Last month, I wrote about the necessity of developing and documenting your business plan. This month, and for the next four months to come, I plan to write about its components. This month: Market analysis.
Your market analysis may be the most important part. Done properly, it gives you a feasibility test about your concept, a basis for testing your plan with real potential clients, a touchstone for advertising, and a vehicle for talking with employees. It also helps you define your most efficient marketing programs, as we shall see.
Market analysis needs to be done by you. Why pay a proxy to learn all about your market when you are the one who needs the knowledge? In the past couple of weeks, I have gained a client who came to SCORE to help her write a plan after she had invested $2,500 with a consultant to do the same. Only one big problem: the consultant's definition of the market was not the same as my client's; hence, the analysis was well done but for the wrong market. That means $2,500 mostly wasted.
A market analysis should start with a general description of the market you intend to serve, and it should stress your unique advantages (what differentiates you). That should be followed by a segmentation of the market. For example, if you plan a bricks and mortar outlet, then that would include any potential customer within some radius measured in miles and probably further segmented by age group.
Then you need to describe in precise detail the area and characteristics of the market you intend to serve. For example, I have a Korean client about 50 years old who has taken care of his 91-year-old indigent father for several years. He plans to start a geriatric care business catering to elder Koreans in the Denver area. Also, I have two police officer clients nearing retirement who plan to start a uniform and accessories business for Denver-metro area officers. These clients have a great deal of personal knowledge and a unique idea (that I will not disclose) that will stand them in good stead.
Notice that these clients have well-defined, specific market segments -- Korean elders in Denver metro and police departments in the area -- that will help them focus their marketing efforts.
Most of my clients have a service component in their business concepts -- sometimes it's all service. Service deserves a specific analysis; Can you charge for it and if so how much, what are the competing services, how will you deliver your services, what part of your P & L do your services contribute? Does your service require any special government licensing such as health care; who pays, the client, insurance carrier or a government?
You will need a description of the intermediate influence on the buyers in your market such as dealers, distributors, sales reps, trade associations, etc.
You will need to analyze the present and future competitive conditions in your market. If you enter will a well-established competitor cut prices to wipe you out?
What are the present and anticipated governmental influences? I have a client that has a very bright idea that centers on the use of photo-voltaic solar cells. The viability of the concept and his customers' business cases depends on continued government support (tax breaks) for alternative energy users.
What are the present and anticipated pricing conditions in your targeted market segment?
A good way to paint this picture is to describe the history of similar products and/or services if there is one.
Market analysis sounds like a daunting task and it needs to be done by you. So how does one go about it? First, construct an outline of what you want to find out and then turn to resources all around you. Much of the information you need can be found online -- try Google and/or www.bizminer.com/. Many local libraries have business reference sections.
In Denver we are fortunate to have a very good one and an outreach librarian who is a friend of SCORE. Much of the data is online and access requires a free library card. Other good sources include chambers of commerce, industry journals, industry conferences during which expert articles are frequently presented, financial journals and articles, the Federal Government's Standard Industry Classifications, Federal Reserve Board publications and competition (out of your immediate territory) are a few. If you use statistics from external sources, please remember to site the reference and the date of the data.
If you do a good job of market analysis then the next piece the marketing plan, the subject of next month's article is much easier.