By Jack Harwell
Any business planning to enter a new market should first perform market feasibility analysis. This analysis provides insight into the industry and customers, and will improve its chance for success.
Market feasibility analysis is the process of defining the business model and performing research to determine if the business model can reasonably be expected to generate enough revenues to be successful. Coupled with planning the operations and developing financial projections, this is an important step in determining whether to start a business or grow a new market segment. The steps to feasibility analysis include defining the business idea and the unique value proposition, defining the target customer, performing an analysis of the industry, and determining the size and location of the target market. Following this process will not ensure the success of a business, but it does provide information to the future business owner that, if acted upon, will improve their odds of success.
Defining the Business Model
Defining the business model means describing what customer problem the business is solving, how it will compete with other businesses in the industry, and who is the typical customer. Whether it is providing a nice place to relax, helping customers do their job better or faster, or taking away certain pain points, it will be difficult for your business to succeed if you are not solving a specific problem for your customers.
Unique Value Proposition
Small businesses are typically more successful when they have managed to carve out a niche in the marketplace that no one else has addressed. This is your unique value proposition, and it describes how you are solving old problems in new ways or addressing new problems. You should map out your competitive position in the marketplace by considering who the competitors are, what problem they solve, and how they differentiate themselves. Once you have the competition mapped out, you should identify the gaps that exist and how you will fill these gaps. There are many ways to differentiate your business from your competitor, whether it is a better product, a better experience, or better prices. One word of caution: there is risk to differentiating your business on lower prices. Existing competitors are in a better position to outlast you in a price war. Besides, competing on price with a better product or customer experience should command a premium price, shouldn’t it?
Customer Persona
The customer persona is a fictitious, generalized character that best represents the characteristics of your typical customer. Professional marketers use a firm’s customer persona to validate their marketing strategies and to craft a marketing message that resonates with their ideal customer. The persona informs you on the demographics of the persona (age, sex, education level, etc.) and their psychographics (what they are doing, where they are going, and how they are feeling). It may feel uncomfortable to distill your customer base down to a single person. However, embracing the customer persona will result in a clear and targeted marketing message which will have a huge halo effect that resonates with a larger audience.
With the business model defined, you should start developing questions that your research will need to answer. The purpose of the research is to validate assumptions, learn more about the industry, competitors, and market, and provide evidence that the business model could be successful. This evidence will be used to determine if the business is feasible – that is, you can make money.
Market Research
There are two ways to perform research – primary and secondary. Primary research is where you do the work yourself, whereas secondary research is where you learn from the work already performed by others. Some examples of primary research include conducting customer focus groups, interviewing former employees, and visiting competitor locations. There is more value in primary research, as you target specific questions that you need answered. However, the cost of primary research is much higher, as it takes more time and may require travel to reach the source of information. Secondary research, on the other hand, is cheaper and faster. The best source of secondary research today is the internet.
When using the internet for research, look past the first couple of pages and make note of the source. The first few entries in search results are typically paid search results, which means the website owner paid the search provider to list their entry at the top of the page – which means they are trying to sell you something. The top listings following the paid placements are usually there because the website was designed with optimum placement in mind – again, trying to sell. If you skip to the third page or beyond, you are more likely to access information that is less focused on selling you something and potentially more relevant to your research. Keep an eye on the URL (or web address) of any website you use for information to make sure it is considered reliable.
Local Libraries – Access to Data
The local library is a great source of information for market research. Larger public libraries, such as the Johnson County Public Library or the Mid-Continent Public Library, have business librarians whose job it is to assist you in identifying sources for your research. Before embarking on your research effort, it is a good idea to make a prioritized list of topics to explore. This will help you keep organized and stay on task. Many public and college libraries subscribe to business databases that contain valuable information for your research. These libraries provide you with access to these databases at no charge.
Ibis World
IbisWorld is an industry research database that is rich with information regarding virtually every industry in the U.S.. In IbisWorld, you can learn whether your industry is growing or declining, what are the key factors for success, and what are typical costs and challenges in the industry.
Data Axel (formerly Reference USA)
Another database that could be useful is Reference USA. There are two databases: businesses and consumers. The business database provides a listing of over 44 million businesses that can be filtered by industry, location, size, and other criteria. The data includes company name, address, revenue, number of employees, key managers, and other information. This data is downloadable into an excel file, and can be a great leads list for those businesses that serve other businesses (B to B). The Reference USA consumer database contains data for over 191 million persons. One of the best features of this database is the consumer lifestyles filter, which allows you to create a list of people in a certain area that enjoy any number of interests, including arts, hobbies, recreation activities, and other attributes. This data can enable you to identify the size of the population in your area that might be interested in doing business with you.
Census Business Builder
A third database, Census Business Builder Small Business Edition, is accessible to anyone on the internet. A product of the U.S. Census Bureau, this database is location-based and provides per capita information on many demographic characteristics (remember your customer persona?) as well as consumer spending habits. You can learn how many dollars spent per person on beer consumed away from home for any area down to the tract level. If you are planning to open a restaurant, it would be great to know whether the location you picked is surrounded by plenty of people that spend more money on dining out.
There are many other resources for conducting market research. One favorite with new business owners is the SBDCNet.org website. This website, which is maintained by the Small Business Development Center (SBDC) network, has information on many industries and markets, including sample business plans. The SBDC is a program provided by the Small Business Administration (SBA) to promote the development of small businesses. The Kansas SBDC at Johnson County Community College provides free, one-on-one counseling to small business owners who want to either start a business, or grow their existing business. They have experience business advisors who can assist with all aspects of a business.
Go… or Not?
Once you have completed your research, you should have enough information to be able to determine if the market is large enough for one more business – yours. If the answer is positive, you can then proceed with your plans to open your business. Hopefully you learned some things along the way that have allowed you to fine tune your business model and improve your odds for success. If you are needing funding to start your business, your research should serve as proof to potential investors or lenders that you have done your homework.
On the other hand, if you learn that the market is not ready for a business like yours, that is also a win. It is better to have time lost in research than more time and money lost in a failed venture. Besides, perhaps you have discovered another business idea that has a better chance of success!
