasm alone is not a sound basis on which to set up a business, and nor is a commitment to hard work. You must be realistic and consider many other factors.
How do I find my target market?
Customers are what it's all about. You must find out how much demand there is for your product or service. Which types of people or businesses will buy from you? Do they fall into different categories?
It's wiser to focus on specific types of customers, rather than simply hoping you appeal to everyone, unless your products and services have genuine mass-market appeal. You need to find out who needs what you are offering.
What about setting prices?
Together with how much and how often they would buy, reaction to price is the most important information of all. Then you'll be able to determine whether or not you have a viable idea for a business. Perhaps there might be some customers who would be prepared to pay more - you never know.
What should I find out about competitors?
Level of competition is another critical factor to consider. Identify the other players in your market and find out what they offer:
- Are they successful, and if so - why?
- What are their strengths and weaknesses? How do these compare with your strengths and weaknesses?
- How much do they charge and can you afford to compete?
- If you can't, do you have a Plan B? You'll probably have to cut your costs or change your proposition.
You must be sure there's enough room in the market for you.
What about external influences such as the economy?
These can be hugely influential. If people are simply not spending on the things you're planning to sell, you'll struggle. Ploughing a lot of money into setting up a business on that basis is ill-advised.
Also find out whether you're faced with any legislative restrictions. If you are, you must consider their likely impact on your plans. You might not be able to influence them, which might make your business idea too risky.
How do I get started with market research?
Because of the internet, a huge amount of valuable information can be gleaned from your desktop in the comfort of your own home. It's a good place to start. Simple online searches can reveal much about potential customers and suppliers - and your competitors.
However, there really is no substitute for getting out and talking to prospective customers. And it's not just asking them whether they like your idea for a business, it's whether they will buy from you and pay your prices - that's the crux.
Written with expert input from Kevin Duncan of Expert Advice.