So you have a great idea for a product — something that’s bound to capture the hearts and minds (and wallets) of consumers everywhere. Or perhaps you've stumbled on a service that isn’t being offered by anyone else — one that's desperately needed. This is your opportunity! Don’t hesitate ... don’t look back ... jump right into it and …
Wait! Before you shift into high gear, you must determine whether there really is a market for your product or service. Not only that, you need to ascertain what, if any, fine-tuning is needed. Quite simply, you must conduct market research.
Failing to do market research can amount to a death sentence for your product or service. Consider market research an investment in your future. If you make the necessary adjustments to your product or service now, you’ll save money in the long run.
As a rule of thumb, market research should provide you with information about three critical areas:
1. Industry close-up
•In researching the industry, look for the latest trends. What areas of the industry appear to be expanding, and what areas are declining?
•Is the industry catering to new types of customers?
•What technological developments are affecting the industry? How can you use them to your advantage? A thriving, stable industry is key; you don’t want to start a new business in a field that's on the decline.
2. Consumer close-up
•On the consumer side, your market research should begin with a market survey. A thorough market survey will help you make a reasonable sales forecast for your new business. To do a market survey, you first need to determine the market limits or physical boundaries of the area to which your business sells. Next, study the spending characteristics of the population within this location.
•Estimate the location’s purchasing power, based on its per-capita income, its median income level, the unemployment rate, population and other demographic factors. Determine the current sales volume in the area for the type of product or service you will sell.
•Finally, estimate how much of the total sales volume you can reasonably obtain. (This last step is extremely important. Opening your new business in a given community won’t necessarily generate additional business volume; it may simply redistribute the business that’s already there.)
3. Competition close-up
•Based on a combination of industry research and consumer research, a clearer picture of your competition will emerge. Don't underestimate the number of competitors out there. Keep an eye out for potential future competitors as well as current ones.
•Examine the number of competitors on a local and, if relevant, national scale. Study their strategies and operations. Your analysis should supply a clear picture of potential threats, opportunities, and the weaknesses and strengths of the competition facing your new business.
David Stob is a consultant with the University of Georgia Small Business Development Center.