Before jumping into any business, entrepreneurs need to engage in risk mitigation by researching the availability of their target market and the willingness of consumers to purchase from the aspiring business.
Defining the Market
All businesses need to sell products in order to generate revenues that sustain the business over time. Each business sells a product or service that attracts a select group of customers. This segment is a market. Once a business knows what market(s) the product(s) or service(s) attracts, the entrepreneur can learn a lot about that business’ ability to make sales and generate revenues.
- Market – is a set of all actual and potential customers of a product or service.
- Industry – is an independent economic producing sector that supports a sub-set of markets.
- Customer – user or purchaser of products and services.
- Competitors – other businesses within the market, that can be direct by offering the same products/services or secondary in nature in that they offer similar products/services.
Conducting Market Research
Market research provides businesses with key information to help make critical decisions. The more you know about your business, the market, the economy, customers and competitors the better. Market research information allows the business to understand how to position themselves, how to reach out to competitors, how to price products or services and so forth.
Market Research is conducted in a variety of ways from speaking to customers, obtaining consumer data from one of the major business databases, researching information on the internet to seeking economic data from various sources. The deeper the business digs, the more information can be found, that information turns ideas into key decisions.
If you want a full guide to conducting market research, check out Inc.com’s collection of best practice articles: How to Do Market Research
According to Investopedia, a value proposition is a “business or marketing statement that summarizes why a consumer should buy a product or use a service. This statement should convince a potential consumer that one particular product or service will add more value or better solve a problem than other similar offerings.”
There are many ways for a business to create their value proposition; however, this statement should be the result of the company’s market research. In learning about what the company’s customers want and what the company’s core value is to the market, then the company can proclaim how they are the best solution for their customers.
Testing the Business Concept
Concept testing is the process of using quantitative methods and qualitative methods to evaluate consumer response to a product idea prior to the introduction of a product to the market. There are numerous ways to obtain feedback from the market about a product or services, which include; customer testing, consumer surveys, conducting focus groups, introducing the product to a test market, as well as other creative methods. The results of the product or service testing should result in reviewing the feasibility of the business.
For more information about evaluating your business idea check out: Evaluating Your Business Idea
Key Business Feasibility Studies:
- Product or Service Feasibility – this is a process through which the entrepreneur obtains data on the products/services. Will the idea work? Key questions to ask include: Does the product/service work? Does it function as designed or intended? Does the product/service fill its intended need?
- Market Feasibility – this is where the entrepreneur assesses the probability of a market space willing to support the business offerings. Key questions include: What is the market? How large is the market? Are there customers willing to buy the product or service? What is the economic state of the market? Is this a growing market? What is the competitive landscape of the market? Who are my competitors?
- Financial Feasibility – the entrepreneur needs to consider many different factors within the financial feasibility assessment. Key questions include: How much money does the product or service cost to deliver? How much will the market pay for the product/service? What is the profit margin the business could anticipate? Can the business be profitable, if so how long will it take to get there? How much is needed to start the business, and/or grow the business?
Technology Feasibility – this assessment has two directions for the business owner to consider. The first is for the business itself in that what technology is needed within the business to start? Secondly, if the business is a technology oriented business, is the technology product needed in the market? Is the market ready for the technology? Does the business have a competitive advantage with the technology? How is the technology property protected?
For new products, companies are encouraged to create a “test dummy” of sorts by creating a prototype of the product. This is version 1.0 of the product that can be used as a testing model to ensure that the product idea can actually be produced. Once the prototype has been produced, the entrepreneur can use it to test with target market consumers, gain a better understanding of how the “widget” will be mass produced and how much per unit will cost to be produced.
The prototype offers the entrepreneur a live version of their idea to see if any further revisions or changes will be needed prior to engaging in mass production. Finally, the prototype is also a necessary step for the entrepreneur seeking early stage equity investment capital.