Market research doesn’t have to be expensive to be credible. True, there are research companies out there that do custom research for larger companies for thousands of dollars. You can buy expensive research reports for some markets, generally high-growth markets of special interest to companies that can afford to buy expensive research reports. You may have budget for that, but you don’t have to spend that much money. Most of the best research is research you do yourself.
Do Your Homework
Search for quotes. Magazines, blogs, books, and market research companies publish highlights and snippets with some key numbers from research reports. They really have to, it’s part of their normal business. Gartner Group or IDC or NPD Intelect publish market reports that are expensive, but to develop leads they have to give highlights away in press releases. The key here is the search terms you use. Do the Web search first. If you have access to one or more of the powerful literature and published works search engines, like articles.com or accessmylibrary.com, or competitors, use them. Check the blog for updates on this topic, these search facilities change often. And don’t forget that the key is searching the major search engines, such as Google and Yahoo!, directly.
Look at existing, similar businesses. This is a very good first step. If you are planning a retail shoe store, for example, spend some time looking at existing retail shoe stores. Park across the street and count the customers that go into the store. Note how long they stay inside, and how many come out with boxes that look like purchased shoes. You can probably even count how many pairs of shoes each customer buys. Browse the store and look at prices. Look at several stores, including the discount shoe stores and department store shoe departments.
Find a similar business in another place. If you are planning a local business, find a similar business far enough away that you won’t compete. For the shoe store example, you would identify shoe stores in similar towns in other states. Call the owner, explain your purpose truthfully, and ask about the business.
Scan local newspapers for people selling a similar business.Contact the broker and ask for as much information as possible. If you are thinking of creating a shoe store and you find one for sale, you should consider yourself a prospective buyer. Maybe buying the existing store is the best thing. Even if you don’t buy, the information you gain will be very valuable. Why is the owner selling? Is there something wrong with the business? You can probably get detailed financial information.
Always shop the competition. If you’re in the restaurant business, patronize your competition once a month, rotating through different restaurants. If you own a shoe store, shop your competition once a month, and visit different stores.
Talk to Customers
If you’re considering starting a new business, talk to potential customers. In the shoe store example, talk to people coming out of the stores. Talk to your neighbors, talk to your friends, talk to your relatives. Ask them how often they buy shoes, what sizes, where, at what price, and whatever else you can think of. If you’re starting a restaurant, landscape architecture business, butcher shop, bakery, or whatever, talk to customers.
At most business schools, when they teach business planning, students have to do a market survey as part of the plan. The plan isn’t complete unless they go out and ask a credible number of people what they want, why, where they get it, how much they pay, and so forth. Although you may not go through the formality of a customer survey for your business, this information is vital. At Palo Alto Software, we frequently put a customer survey on two of our websites. People who are browsing the Internet looking for materials and information on business plans can visit us at www.PaloAlto.com or www.bplans.com.
One of those sites does no selling. Instead, it provides free information, including free downloadable sample plans, outlines, and discussions, including answers to several hundred specific questions about details of developing a business plan. We sometimes ask people stopping by our websites to answer a few quick questions that concern us. The invitation promises just a few questions, and promises also that we won’t ask for names or e-mail addresses, and we won’t follow up with sales information. When we run one of these surveys we get about 300 responses a month, which provides us with valuable information about the concerns people have as they consider writing a business plan.
If you have an ongoing business, the process of developing a plan should include talking to customers. Take a step away from the routine, dial up some of your customers, and ask them about your business. How are you doing? Why do they buy? How do they feel about your competitors? It is a good idea to take a customer to lunch once a month, just to keep yourself in touch.
Count Potential Customers
Most business plans contain an analysis of potential customers. As an essential first step, you should have a good idea of how many potential customers there are. The way you find that out depends on your type of business. For example, a retail shoe store needs to know about individuals living in a local area, a graphic design firm needs to know about local businesses, and a national catalog needs to know about households and companies in an entire nation.
What constitutes good sources depends on what you need. Government and commercial statistics are usually more than enough, but for some plans you may end up purchasing information from professional publishers or contract researchers.
For general demographic data about a local area, if you have no easier source, ask the reference desk at a local library. A local university library is even better, particularly a business library. Chambers of Commerce usually have general information about a local market. In the United States, there is the federal government’s U.S. Census Bureau. Nowadays the quickest route to the census bureau is its website at census.gov.
Before the Internet became so ubiquitous, I frequently turned to vendors of mailing lists for general information about people and types of business. The mailing list vendors often have catalogs listing total numbers of types of people and types of business. For example, to find out how many attorneys or CPA offices there are in the United States, I might look at the lists for sale at a list broker.
Magazines provide another good source of demographics. If you’re selling to computer stores, for example, call Computer Retail Week and Computer Reseller News and ask both publications for a media kit. The media kit is intended to sell pages of advertising to potential advertisers. They are frequently full of demographics on the readers. For information on any specific type of business, get the media kits for the magazines that cater to those types of businesses as readers.
Just browsing the Census Bureau website while preparing this draft, it took me about 10 minutes to discover that my home county has 378 general contractors, of which 360 have fewer than 20 employees and the remaining 18 have between 20 and 100. There are 238 legal businesses in my county, of which only 12 have more than 20 employees. Also, following the shoe store example, there are 32 shoe stores in the county, none of them having more than 20 employees. There are 111,000 households in the county, 61 percent of them owner occupied, and an average of 2.49 people per household. Some 22 percent of adults in the county are college graduates, and the median household income is $26,000. All of this information was available for free at the census website.
Know Your Customers
Aside from just counting the customers, you also want to know what they need, what they want, and what makes them buy. The more you know about them, the better. For individuals as customers, you probably want to know their average age, income levels, family size, media preferences, buying patterns, and as much else as you can find out that relates to your business. If you can, you want to divide them into groups according to useful classifications, such as income, age, buying habits, social behavior, values, or whatever other factors are important. For the shoe store example, shoe size is good, but you might also want activity preferences and even — if you can find it — psychographics.
Psychographics divides customers into cultural groups, value groups, social sets, motivator sets, or other interesting categories that might be useful for classifying customers. For example, in literature intended for potential retailers, First Colony Mall of Sugarland, Texas, describes its local area psychographics as including:
- 25 percent kids and cul-de-sacs (upscale suburban families, affluent)
- 5.4 percent winner’s circle (suburban executives, wealthy)
- 19.2 percent boomers and babies (young white-collar suburban, upper middle income)
- 7 percent country squires (elite ex-urban, wealthy).
Going into more detail, it calls the kids and cul-de-sacs group “a noisy medley of bikes, dogs, carpools, rock music and sports.” The winner’s circle customers are “well-educated, mobile, executives and professionals with teen-aged families. Big producers, prolific spenders, and global travelers.” The country squires are “where the wealthy have escaped urban stress to live in rustic luxury. Number four in affluence, big bucks in the boondocks.”
Tim Berry is the founder and chairman of Palo Alto Software and Bplans.com. Follow him on Twitter @Timberry.
