7. Market Research
Now that you have defined who your customers are, you need to provide some evidence that your assumptions are correct and that these people really will buy what it is you are offering. You can do this by carrying out some market research. Please do not be tempted to skimp on this section. It can seem a little daunting if you have not done it before, but it does not need to be too difficult or time consuming if you just follow the process outlined below. The alternative is to approach funders with a big gap in your plan that will be instantly identified by any experienced investor. It really is important to do this properly, so do not be tempted to just limit your research to a few friends or colleagues.
There are three types of research that you can do:
Desk Top Research
This is where you find out as much as you can about the market in which you plan to operate, by doing research from your desk via the internet, etc. Any investor will want to be convinced that you understand the market place, so you need to make sure you include key facts and statistics in your plan.
You need to include information on the size of the market and the likely portion of that which you will be able to tap into. Key facts are the value of sales in your market sector at the moment and how many sales there are per annum. You should demonstrate an understanding of any recent trends that have taken place – is it an expanding or contracting market, and if so why? Does the level of sales vary with the time of year; is it dependent or influenced by other events or circumstances beyond your control, etc.
A useful resource for general statistics is www.statistics.gov.uk/
The other key element of market research is known as field research, where you do work ‘in the field’ and get direct feedback from the people who are your potential customers.
The best way to do this is to compile a questionnaire for your potential clients to complete. The key to a good questionnaire is to keep it brief and make it simple to respond to. So ideally it should be no more than one side of A4 and have mainly yes or no answers, or a simple tick box. For example you could be asking people to tick one of five boxes from ‘strongly agree’ to ‘strongly disagree’.
You need to make sure you ask questions that really matter for the success of your business. The questions need to be specific and address crucial factors such as which businesses do they use at the moment, are they interested in your product/service, would they pay your prices, what would make them buy from you instead their current supplier, etc. You should also see if you can get permission to retain their contact details for when you launch your company.
You can keep the detail of the results of your questionnaires as an appendix at the back of your business plan, but you should include a summary of the key findings in this section. You should outline the process you went through for carrying out your research, including the criteria you used for selecting who to take part, the total number of respondents and the main conclusions from the results. Your conclusions will hopefully include facts about the proportion of people who said they would use your business, who your main competitors are and how many people you could expect to be taking from existing companies.
This third type of research is not practical for every type of business as it involves some actual selling of your product to test the market. This is easier for some forms of business than others, as you may not be in a position to offer what it is you want to sell without new premises, funding, staff, etc. If you are producing a new take-away food or a cake, however, that is a very straightforward thing to test. Just get out on the streets with free samples or rent a pitch at a few markets.
If you are able to do it, you should be able to report back on the main things that you learnt from the experience and anything that you will consequently change. You need to include basic facts about the testing including where and when you did it, your starting stock, how many sales you made, total income and total cost.
8. SWOT Analysis
Now that you have carried out market research and given some thought to who your customers are and who your competitors are, you are in a good position to carry out a SWOT analysis of your business. SWOT stands for Strengths, Weaknesses, Opportunities and Threats and it is a standard model used to get an understanding of the good, bad and ugly of any organisation.
Make a heading for each of the four areas and see if you can come up with three or four points under each one. Remember to think specifically about your new business, rather than in more general terms.
Think about why your business is going to succeed. What makes it better than the competition and gives you the advantage? Why would your customers choose you rather than someone else? Is your product or service exceptional or unusual, or are you providing outstanding customer service?
You need to be honest about anything that is likely to make it hard for you to succeed. Are there any skills gaps or are you less experienced than some of your competitors? Are your resources more limited? For each weakness you can think of, explain what you are going to do to overcome that and ensure that it does not stop you succeeding.
This is where you can give details of anything that may give you an advantage or provide scope for expansion or increased demand for your product or service. These should be external factors and could be wider economic conditions, changes to legislation or technological developments.
These are also external factors, but ones which could have a negative impact on your business, or give an advantage to the competition. It could be things that are definite or it could be changes that may or may not happen. Either way, you need to identify them and give details of what you are going to do to prevent them having a negative impact on your business.