You might think the hard part is done once you've come up with an idea for a profit-driving enterprise, but visit any Small Business Development Center and you will quickly discover that one of the most challenging parts of launching a business is preparation. The Small Business Administration is a terrific resource for providing funding, consulting and introductions but in order to access those resources, budding entrepreneurs need two key elements: a business plan and a market analysis. A proper market analysis identifies the geographic and demographic demand for your product or service, examines what economic and societal forces are driving your potential market, and lays out research findings, correlations, and conclusions. Let's examine the key elements of a successful market analysis.
Prepare a Budget and Timetable
A generalized best practice is to set aside a small percentage of the previous year's gross sales revenue. If you are launching a new enterprise, you will want to set aside an appropriate amount for market research based on the size and ambition of your entrepreneurial business. A timetable is also key, especially if your industry or market is seasonal or cyclical. For instance, a business that relies heavily on holiday purchases should be examining buying trends and patterns well in advance of the selling season. Finally, the timetable for research should provide sufficient scope and resources for detailed research, which can be daunting to novice entrepreneurs.
Provide an Industry Overview and Outlook
This section should depict your industry's size and historic growth rate as well as trends, characteristics and major customer or client groups.
Collect Detailed Data from Primary and Secondary Sources
Data is king when it comes to market research because it provides the substructure to support the research exercise. Ideally, data collection should be conducted by experienced researchers; however, new entrepreneurs should set aside time to learn how to collect effective, illustrative data and how to analyze it correctly. Many small and medium-sized businesses also rely on secondary data, which is generally collected by professional data collection agencies, governmental bodies, and public databases.
Narrow Down the Target Market
Even Apple and Google don't list their target markets as “everyone." Here it's time to drill down to find where the sweet spot for your idea is within a larger industry. This is also a good place to narrow down market opportunities, which are niche prospects within a larger market where improved technology or an augmented ability to deliver a product or service may give you an advantage over your competition.
Identify Market Profitability
What is the market share percentage and number of customers you expect to obtain in a defined geographic area? This process gives you your market profitability. Explain the logic behind your calculation, taking into account the viability of your supply chain, barriers to entry, perceived threat from competitive products or services, cost structure, and distribution channels.
Provide a Competitive Analysis
A competitive analysis identifies your competition by product, service, and market segment. Characteristics to examine include market share, strengths and weaknesses, barriers to entering a competitive market, the viability of your window of opportunity to enter the market, and any barriers such as technology, personnel, or investment.
Watch Out for Regulatory Restrictions
Examine and highlight any customer or governmental regulatory requirements that could impact your business, and identify specifically how your business plan addresses compliance. Also cite any operational or financial impacts the compliance process may have on your business.
Analyze the Data and Present the Research Findings
Once the best possible data has been collected, it must be organized and analyzed in order to obtain relevant and accurate conclusions that support the conclusions of the market analysis. It is equally important to present the results and findings of the marketing research in a systematic manner to management, investors, consultants and other constituents. There is no room for ambiguity, gaps and inconsistencies in the research findings. Major decisions will be influenced by both primary and secondary research as well as the end analyses, so it is important to not only understand the data but also know how to present the results clearly and efficiently to multiple audiences.
Identify Success Factors
Success factors are identified as those elements that are necessary for your business to achieve your marketing objectives. These elements can include access to essential unique resources, ability to achieve economies of scale, access to distribution channels, and successful applications of technology.