A few years ago a friend of mine (we’ll call him Martin) had a great idea. He had what can only be described as an entrepreneurial seizure. He wanted to go into business based on his great idea, which consisted of a unique product supported by implementation services.
He spent many thousands of dollars and eight months designing, developing and refining the product, business model and materials.
Four months in and not a sale was made. Martin was running out of capital and energy, as well as ideas on how to generate sales. Eventually he approached me for advice on what his options were.
After looking over his business it became apparent that the problem originated in the business planning and strategy stage. Specifically, the market research activities did not include testing whether there was in fact a demand for the product.
This is quite a common occurrence in business.
Small businesses are started based on what seems to be a great product or service offering for the market. So the sequence goes – spend lots of money setting up a new business, including developing product, then try to sell it. This is a high risk approach to going into business. The lower risk avenue is to first prove that there is demand, there is a large enough market and people are willing to spend the necessary dollars before committing large amounts of capital to creating a business.
The basics of market research into whether a business may be viable or not consists of asking these questions:
- Is there a demand for this product or service?
- Are there other existing successful businesses operating in this market?
- Is the market large enough to sustain a viable small business?
- Is there evidence that people are already spending money in this market?
- Can you compete in this market?
- Can you differentiate yourself in this market?
It is so much easier to sell a product or service in an existing market with proven demand than it is to create a new product and be a pioneer. We all know how some pioneers ended up, don’t we? So, if you’re contemplating starting a new small business, do your homework first. Find a hungry crowd and give them what they want.