What Entrepreneurs Need to Know About...

June / July 2006 By: Eric Billingsley Volume 4 Number 3

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This is the sixth in a series on helping the entrepreneur put his or her best foot forward during the process of securing funding. The articles are researched and written by Eric Billingsley.

Do you, as the entrepreneur, know the market your product is intended to serve? Consider for a moment several questions: Do you have a firm grasp of what customers are willing to pay for products similar to yours? Is there a proven demand in the marketplace? What may lead someone to purchase your product over others? Who are the companies you're competing against? What are the trends in your industry?

Many entrepreneurs have failed by not taking the time to answer these questions, and others, before launching a new venture.

Enter market research. It is best described as the process of collecting and analyzing data about customers, competition and the industry you intend to serve. This may include scanning trade publications and documenting industry trends, interviewing potential and existing customers, reading up on competitors and more.

Comprehensive market research and analysis is one of the cornerstones of a solid business plan. It's a way of proving to yourself, and potential investors, that your company and product have a chance of making money.

Types of Research

Market research is broken into two types: primary and secondary. Secondary research involves reading up on your industry in existing publications and data resources. The point is to understand products similar to yours, how your company stands out from the rest, demographic profiles of customers, growth trends for the industry, the niche you intend to serve, and financial and marketing strategies of successful competitors.

A few great secondary research sources include: the internet, libraries, Census data, trade associations, trade publications, magazines, company and industry directories, public filings (especially if competitors are publicly traded companies), published market research reports, and government agencies.

When compiling secondary research, it's important to make sure the data you collect is both current and from respected sources. Data from the internet are especially prone to be dated.

Primary research involves directly approaching and studying your target market. It should only be done after you've exhausted all of your secondary research sources because it can be expensive and time-consuming.

Common primary research tactics include: interviewing current and prospective customers, competitor's customers, industry experts, suppliers and distributors, and others who know the industry. This can be done in person, over the telephone, or by sending a questionnaire.

Additional strategies may involve conducting focus groups, field-testing your product, and attending trade shows to talk one-on-one with professionals in your industry.

A few key questions to answer include:
—€ How significant is the problem your product solves?
—€ How are people solving this problem now?
—€ Where is the industry headed?
—€ What are the key industry challenges?
—€ What are companies spending on current solutions?
—€ How are purchase decisions made?
—€ What features are most desired and how willing are people to pay for them?

Getting help from family, friends, college students and others can minimize research costs. There are also numerous resources on the internet, books, and professional services to help you design appropriate primary research tools.

Narrow the Focus

When gathering industry specific statistics, such as market size and growth trends, avoid overall market numbers (e.g., "I will be selling into the multi-billion dollar semiconductor market"). Focus instead on data that paints a clear picture of demand and the size of the niche market your company will serve. Investors are not looking for big numbers; they're looking for realistic ones.

When conducting primary research, data need to be relevant and quantifiable. For example, if you're using questionnaires, make sure they are designed well and answer the important questions. Your methods and calculations also need to meet industry standards.

Be sure to devote considerable time to assessing competition. Answer questions such as: Who are they? What types of marketing strategies do they use? What are their strengths and potential weaknesses? If it's a publicly traded company, track its financial statistics. Numerous investors say they look for a realistic assessment of competition in business plans they review.

And always remember to include a wide variety of sources in your research to assure that the final results are unbiased and comprehensive.

Once you have conducted and analyzed your market research, organize and package your findings in a way that is understandable to the layperson. Investors, especially, don't have time to decipher complex graphs and documents.

Know the Data

Conduct and analyze as much of the market research as possible yourself. When you sit down with a venture capitalist, you want to be able to convey a first-hand knowledge of the market.

And, maybe most important, heed the data. The beauty of thorough market research and analysis is that it helps you fine-tune how to best break into the industry and be successful. If 20 interviewees state that your product is too expensive or too complicated, chances are they're right. Adjust your tactics accordingly.

Good market research should not only highlight a product's market potential, but also clarify the conflicts and obstacles that stand in the way of success. It is a tool to be used when starting a company, attracting investment capital and for developing future marketing strategies.