There is no costlier error for a start-up than failing to carry out thorough market research, says Clive Lewis, head of enterprise at the ICAEW
Having developed your idea for a new product or business idea, the next step is crucial. While there will no doubt be a great urge to get cracking, taking the time to step back and research the market you’re entering will pay dividends further down the line. Such research will help you produce initial sales forecasts, identify projected quantities, selling prices and business costs. It will act as the starting point of a business plan and help you to identify financial forecasts for your early years of trading. At the very least, it will help you find out whether there is demand for what you’ll be offering in the first place.
Specifically, you should be looking to find out from your market research:
• The demographic of your potential customers – gender, age, marital status, occupation, income and lifestyle
• What they buy and in what quantities
• When they buy
• Where they prefer to buy
• Why they will buy your product or service
There are two main formats of formal research that will help you achieve this. The first – quantitative – is used to provide statistical information through surveys carried out with large numbers of people, known as a sample. For example, a person wanting to set up a gym might find out that 30% of local people would like to do regular exercise, 10% are already members of a gym and 12% are considering joining a gym in their local area. This would offer pointers to the gym developer as to where to locate a gym and how large it should be.
The second type of research is qualitative. This explores people’s feelings and attitudes. This type of research is usually conducted in focus groups, consisting of up to eight people. The discussion is usually chaired by a facilitator who oversees the discussion, covering key themes and topics in a chatty manner to ensure participants feel at ease. The chair also ensures that all the attendees make a contribution. They often summarise the discussion and provide a written report of the key findings.
While having this carried out professionally ensures quality and rigour, it can be expensive to employ a professional agency or a freelance researcher. Alternatives are to gather open source information available in libraries, universities and trade associations. You can also make the most of free-to-use survey sites such as SurveyMonkey or Wufoo. However, you must be honest and fair with the questions you ask and the results you get. It may be tempting to skew the results, or you may even do so unintentionally, but in the end it will only damage the accuracy of your business plan.
Informal research can be equally as valid as its formal counterpart. It could, for example, involve something as simple as walking the street where you would be planning to open a premises and finding out where people walk, where your potential competitors are based and at what times the peaks and troughs are throughout the day.
After conducting the research you will be ready to prepare plans for your brand new venture. Armed with the information of knowing your types of customer, their preferences and spending habits can help ensure that you generate as much turnover as possible from the outset.