One of the best ways to avoid starting a new business that’s doomed to failure is to test your business idea rigorously before you launch.
Just because you’re good at something, enjoy doing it or dream of becoming a successful entrepreneur doesn’t mean you have a sound business idea.
If your new business is to succeed, there must be sufficient demand for your products or services at the prices you intend to charge. It doesn’t matter how much knowledge, personality and drive you bring to your new business. If people don’t want what you’re offering at the price you charge – your new business will fail. Simple.
Although the very words ‘market research’ conjure up images of clipboards, questionnaires and a small army of researchers pestering shoppers on a busy high street, for most small businesses the solution is much more basic.
The key to success can be to spot a gap in the market and tailor your business to fill that ‘niche’, so you become the number one supplier within that market. Even if you’re a ‘me-too’ business or if you plan to sell something that’s already proved popular, you should still carry out some market research to seek honest feedback from potential customers.
Don’t make the mistake of simply canvassing friends and family, because most will be reluctant to criticise. Plus, they probably only represent a small proportion of your market, at most, it won't be reliable market research by any means.
Speak to potential customers you don’t know. Find out their opinions about what you plan to offer. Do some real-life product testing. Crucially – ask whether they’d buy your product/service at the price you’re asking. If the answer’s no, you need to reconsider.
For small businesses that sell to few customers (possibly other businesses), market research will involve meeting potential buyers to discuss products/services and prices. For those aiming for mass-market appeal, the answer might well involve asking questions to people on the high street, where free samples always come in handy. You might do some door-to-door market research. Write down all responses and learn from them.
Effective market research also involves assessing the competition and web-based searches are a good place to start. Also flick through the pages of business directories and local papers/magazines. Even walking around the area in which you’re thinking of setting up will reveal much about the competition you will face.
Find out how many businesses in your market offer products/services similar to yours. Determine how much they charge and what terms they offer (eg buy now, pay later, etc).
If there are too many competitors or some whose prices/terms you cannot match, your business idea might not be viable.
Be honest when considering the results of your market research. Pay particular attention to feedback on prices and never simply ignore those who tell you they don’t like your products or prices. Ask what they would prefer you to sell and/or how much they would pay. If this is considerably lower than your price, find ways to cut costs, if possible.
Important flaws in your business idea might be exposed, but better to find this out before you commit time, effort and money to starting a new business that will never succeed.
You might decide your only option is to think of a different business idea. Don’t be disheartened. Many successful entrepreneurs have had to work their way through numerous bad business ideas to arrive at good ones.
Alternatively, your business idea might simply need a tweak here and there to enhance its chances of success. If you’re really doing well, your market research will make you even more confident your business idea is a sure-fire winner.
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