How to do market research

Before you jump head first into that new business idea, take the time for one of the most crucial steps in start-up: doing market research.

Market research helps you determine whether there is truly a market for your product or service. But many entrepreneurs are so excited by their ideas, and so convinced consumers will be, too, that they skip this essential step. Failing to do market research is one of the most common mistakes that can torpedo your new business before it even gets off the ground.

Good market research gives you a better idea of your business’s viability, helps you fine-tune your business plan, and lays the groundwork for your future marketing efforts. It can help you pinpoint your target market, define your business’s brand and even choose the ideal location to operate from.

Your market research should investigate three areas:

1. The industry: You’ll need to know the latest statistics and trends about the industry you plan to enter. Is it growing or declining? What specific niches seem the most promising? How is technology affecting the industry? It may seem obvious, but don’t make your start-up task harder by launching in an industry that’s in decline. Look for one that’s thriving and growing. For instance, suppose you’ve always wanted to start a magazine, but your market research shows that the internet is negatively affecting the print magazine industry and that existing publishers are focusing more and more on web sites. Starting with a content-oriented web site rather than a print magazine is most likely a smarter way to go.
2. The market: Your research into potential customers starts with a market survey that gives you a rough estimate of the sales your business can expect. Start by figuring out the limits of the population you’re selling to. If you have a retail store or other physical location customers must come to, this survey is geographically based: how many people live within the local area? What’s their median income level, purchasing power and demographic profile? If your business is online, your customer base might be located nationwide or even worldwide, but you still need to determine how many of your target customers are out there. Find out the current sales volume in your geographic area or online for your product or service. Then, assess how much of this amount you can realistically get.
3. The competition: As you’re doing your customer research, you’ll also get a picture of the competition. Find out how many competitors you have, both regionally and nationwide. You can learn a lot from the competition, so study how they operate. If possible, visit locations. Create a “SWOT” analysis of your competition’s strengths, weaknesses, and the opportunities for and threats to your business that they generate. Read industry publications and keep an eye out for not just current, but future, competitors. And remember, in addition to direct competitors, you also face indirect competitors. For example, if you’re opening a Mexican restaurant, your competition isn’t just other Mexican restaurants. It’s any restaurant—and, in a larger sense, any place where customers spend discretionary entertainment dollars, such as bars, movie theaters or even amusement parks.

Where can you get help with market research? Start with the internet and the local library. Read articles about the industry you’re considering and your competition. You can also contact publicly held companies directly to get their annual reports.

There are many free or low-cost sources of assistance. Your local SBA district office, SCORE counselor or Small Business Development Center (SBDC) can help you get started. For more information on all of these options, visit sba.gov.