Gain a firm understanding of the size and dynamics of the potential markets you plan to target with your new business so you can plan ahead with confidence. Market assessment is a critical skill all entrepreneurs need to learn. Without it, you can’t make informed strategic decisions for your start up, let alone forecast your business’s financial potential.
Fortunately, it is not a hard skill to learn if you’re willing to spend time drilling down into the details and dynamics of the markets you’re researching.
Review markets with focus
It is easy to get lost in the hype that can surround emerging markets and the pessimism surrounding declining ones. But as the dot.com bubble proved, some opportunities can sometimes be too good to be true, while others can be all too easily overlooked.
To stay focused when assessing a market’s size always keep in mind these questions:
Is the market big enough to interest us?
Market potential is all in the eye of the beholder. A business with lower overheads and larger margins will find more opportunity in a market than another with more financial demands.
Is the market moving in the right direction?
Markets run to life cycles as they grow and decline. But there are opportunities in both situations. If you have the expertise to service a niche market, for example, you might be able to take advantage of a declining market in which large competitors have lost interest.
Is the market moving fast enough?
Timing is everything. If you don’t have the resources to wait for demand to build in a new market you should consider letting someone else take the risks first until the market grows.
Is the market profitable enough?
Market size can be deceptive. There might be large demand but if the margins are tight or there’s the risk of an innovation seizing it, you might want to reconsider. Just look at how the Internet affected print publishing.
Step 1: Take a top-down approach
The first step to take is to look at the market data freely available online. You can pay to gain access to industry reports, but many start-ups can begin to establish the wider parameters of their potential markets just by checking government resources.
You can enquire relevant data from government statistics department that offers its own set of online research tools for businesses, so make sure you take advantage of them.
You can use the statistics to:
- Catalogue consumer numbers and demographics in your area to find your target markets.
- Compare your business with potential competitors.
- Benchmark your financial performance against other businesses like yours.
You can also find data on market size from other government agencies that often commission white papers and reports for public consumption.
But don’t stop there. Your industry or trade association, and local Chamber of Commerce will be able to provide useful data as well.
If you’re looking to markets overseas you’re more likely to have to pay for access to market reports or consult a local expert, but still look for free information online as a first step – you might be surprised by what you find.
Step 2: Look at the supply-side
The supply-side of the market is your competitors. You want to establish the overall value of the market in total sales so you can estimate market share later on.
Add up the annual sales of the competitors you’ll face in the marketplace. This information can be a little harder to find and may require you to pay to access industry reports from tracking companies if they’re not freely available online.
However, you can also find sales information by:
- Consulting a credible accountant with experience in your industry.
- Finding articles on industry media and trade press websites.
- Checking the sales literature published by your competitors.
Step 3: Look at the demand side
Government statistics and company turnover figures can only give one side of the story. To get a real feel for the direction the market is taking you need to talk to the consumers or business people who drive demand.
Take a sample group of the target market and survey or interview them to assess demand. For a small business, you’d perhaps want to gain answers from a group of 20 or 30 typical customers.
However, it is important that those 20 or 30 people you talk to don’t know you in advance. It’s quite common for start-up entrepreneurs to only survey friends and family or colleagues in their industry who are already bias towards them. They then find demand for their product or service in the market is much less than they anticipated.
You want unbiased opinions to make your research as accurate as possible. If you don’t feel comfortable carrying out the research yourself, consider hiring a professional market research firm to do it for you.
Researching new markets
New markets always carry greater risks than more established markets and those businesses that enter into them first blaze a trail for the rest to follow.
If you think your start-up might be in this position, take every opportunity you can to research the market thoroughly and dispel as many assumptions and uncertainties as you can.
Taking a “We’ll cross that bridge when we come to it” attitude can expose you to unnecessary risk, so make sure you drill down into the details before you invest any time or money.