At this stage you’re probably enthusiastic about your idea and your intuition may be telling you that it’s definitely worth pursuing.
You might also have received great support from family members or business associates, spoken to some enthusiastic prospective customers or even made a few preliminary sales. All this may seem very encouraging, but these are people who already know you. Their enthusiasm may not accurately reflect the wider market’s response.
Although there’s room for intuition in business, making the decision to start your business on ‘gut instinct’ alone is certainly risky and, depending on what you stand to lose, possibly quite reckless. Time spent on research will strengthen your knowledge base and improve any decision you make.
This chapter will help you to identify:
- if there’s a need for your product or service
- the profiles of your ‘ideal’ customers
- ways to research the potential size of your market
- how you’ll reach your market
- possible trends that could affect your venture.
Investigating market potentialEdit
You need solid evidence that a market for your product or service actually exists.
Measuring your market accurately is likely to be the hardest part of your feasibility study. It’s difficult to do this precisely – even large companies can’t predict exactly what will happen when they launch a new product or service.
The only guaranteed way to find out exactly how the market will respond to your business is to start operating and see what happens. Try to resist this risky temptation until you’ve analysed the potential.
At the very least you need to find out:
- who might buy your product or service
- where they’re located
- how big the market is
- how much customers would pay
- how often they might buy
- when they’d buy (for instance, is demand seasonal?).
Do as much D-I-Y as you can!
Try to gather as much research as you can yourself. If necessary (and if your budget allows) you can contract a market research specialist to carry out more detailed research.
Does your business have high growth potential?
If your business idea has high growth potential, you may be eligible to apply for co-funding of up to 50 percent of your feasibility study costs via an NZTE Enterprise Development Grant. To find out if you might qualify, contact NZTE on 0800 555 888 or visit NZTE’s website.
Find out what potential customers thinkEdit
Before you ask people for their opinions, clarify exactly what you’re trying to find out from them, then decide how you can best collect the information.
A simple example would be to ask 20 potential customers three key questions:
- What do you like about this product? This is a useful question to uncover both market demand and any possible improvements to the product.
- What would you pay for it? This can provide a first glimpse of an acceptable market price.
- Would you buy it? This question can be critical because they may say positive things about the product – perhaps to please you – but have no intention of actually buying it.
There are other research options too.
- Trial marketing in a limited area to gauge the larger market potential.
- Holding a focus group of six to 10 potential customers for an in-depth discussion of the product’s potential.
- Emailing or posting questionnaires, or leaving them next to ‘drop-boxes’ in targeted locations (such as doctors’ surgeries, gyms and kindergartens). To encourage more replies, it can be useful to provide some incentive, such as a gift or entry to a competition.
- Promoting discussions in online chat rooms.
Talk to potential suppliers
As potential suppliers may already be working in your market, it can be useful to tap into their knowledge of the marketplace.
- Trial marketing
Trial marketing can be one of the most reliable ways to test your market potential. For example, if you’re introducing an innovative product or service, can you:
- set up a small-scale business at your local market?
- test the response at a trade fair?
- launch a direct mail campaign in a selected town or area?
The larger your sample size (the number of people you’ve talked to or the area you’ve test marketed) the more accurate your market predictions are likely to be. Specific market information is always superior to guesswork. It can also help to convince your backers (such as the bank or investors) that your sense of market potential is supported by some solid research rather than wishful thinking.
Profile your ‘ideal’ customerEdit
Researching the market enables you to build steadily a profile of your ‘ideal’ customer. This is important for two reasons:
- The more precisely you can define your ideal customer, the more accurate your analysis of market potential is likely to be.
- When you start your business, you can focus your marketing far more effectively.
For example, if your product or service is intended for businesses with between 10 and 50 employees, you can research how many such businesses exist in New Zealand and where they are located.
- Customer profiling
Customer profiling should continue throughout the life of your business. Markets change, and you can never know too much about your customers.
- Create individual or segment profiles
If you’re planning to sell to a variety of customer ‘types’, create an individual profile for each.
- resellers (retail or wholesale)
- other businesses or organisations.
Be as specific as possible. For example, a beauty therapist planning to set up in Hamilton might list:
- gender – female
- age range – 35 to 65 years
- location – Waikato region
- income level – more than $40k per annum.
If relevant, you can then drill down into more detailed information, such as their interests, personal beliefs and values. For example, do they make choices and buying decisions with a sense of social responsibility, preferring free trade or organic products?
Build a profile for each customer type or market segment. Note down any defining characteristics such as age, gender, location, interests or, for an organisation, industry, size, location
- Did you know?
Statistics New Zealand has a range of information, tools and services to help you to research your market to determine potential market size. To find out how you can compile your own research for free using tools such as ‘Table Builder’, which allows you to customise statistics for your own needs or obtain an obligation-free quote on the cost of compiling research for you, visit the Statistics New Zealand website.
