Market Research for a New Small Business

Market Research for a New Small Business: Careful Market Analysis is the Key to Successful Business Plans

A good business plan is the foundation of success in starting a business; not only is it essential in winning the support of investors and lenders, but it also provides a roadmap for steering a new business through the critical early months.

Not all business ideas are good business ideas; if there are flaws in the basic concept, thorough market and business research will help to identify them, and possibly show how to overcome them. Even if the basic idea is a good one, lack of marketing research can deny it the success it deserves.

Although large businesses can afford to employ expensive market research agencies, this should not be necessary for a small business startup. This simple guide to the information you need and where to find it should help to carry out a successful DIY market analysis on which to base writing your business plan. Listed below are the questions your market research should answer:

The Business Sector

  • What is the overall market size and structure of the sector?
  • Who are the main operators or providers?
  • Who are likely to be your main competitors, geographically, in size, or in your particular niche?
  • What are their strengths and weaknesses and how can you capitalize on these?
  • What percentage of the sector can you realistically aim to capture?

The Customers, Clients or Users

  • Who are they, and where are they, by socioeconomic group, age and geographic location?
  • Who are your particular target customers or core customers?
  • What are they looking for in quality, price and accessibility?
  • Which advertising media are most likely to reach them?

The Product or Service

  • Does the product or service match the needs of the target customers?
  • How does it compare with competitors?
  • What is the unique selling point which will give your product the edge?

The Operating Location

This can have important implications for even internet centred businesses in respect of:

  • The availability and cost of staff and materials,
  • Storage and workspace.
  • Transport links.
  • Communications including telephone, broadband and mobile phone coverage.
  • Property costs, rentals and rateable values or other local taxes.

For conventional customer contact retail businesses location will generally be an overriding consideration, and you also need to consider:

  • Does the site have enough passing road and/or foot traffic to bring in opportunity customers.
  • Are the proposed premises appropriate and will they suitably impress/attract customers?
  • Are they easily accessible for customers in your target catchment area, including road, rail, sea and/or air transport facilities as appropriate to the business.
  • Car parking.

Legal Considerations

What is the impact of legislation on employment, health and safety, freedom of information and taxation on the business?

Financial Research

What are the start up and operating costs including:

  • Capital costs for premises, vehicles and equipment?
  • Materials and supplies?
  • Labour?
  • Heating and lighting?
  • Transport and distribution?
  • Communications IT and telephones?
  • Insurance and security?
  • Marketing and advertising?
  • Loan interest and bank charges?
  • Legal and accounting fees?
  • Tax liabilities, including, as appropriate, Corporation and Business Tax, Income Tax, National Insurance, VAT and Business Rates?

Where should your product be priced taking account of competitors’ prices and customer perceptions of value? What will be your profit margin? Based on these figures and your expected market share, what will be your cash flow for years 1-3? And the final and most important question resulting from all this- is the business financially viable?

Sources of Information

Much of the information you need will be readily available from Government and business association statistics, trade journals, company reports, the financial press and the local press, all of which can generally be found through the internet or public libraries, or by personal request from the organisation concerned.

Government business support agencies, like the UK’s BusinessLink can often provide information, or advise on where to find it.

Census data can be a useful starting point for demographic information, though this becomes increasingly unreliable over the 10 year interval between censuses. Government, and particularly local government, statistics may be more up to date. Personal observation and sampling of an area’s car and house quality, property costs and ownership and the clustering of other businesses can be very useful, but only to supplement soundly based factual statistics. Advertising departments of local newspapers, and estate agents often have useful information if you approach them in the right way.

Carrying out a self help customer survey can be particularly useful, and if the demographic profile of a particular area is especially important, you can buy off the peg post code analysis from market research companies or even Royal Mail at a reasonable price.

Finally, telephone directories and other advertising can tell you quite a lot about the competition.