I write quite often on these pages about the importance of proper market research and establishing whether your business idea can actually make any money. I have a good reason for doing so. Those of you who follow this website closely know that my first company failed before it even reached its first birthday. And it all happened purely because I started it without doing any proper market research.
Basically, I wanted to conquer the world with an idea that couldn’t make money.
These days, years after dusting off from that failure and building another and now yet another business, I find myself talking quite a lot about market research. For many people, you probably too, this is a grey area. Everyone knows that it exists but most people don’t really like to go there. It’s complex and well, you know your business and what you want to do anyway. Even better, you believe in it and hell, the world is going to believe too, right?
Well, I thought exactly the same with my first company.
If that’s the case with you, then, here’s the shortest, simplest yet quite effective step by step guide to market research you will ever need. Just note that what I am going to show you here does not equal the proper, full-blown research that dedicated companies can do. The thing is though, in most cases, you don’t need it, definitely not at the start anyway. Full stop.
I believe in bootstrapping in business. I don’t spend the money where I don’t need to and generally aim to keep my overhead costs as close to zero as possible. I realize that you could spend thousands on the already mentioned professional market research but in reality, all that you really need is Google and your brain.
I take it that you have an easy access to both.
The most important thing you need to check to find out whether you should go ahead with your idea is market demand. In other words, you need to find out if there are any people interested in buying what you are offering and are there any money in it at all (the two are not equal by the way, read further to find out). The best way to do so is by looking at your competition.
Fire up Google and find answers to the following:
How many people do the same thing as you?
You don’t need a specific number here. Just check how popular what you want to do is. Of course, this can be obvious with some professions (graphic designers, web designers and many others) however, you may be offering something quite specific so it’s better to do that research anyway.
How many of them are in your area?
Be more specific now and find your most immediate competition. Again, you may already know it or not but still, this search is worth doing anyway.
How long they are in business?
Research your most immediate competitors. Find out how long are they in operation. If all of those businesses are relatively new, it may mean that the market is only forming. It may also mean that there is not much demand there yet. In that case, look for any signs of a new demand emerging (think of iPhone developement a couple of years ago. There was a handful of people doing it and hardly any clients. Now it’s a booming industry). However, if they are long established companies, it means that the demand has been there for long and you should be safe to go in.
Do they make a living off that?
This is quite crucial. In some industries there might be plenty of people offering the same service or a product, yet none of them live off that. Small, independent record labels are the best example. They produce CD’s, mp3 or whatever else and sell them but in most cases those people do not make enough money to live off that. There is a market demand but it’s not huge enough to drive the industry.
Handmade printed posters producers, some arty t-shirts producers, handmade crafted calendars and thousands of others are other great examples. So, make sure that you find out not only if there is a competition in your market but also if this is their main source of income.
What are their most popular services/products?
Make a list of what your competitors offer and what you think are their most popular services / products. Compare this with what you want to offer. Look for similarities but also for unique approaches.
TIP: Quite often it is pointless to be 100% unique just for the sake of it (or some silly ideology). You can believe in something but if the market demands the product or a service to be done in a slightly different way, there is no point in opposing. A good example are artizan food companies. They make speciality food, however, they also offer some close to mainstream products. By working this way they can sell to both markets, ordinary people (large one) and those searching for unique products (very tiny, niche market).
How many paid ads do you see for those services (check that by simply searching for your main keyphrase, i.e. “small business books” or so).
This is a step aside from the other tips but it’s a method I have found to be very handy. Type in your main keyphrase (what you do) into Google and see if there are any paid ads displaying for it. Also, see what they are and how many there is. If there is only one, and a generic one at that, it may mean that no one is willing to spend money to advertise it. This can imply that there is no real market there (even though there are companies offering this service. In that case, make sure that you check what other services they offer and what their most popular ones are. Chances are that this particular one is not the one bringing them any money.)
And that’s it. Simple, isn’t it?
When it comes to market research, the above is all you really need to begin with. There are many other factors you will need to research later on but in the early stages of your business development, finding out if your idea can actually make money is the most crucial thing you have to do.