(Select “quick links” to find the Table Builder. To request information select “contact us” for more details.)
- Business or organisational profiles
If you plan to deal with other businesses or organisations (including resellers), firstly list their practical characteristics. For example:
- organisation type (reseller, service provider, manufacturer or non-profit)
- industry sector
- size/annual turnover.
Again, if you think it’s relevant, you can drill down deeper and consider their ethics or values. For example, do you imagine they support a particular commercial philosophy or environmental or community cause?
Even if you plan to run an e-business and are intending to sell to ‘the whole world’, in reality your potential market size will be limited and you will benefit from researching your targeted e-customers to see if they’ll buy in sufficient numbers to make your business sustainable.
Build a market profileEdit
You may already have an idea of where you want to locate or do business. Building a market profile can help you to pinpoint where and how many of your ideal customer ‘types’ actually exist, to help you to calculate the potential scope of your market. It can also help to clarify how you can feasibly reach them.
Depending on your idea, you might need to find out how many customers fitting your ideal customer type live:
It’s unrealistic to imagine that 100 percent of people or businesses fitting your profiles will become your customers. Some will already be loyal to other businesses or brands and others may simply not be interested in what you have to sell.
- Research comparable markets
It can also be useful to investigate what businesses similar to yours are doing in a similar-sized country with a comparable population. Assuming the dynamics and geographics are similar, if businesses like yours are doing well, the chances of you doing well could be favourable too.
For example, if you plan to operate in New Zealand, Denmark or Wales could be comparable markets. Search online for your business idea in those countries, and see what comes up.
- Use existing information
Much of the information you need may already be freely available.
- Statistics New Zealand (www.stats.govt.nz) can provide valuable demographic information showing where people of different age and income groups live, which areas are growing or declining, and many more useful statistics.
- Libraries stock trade directories, magazines and journals that can be rich sources of information. Librarians are trained to help you to speed up your research.
- The internet is a rich source of information, including online directories, magazines and useful articles.
Try to use a variety of sources and research methods to gather your information, and remember that research is constantly being updated and reworked.
- Research method
Customer questionnaires - Action to take - By whom - Budget - Deadline Email survey - Action to take - By whom - Budget - Deadline Focus groups - Action to take - By whom - Budget - Deadline Form on website - Action to take - By whom - Budget - Deadline Internet search - Action to take - By whom - Budget - Deadline Study competitors - Action to take - By whom - Budget - Deadline Telephone survey - Action to take - By whom - Budget - Deadline
- Avoid over-analysis
With so much information available to you, there is a danger of over-analysing your position. There are some things you should do to keep your project moving and avoid ‘analysis-paralysis’:
- Set a research budget.
- Identify the key information required.
- Decide on your research methods.
- Specify a timeframe for completion.
- Free research on overseas markets
For up-to-date information and research on overseas markets, including country and economy profiles, visit NZTE’s dedicated export website Market New Zealand. The Statistics New Zealand website also has an extensive list of links to equivalent services or similar sites around the world, including Australia, the United Kingdom, China and the United States.
www.statistics.govt.nz (Select ‘related sites’ at the bottom of the home page.)
- Sharpen your research skills online
To sharpen your research skills, take advantage of the free online training modules on the Government’s website. These include topics such as ‘Conducting effective market research’ and ‘Researching international markets’.
www.business.govt.nz (Select ‘Developing business skills’.)
How will you reach your markets?Edit
Once you’re satisfied you’ll have sufficient customers, how do you plan to reach them? It’s worth spending some time researching this, because in your larger business plan you’ll have to be clear about your channels to market.
There are several possible channels to market:
- Sell direct (for example as a retailer, or a manufacturer with a factory shop).
- Sell through a wholesaler.
- Sell through a website.
- Employ your own sales force.
- Use sales agents or a distributor.
- License your product or service.
- Franchise your product or service (normally only an option when you have a proven business model with an established track record).
Form a joint venture or strategic marketing alliance with another company(s). Each option has advantages and disadvantages. For example, if you’re a manufacturer and sell to retailers, they may not appreciate direct sales from a website or a factory shop.
Again, if you choose to sell through a commission agent, you may save the cost of hiring your own sales force, but an agent representing many products might not be as motivated to focus on yours.
Consider also the impact on your pricing if you have to sell through others.
Study the broader pictureEdit
- Industry and market trends
It’s often said that the only thing that remains constant is change, and this is certainly true of your markets.
Future consumer and economic trends can impact significantly (and sometimes quite rapidly) on businesses of every size, so research the wider marketplace before you start, to ensure your business is sustainable long term. Pay particular attention to any economic, social and industrial trends or changes that could impact on your business.
- Read local and international online newspapers.
- Browse industry and trade journals (online or in the library).
- Listen to business and current affairs via pod casts or on the radio.
- Watch overseas business and current affairs programmes.
