How many great ideas have you had? Maybe you've tried to start a business with one of them. Thousands of small businesses fail every year. James L. Hailey, a retired president of J.C. Penney, once told me, "There's a market for anything." If that's true, why aren't those good ideas profitable? A big reason is that many good ideas are not aimed at the right market.
One of the biggest mistakes I've seen people make in small and large businesses alike is failing to research the market before introducing a service or product. Market research can be done on a basic level. According to Europen, a network of businesses sponsoring "practice firms," or moot companies for mentoring and learning (visit its Website), there are at least four kinds of information that you can learn from market research about your potential and even current customers.
- Demographic characteristics -- age, income level, education and residential area. Why are these things important? Here's an example: A friend of mine was operating a fitness studio near a large university hoping to attract young women to her classes. The idea seemed like a good one, and her classes were some of the best in town. But what she didn't know was that students at this school tended to go to fitness classes on campus that were free or inexpensive. When she decided that she wanted to market her classes to businesswomen, she realized that moving her studio would be to her advantage because most businesswomen did not live or work near the campus.
- Purchasing habits -- how much people spend on services and products like yours and how much disposable income they have.
This information is obviously relevant to the way you advertise, where you offer your products and services, how you offer your products and services and even how much you charge. In working for an e-learning startup, my friend Jo realized the potential customers that the sales force was courting were not the ones buying the kind of online learning her company was selling.
She knew from experience as an educator that the education market would be ripe for the service because administrators in educational institutions regularly budgeted $20,000 to $100,000 a year for that kind of learning. Her managers were hitting dead ends trying to sell to large companies that spent their budgets on in-house e-learning development.
- Opinions about and value for your services -- what people think about the kind of product or service you offer, what they think about your product or service, how important your product or service is to them.
Have you ever gotten bad service and tried to let someone at the place know? Recently I told a waiter at a restaurant that I'm allergic to mayonnaise. He said he would make sure my food didn't have any in it. After eating half of a wrap sandwich, I noticed mayonnaise. Although I didn't get seriously ill, I did not feel well for two days. Later I called the restaurant and told the manager about what happened. He told me it was my fault because I apparently did not make it very clear that my food should have no mayonnaise. He lost a huge opportunity to find out about me -- how often I come to his restaurant (not anymore), what times I come to his restaurant, where I live, where I work, what I think of his restaurant in general, what I like and don't like about the menu. Customer and client opinions are the most powerful pieces of information you can have. While you can't please everyone, you can learn both positive and negative things about your service or product that will help you improve.
- Your competition -- who offers the same services or products, what they charge, how much they sell, where they are, how long they have been in business.
A national bagel chain opened a store near my house. Right next door was another longtime, locally owned bagel company. At one time, it had been the only place in town selling fresh bagels. Apparently the large chain didn't think the local place was competition. In less than a year, the chain was gone. My bet is that it didn't do the market research on the local competition, which offered a hot, reasonably priced lunch buffet every day, oversize bagels made in the store and lower prices. Plus, the local store had a large customer base that was angry at the new chain store for opening next door. It is never good to underestimate the competition. Instead, learn everything you can about them.
So what does all of this mean for you? Talk to people. Don't just discuss your business and ideas with your family and friends, discuss them with the people who will be your potential customers. Discuss them with people who won't like your business or ideas. Do your research thoroughly to avoid pitfalls later.