It’s the first post in the Business Plan Challenge! Today we’ll be talking about Market Research and how it applies to a business plan. If you remember last week, we introduced ourselves and challenged you to follow along with our posts and write a business plan of your own.
A business plan breaks up an idea into four aspects or categories. Within each of these categories, Market Research will assist in determining how the business should be positioned compared to the competition.
The four categories are:
- Business Concept – Includes a description of your business, industry information, mission statement and business goals.
- Marketing and Sales Plan – Describes product or service in detail, target market, competition and marketing strategy.
- Operations Plan – Covers daily operations, production methods, costs and pricing.
- Financial Plan – Outlines business’ projected cash flow and balance sheet.
There is one other category in the business plan, the Executive Summary. It is written to offer a big picture of the business. We’ll leave that one ‘til the end as it’s just a mish-mash of the other four categories. We hear some lazy bankers will only look at the Executive Summary and the Financial Plan.
Throughout the entire business plan, Market Research will confirm or disprove personal assumptions and bias. It can be a daunting task and it’s difficult to know where to begin. Doing some research now, before you’ve started writing your plan, helps make sure your information is cohesive. Performing market research is similar to going to the library and reading about a subject before writing a term paper. Like a good paper, a good business plan is well informed and uses only the best information.
Here are some subjects to consider researching:
- The product or service you are selling
Be careful not to research too much and lose your inspiration, but it is important to know how your product compares to the competition’s.
- The competition
By analyzing your competition, you can learn what works well and where they are not successful. Be sure to pay close attention to advertising, the brand, reputation, customer service, pricing and shipping terms. Take the time to think about what your competition is doing and what you can offer that is better and different.
- How much will it cost to set up your business?
Knowing every business cost will make your financial projections much more realistic. Consider insurance, bank fees and even your car or transportation.
- Your target market
What does your target market like to do? Where do they shop? How much money are they willing to spend?
- How much will it cost to produce your product?
Just like the business start up costs, knowing the labor and material cost of your product will make your financial projections more accurate.
How will you find all this information?
There are two types of Market Research: Primary and Secondary.
Primary Research is the information you collect yourself.
You can do this by creating a survey or interviewing customers or competition.
For us, the information we found through Primary Market Research was invaluable. We created an online survey to send to potential customers. We asked survey participants demographic information (age, gender, income) which helped refine our target market. To collect more specific data like buying habits, open ended questions are better compared to closed questions (yes/no response).
Also, we contacted store owners with similar business concepts. The stores were located in other cities and we explained that we were not competition. Almost all of the store owners were more than happy to answer our respectful questions. We avoided asking anything too personal to the business, like specific sales numbers. Instead we asked about the store’s clientele, the community their store was located in and their thoughts on the economy and their business. For online business owners, you might ask what promotions worked well (customer loyalty discounts, free shipping, etc.) or where the owner has had success advertising.
Secondary Research is information collected by someone else.
It includes statistics and market information. Secondary Research can be found at libraries, small business centers, the United States Census and Statistics Canada. We also contacted industry based organizations and used Google to search newspapers in North America. All of the Secondary Information should be kept for future reference.
For Secondary Research, you will need to determine your target market (indicated by your Primary Research; for retail stores check with your city demographics) and its size and industry information such as segment (NAICS code), number of establishments, growth, trends and annual sales figures. For example, “Retail” is the industry and a “Baked goods store” is the segment. Using the NAICS code we can find the number of establishments and growth for baked goods stores in the United States or Canada.
Next week, we’ll cover the Business Concept section of the business plan. This is where the Secondary Market Research listed above for the target market and industry description comes in handy! Sleuth on and if you have any questions post them in the comments!
Lili Nedved and Henry Sinha are opening a brick and mortar retail store in Vancouver, Canada. With lots experience staying up late and working on Lili’s handbag business, iglubu, Henry was recently promoted from an Electrical Engineer to Director of Fabric Organization. Lili hopes her Finance degree will give her the edge in the competition for Employee of the Month.