- Subscribe to SMS text news and business updates via your mobile phone.
How do you intend to get your product or service to market (e.g. through a retail outlet, wholesaler or online)?
- Industry and market cycles
Every industry (and its market) has a life cycle. Are you entering a growing, mature or declining industry? Study the influential marketplace factors and consider the implications for your business.
Generally the fewer competitors you have, the more feasible your business is likely to be. But a lack of competitors might also indicate a declining market for your product. For example, you may wish to start a video and DVD rental shop in your area. But will faster broadband make this whole industry obsolete in the next five years?
On the other hand, a declining market may also provide an opportunity for you to develop a specialist niche. It may no longer pay a large company to service a particular market, but there may be good profits for a smaller business.
An expanding market could mean more competitors will soon emerge as they spot the opportunity too. It may also mean that the few competitors already out there will respond very quickly, and possibly very aggressively, when you enter the marketplace.
- Global influences
Keeping your eye on current affairs and the global marketplace gives you the chance to identify any potential threats and opportunities early on.
For example, today’s greater ‘global awareness’ has prompted a growing market of people (and organisations) who make buying decisions based on social, political or environmental factors. Concerns about climate change mean more consumers are looking for eco-friendly solutions. Will this trend limit or assist the growth potential of your business in any way?
- Want to develop a sustainable business?
Integrating social and environmental responsibility into your business is easier than it sounds. Refer to the booklet Sustainable business practice
- Local influences
Look at what’s happening within the New Zealand marketplace too. Are there any emerging local trends that could influence your success? For example:
- is your industry being supported and developed at a regional or national level?
- are there active market development and/or investment activities underway that could assist your business?
- Tap into local expertise
Rather than wading through piles of information and trying to work out what’s going on, tap into local New Zealand expertise. Your local Economic Development Agency (EDA) and other professional business and industry associations have knowledgeable and experienced staff who will probably be able to tell you what’s ahead in your market regionally, nationally and overseas.
www.edanz.org.nz (Select ‘About EDAs’ to find your nearest agency.)
Free expert market intelligence
Keep up to date with the latest market information. Register online for NZTE’s global market analysis bulletins at Market New Zealand.
Identify any opportunities and threatsEdit
As you review these global and domestic trends, new opportunities may emerge from your analysis. Consider how these will impact on your business.
For example, you might identify:
- different customers or markets from those initially considered
- opportunities for innovative services
- a lead to a potential investor.
Threats can be harder to acknowledge and particularly devastating to a new business, so take a realistic look at these:
- Upcoming changes in legislation.
- A move in competitor positioning.
- Fluctuations in currency exchange rates.
- Emerging technology that could revolutionise an industry.
List any influential trends and note how they might impact on your business’s feasibility
- Be honest with yourself
Given that you’re taking an up close and personal look at yourself and your business idea, weaknesses and threats can be harder to acknowledge than strengths and opportunities. As you work through your study, remember that the purpose of the exercise is to test the feasibility of your business realistically and minimise risk.
- Conduct a mini-SWOT analysis
Invite some family members, friends, colleagues or business associates to join you for a SWOT (Strengths, Weaknesses, Opportunities and Threats) brainstorming session.
Set a timeframe – say, half an hour. Record all the ideas that are put forward. Resist the temptation to respond to any suggestions; simply write them all down, then evaluate each idea afterwards.
Break for refreshments. Leave the ideas in full view for people to think about, then come back together and brainstorm possible ways to maximise strengths and opportunities and minimise weaknesses and threats.
- How much is too much research?
You can never really know too much overall about your market or your customers. However, there are practical limits. Try to do as much research as necessary to satisfy yourself that your idea is worth pursuing. Then run your research past some advisors to get their perspectives.
If your business idea needs large-scale investment, involves long-term development and/or demands a great deal of personal risk to get it off the ground, your feasibility study may need more detailed research from a professional firm.
- Timing can be important
Your research may show that the current market for your business idea is too small to be sustainable. If there are not enough people willing to buy your product, then regardless of how wonderful your product or service, your business will not be feasible.
In this case you might want to revisit your initial idea and look for ways to refine or adapt it, or you may have to accept that the market is simply not ready for your business idea. Many great ideas appear ahead of their time but are later successfully taken up by others. For instance, few companies saw the potential for Velcro when it first appeared on the American market. Now it’s used in hundreds of applications.
- Market research checklist
Make sure that you work through all these steps to establish if there is really a sustainable market for your business before you move on to the next stage of your feasibility study.
- Research the demand for your product.
- Decide if the demand is sufficient and sustainable.
- Build detailed profiles of your ideal customer types.
- Create a market profile for each market segment.
- Work out how you’ll reach your market(s).
- Consider industry and market trends.
If you decide the potential is there, the next step is to assess if your business can make its presence felt in the marketplace and determine what market share your business can realistically gain.