Entrepreneurs by their very nature have lots of great ideas, but not every great idea makes a great business. Many businesses fail, not from the idea, but by the fact that there is no market for the product or service. Which is why you need to spend time evaluating your idea and conducting your market research.
This is the second part of the 10 day series to starting a business. In case you missed the earlier articles in the series you can catch up here.
No business, particularly a small one, can be all things to all people. The more narrowily you define your business and it’s target market, the better.
What is Market Research?
Market research is a means of evaluating your business or your products or services chance of success. By asking potential customers relevant questions such as their habits, interests and the understanding the problems they are facing, market research can build up an estimate of the likely demand, pricing and profit opportunity.
There are 5 basic questions that need to be answered before you can evaluate the size of your opportunity:
- What problem does my product or service solve?
- Who are the customers?
- Why will they buy it?
- Who are the competition?
- How much are customers likely to pay?
The good news is, some of this information will already exist and can be discovered in a few clicks on Google. Other information you’ll have to go away and find.
For most businesses, this exploratory activity would be too expensive to get a third party market research specialist in to do the research for you, so chances are you’ll have to do it yourself.
How to conduct Market Research
Here’s 3 steps to conducting your own market research:
1. Set your objectives
Firstly work out exactly what you need to know. Are you trying to get feedback on existing services or are you trying to establish future buying intentions?
2. Survey Design
When designing your survey or questionnaire ask only the most relevant questions. Don’t overload the questionnaire with questions that make it difficult or time consuming for the person to answer. Make the questions easy to answer (whether the survey is completed individually or face to face or over the ‘phone) by using tick boxes or circling options. Make sure that when giving response choices go for an even number of choices to prevent people going with the middle response. Consider offering an incentive for people to respond to the survey but make sure that whatever you do, doesn’t influence the results of the questionnaire and make people put down what they think you want to hear.
3. Test, Test, Test
Ask the questions to a number of people to make sure that they understand the questions the way you intended them. If they don’t recraft, then test again. You can’t afford to make any assumptions that people will think the same way you do.
Whilst you could undertake a statistical analysis to determine the size of your survey and ensure that it represents the a statistically significant population size. In many cases this is just not necessary. As long as the survey represents a number of individuals from your target market, then you should be able to get the reuslts that you need. If you have a small customer base and are looking to sell a new product or service to your existing customers, then asking all the existing customers could be a good idea.
Alternatives to surveys
If you’ve read The 4-Hour Work Week: Escape the 9-5, Live Anywhere and Join the New Richthen you’ll probably be familiar with Tim Ferriss’ idea of using Google Adwords as a means of testing whether there is a market for your product. If you’re not then the idea is this: simply create a web sales page for your product or service with space to collect name and email details include a “Buy now” button which links to another page which says that the product is not available and that they will be notified when the product is available. Then advertise the product or service using Google Adwords with a link to the sales page. Measure how many people click on the advert and link to your sales page, but more importantly measure how many people actually click the “buy now” button as these are the people who would have become sales if your product or service was available.
What does it all mean?
When you get all your data back think about how you’re going to interpret it. You might be able analyse small surveys by hand, but bigger survey responses might need the use of a database or spreadsheet, so make sure you have the skills to be able to interpret and manipulate the data.
Once you’ve got all the results you need to understand what it all means and whether there is a viable product or business. If there isn’t, then sadly it’s back to Day 1 and coming up with a new idea. But at least you’ll have spent minimal cost avoided any costly mistakes.
If there is a market for your business, then fantastic. Now you need to work out what the implications are and what you need to do next.