Opening a business or expanding a product line is a big step, but so many people base this decision on their belief that there is demand or on affirmations from their friends and relatives that it is a great idea. However, your feelings or those of friends and relatives are not sufficient measures of future demand.
We were helping a very nice couple who wanted to start a pet store. The couple, who had many pets of their own, thought they would be well suited to operate a business like this, and their friends and relatives had encouraged them to move forward out of a desire to be supportive.
Despite their passion, we advised them against starting the business based on market conditions, but the couple decided to give it a shot anyway. Unfortunately, the business lasted only two years before the couple had to file for both personal and business bankruptcy.
About a year after the business closed, I ran into the couple at a restaurant and they wanted to talk. Their only real regret, they said, was that they did not do enough research on market demand in their area. In hindsight, it was clear that the market was already saturated with pet stores.
Collecting market data before moving forward with a new business venture or product line is so important. Generally speaking, doing your due diligence will decrease your chances of making wrong decisions based on insufficient information.
Marketing research comes with a price tag, but the expenditure will prove worthwhile in the end. Knowing the demand for your product or service allows you to accurately assess the viability of a business and limit your risk of failure.
When starting a business, most people generate a proforma income statement and rely on this statement to tell them whether the business will be successful. The impediment here is that the proforma income statement is driven by a sales forecast. If the forecast is not prepared correctly using valid data, the income statement will be inaccurate and viability can not be assured.
The best way to get the hard data necessary to generate an accurate sales forecast is by employing a marketing research firm. Information is such a valuable commodity when faced with these decisions and you need to make sure that you hire the best help you can afford.
There are many methodologies for obtaining actual demand information for a new product or service, but three key approaches are considered standard in the marketing research industry. The first of these is phone surveys of potential customers. A second method is the focus group, which typically produces high-quality results. With focus groups, you identify small groups of potential customers to participate in in-depth product analyses. The third standard method is conducting a survey of potential customers via mail or email.
Now before you undertake a business venture or introduce a new product or service, make sure you use information obtained through marketing research so you are better able to ascertain demand.
Jerome S. Osteryoung, director of outreach services at the Jim Moran Institute in the College of Business at Florida State University, can be reached at (850) 294-7478.