by Douglas Edmondo, member of Northern Nevada SCORE
How do you know if your business idea has the potential to be successful? Conduct a market analysis.
A market analysis is an in-depth assessment of the potential target market, your competition, and the need for a product or service, and provides a realistic and honest assessment of the viability of your new idea.
The first step in the process is to determine your target market by building a customer profile. Building a customer profile helps you focus your data collection activities so you can determine the number of potential customers you are trying to reach. For example, are you looking to sell to:
- Consumers or businesses
- Specific age groups
- People who engage in certain hobbies
- Do It Yourselfers?
The physical location of your potential customers is also a consideration. Are you providing a service limited to a specific local area, are you selling a product locally, across a larger geographic area, or maybe online?
The second step in the process is to start collecting data. You want to determine the number of potential customers in your target market. Just as important, you need to know the number of competitors already in business and what they are charging for their products or services. This can seem to be a daunting task but there are great resources available to help such as:
- Your local library
- The Small Business Development Center (SBDC)
- The Census Bureau
- The Chamber of Commerce
- Trade Associations
- The yellow pages
- Online searches
For example, if you are considering opening a business tailored to homeowners you might want to know the following:
- The number of single-family homes in the area you wish to serve
- The number of businesses already serving the area
- A list of typical services being provided
- Pricing for those services
- An estimate of the number of customers each company can service in a day
The third step is to analyze all the data you have collected. To assist you there are many online templates you can use or you can build your own. To continue our prior example, let’s say you found 10,000 single family homes in the area and only 10 small competitors. Using your knowledge of the business you know that each small business can serve two houses per day on average or approximately 500 per year. Since only 5,000 houses are being served by your competitors, this is a potentially underserved market and you have an opportunity to gain business in the area.
What if your product or service is very specialized or unique? You will want to further validate the desirability of your product or service by performing additional market research. Options for more in depth market research include:
- Focus Groups
- Field Trials
Conducting a market analysis is critical to your business planning. Understanding your target market and your competitors will help ensure your new business is successful.
Please join us next month in this series as we look at how to analyze your competition.
Douglas Edmondo is a member of Northern Nevada SCORE (https://northernnevada.score.org/). Doug joined SCORE in 2018 after retiring to Reno following 35-year career in the defense and semi-conductor equipment industries and was the owner of a small aircraft leaseback business.