- Learn how to evaluate your business idea before diving in with both feet.
- Find out how to identify your target audience and product potential, including demographics and focus groups.
- Learn how to conduct effective research on your competition.
- What do you need to know to assess the financial feasibility of your business idea?
They say everybody has one good novel in them, and many people feel the same about ideas for a business. If you are thinking about diving into the world of entrepreneurship, it’s a good idea to pause for a moment, take a deep breath, and let your head take over before your heart leads you astray.
There’s certainly a chance that your business idea is a good one and you’ll be highly successful, but it’s a good idea to evaluate, research, and analyze before you quit your day job. Here are Fiducial’s steps to follow to ensure that you’re moving ahead with care and caution.
Know that you have an audience
When you have a great idea for a product or service, you generally come up with it because it reflects a need that you’ve experienced. But are you sure that you’re representative of a wider market? Have you confirmed that others feel the same need and that enough of them will spend money to address it?
Knowing who your audience is, how many of them there are and what they’re willing to spend on what you’re selling are all keys to predicting the viability of your business idea. Asking a few friends will not be enough to confirm your hunch.
You need to conduct real market research, preferably with the help of experts, and ask them to determine whether you’ve properly identified a legitimate market. Combine their analysis with your own observations and those of the people around you. Also, include those who have tested your product or service and those who are investing in you or advising you.
Demographics and focus groups
Having a lightbulb moment is inspiring, but it is essential that you understand who you’re selling to in order to gauge their real interest. The demographic factors that you need to determine and verify include: age; geographic location; income level; gender; marital status; ethnicity; the number of household members; occupation; and education.
It’s only once you know who you are selling to that you can begin to address the right way to do so. Identifying your target audience will also help you establish your potential market, your sales goals, the importance of any competition that might exist, and whether the market will bear another provider.
You should also consider assessing your product’s potential by submitting it for feedback from a focus group, survey, or similar market testing. This will provide you with valuable information about how your product may be improved. It will also help you get to know your ideal client.
Know what your business will be up against
Not only do you need to know who you’ll be selling to, you also need to know who is already out there, going after the clients that you want. There’s nothing wrong with a little competition and diversity in the market, but if it’s there you need to make sure that what you’re offering has something that sets it apart and makes it worthwhile for potential clients to switch.
You also want to know what the most compelling aspect of your competition’s product is so that you can work to meet or exceed what it delivers. Your goal is to set yourself apart in comparison to all others in a similar niche. You do this by establishing a unique selling proposition (USP). Then, you make sure that your potential buyers are well aware of that differentiating factor by broadcasting it constantly.
To make sure that you’re conducting effective research on your competition, make sure that you’re doing the following:
Understand exactly who they are and what they are selling:
Knowing a competitor’s name and price point is not enough. You need to fully understand what people like and dislike about their products or services, how clients are paying for it, their pricing history and strategy, how they’ve marketed themselves, and what clients think of them. The more you know about what clients are and aren’t satisfied with in your competitor, the better off you are.
Assess whether your business faces direct or indirect competition:
Do you know whether your potential clients are currently buying the exact same products from your competition, something slightly different, or entirely different but a good substitute? This information can guide many of your marketing and sales decisions.
Know how your business stacks up against the competition:
Once you understand who your competition is and what they’re offering, you need to take a look at your own offerings and determine what makes you better. Once you’ve identified your competitive advantage you can play to your own strengths, using it as the marketing hook around which you will build all of your branding and messaging.
List strengths and weaknesses, then use them:
A big part of market research is to make a list of what competitors do well and poorly. You can identify their strengths and weaknesses by asking clients, assessing the product yourself, and searching online reviews. Emulate what they’re doing right and then improve on what has drawn complaints.
Consider engaging with your business competitor:
In many cases, healthy competition is facilitated by reaching out and engaging with your competitor. You can exchange helpful information on how best to distinguish yourself and your company. The two (or more) of you may end up helping one another in times of crisis, or even forming a collaborative partnership.
You also may find it helpful to conduct a Strengths Weaknesses Opportunities Threats (SWOT) analysis. This is a competitive analysis on others in your niche.
Is your business idea financially feasible?
Once you’ve established the objective potential for your business’ success, you still need to determine whether you have the ability to move forward. To assess this, consider the following:
- What are your startup costs going to be?
- Do you have a source of funding?
- Once you’re up and running, what will your expenses be?
- How much do you expect to make from the business?
- How long can you survive financially between startup and earning a profit?
These are among the most difficult questions, and the answers are often what stops a business idea in its tracks. Still, it is better to give thoughtful consideration to each of these issues before rushing headlong into an idea — no matter how good or exciting — that you cannot afford.
If following these steps gives you a strong sense of who you are selling to, who the competition is, and whether you can thrive and pursue your dream without driving yourself into debt, you can move forward with a sense of optimism and hope. If it leaves you with a sense that your great idea won’t deliver on its promise, it’s better to find out early than to experience the misery of watching your business dream fall apart.
For more small business COVID-19 resources, visit Fiducial’s Coronavirus Update Center to find information on SBA loans, tax updates, the Paycheck Protection Program, paid sick and family leave, and more.