Define market need, research the target and understand the channel.
Define a Market Need
A good business idea fills a need that exists in the market. You may have come up with your business idea because you, your friends or your family saw a need for a product or service you couldn’t find.
Maybe the product or service exists, but you think you can do it better.
Here are four questions to ask:
1. What need does my product or service fill? What problem does it solve?
2. What are the features and benefits of my product or service? (“Features” are the components of your product. For instance, a bicycle’s features might include a high-tech braking system and puncture-proof tires. The “benefits” of those features are safety and a smoother ride.)
3. What is my competitive advantage? (How is your idea different from, or better than, the competition?)
4. What is my business model? (How will you produce, deliver and market the product or service, and how will you make money?)
Research Your Industry
Another way to fine-tune your business idea is by researching the industry you want to enter.
You’ll want to know:
- Growth trends: How fast can a business in this industry expect to grow?
- Profitability: What kind of profit can you expect to make? What are average margins in the industry?
- Trends: What current and future trends (demographic, economic, global) are affecting the industry?
- Life cycle: The chart below illustrates the concept of life cycle. Ideally, you want to choose an industry that’s either at an early stage in its life cycle or in the reinvention stage. Choosing an industry in the mature or declining stages makes it harder to compete.
SOURCES OF INDUSTRY DATA
Use these tools to research your industry:
- The North American Industry Classification System (NAICS) is the standard system federal agencies use to classify businesses. Search it online or go to www.census.gov/eos/www/naics/ to find your industry description.
- Trade associations also have valuable industry information. Search for associations online or consult the National Trade and Professional Associations (NTPA) Directory, available at libraries or online.
- Risk Management Association (RMA) Annual Statement Studies, available at libraries or online at www.rmahq.org, provide benchmark financial ratios for businesses in over 370 industries.
Consider Your Target Market
Ask yourself these questions:
- Channel position: Where in the sales chain will your customers fall? In other words, are you
- Selling to retailers, wholesalers, consumers or other businesses?
- Number: How big is your potential market?
- Income level/ability to pay: Are your customers upscale or bargain hunters?
- Demographics: What are the demographic characteristics of your market (location, company size, sex, age, marital status and education level)?
- Lifestyle: Are your target customers urban or rural? How do they spend their work, leisure and personal time?
- Habits: What are the spending habits of your target market? Where do they shop and how do they buy?
Other key factors to think about when assessing a business idea include:
- Competition: How many competitors are there? How big are they? What product or service features and benefits do they offer?
- Suppliers: What kinds of suppliers will you need? Are sources of supply readily available? How reliable are they?
- Business risk: Is the product or service you’re considering a short-lived fad, or does it have long-term potential? Are there legal or environmental factors that could threaten your business, such as pending legislation that might restrict your operations?
Next- RESEARCH YOUR TARGET MARKETS
About the author
Marjorie Weber has been educating entrepreneurs and guiding them in their search for capital for the past 16 years: combining business training programs with one-on-one mentoring. Marj is currently a financial advisor for Florida SBDC at FIU. She was Chair of SCORE Miami Dade from 2010 to 2014. She also serves as an advisor to the Goldman Sachs 10,000 Small Business Program and the SBA Emerging Leaders Program and provides training for Veterans seeking an entrepreneurial path upon retirement from the service. She has facilitated workshops under the auspices of Miami Bayside Foundation, Little Haiti Cultural Center and .local banks. She commenced her career as a real estate investment banker in New York and Miami..She uses these long term relationships to assist her clients in accessing capital. She knows both the process and the people and has assisted in providing financing for hundreds of businesses in Miami Dade.