Crucial to a business’ success is the research that is done to validate an idea for a business. Many an idea that seemed really great did not fly when it was introduced to the marketplace.
This brings up the question: how does an entrepreneur, particularly one with a tight budget, find out about their market and competition? This posting provides a simple but powerful plan for conducting market research at little or no cost by using tools that are readily available via the internet and other sources.
Before we get into the plan, here is the story of a friend of mine that is typical of how many approach the idea of starting a business. He lived in an area having problems with water quality. My friend decided it would be very easy to sell water filters to concerned residents. His research amounted to locating a source of water filters and purchasing a “criss-cross” directory (essentially a telephone book listed by address rather than name).
He then began making telephone calls. This was before caller id, but the end result came about in less than 24 hours. My friend told me how awful all of the people were and that he was not going any further. He actually made fewer than 20 phone calls. My friend missed the boat by not finding out whether or not the population of the area he chose would be interested in buying water filters, in particular from a stranger at the other end of the phone.
In essence, my friend did not research at all. Now, I am sure that we all have friends that have thought about starting a business and their research amounted to talking to several friends. Friends being friends, they mostly assured the budding entrepreneur that his or her idea was destined for great success. If you really want the truth from a friend, ask them to invest; that will give you a more solid idea of what they really think.
Recently I was working with an entrepreneur in the tourist industry. Gayle had an idea of what market niche that she wanted to pursue (luxury travel), but was unclear on how to get information on the characteristics of the industry, in particular financial information such as sales volume.
Yet, finding the right information was not as hard as you would imagine. Gayle had a head start, as she had worked in the industry for 8 years. Together we mapped out a game plan.
First, Gayle visited industry websites in order to learn more about the companies that were already serving that niche. Leveraging this information, I guided Gayle to the research tool Lexis Nexis for free at her local library. Gayle was able to establish a comprehensive list of companies in the geographical area she wished to draw from, as well as compile information about company revenues.
Gayle needed to know more about the size of the industry, and in particular what revenue levels could be predicted for her niche. To find this information, Gayle turned to a low-cost, online research company called BizMiner (www.bizminer.com). It is one of many research tools on the web, including Hoovers, The Star and Online Business research. Using the same codes that she had researched competitors in Lexis Nexis, Gayle was able to construct a report of the geographic market that she wanted to serve.
The report, which cost under $300, contained a treasure trove of data about the market. Gayle was able to determine the size of the market by starting with the annual average sales of the companies included in the research. The report contained historic information from three years, so Gayle was able to determine trends in the industry. The report contained complete information from 2008, so Gayle was able to see how the current economy was affecting the industry.
The report also contained complete financial information for her industry market, including income and expense reports, balance sheets and ratio analysis. Gayle was able to use the information to create a business plan with realistic numbers about sales, cost of sales and other crucial information in her pro forma income and expense report, balance sheet, cash flow and budget determinations.
In the final analysis Gayle used these simple steps to create a business plan that was based on more than guesswork, friends’ opinions and other unreliable information; she used free and low cost tools that were available to her. In particular, do not underestimate the availability of high quality research tools that you may have at your service via institutions such as public libraries.