Doing Your Market Research

Here is a question that has kept many a new entrepreneur awake in the wee hours of the morning: How do you know if you have a good idea?

You may think it is great, but truthfully, that counts for little. You will only be a success if other people not only think it is great, but are actually willing to plop down their cash to buy that great thing you want to sell.

And of course a problem is that we entrepreneurs tend to be so passionate about what it is we do, we think all of our ideas are great ones (or if not all, then at least most!) While that sort of confidence can be a huge benefit, if it turns into hubris – and it can – it becomes a big detriment.

Example: Magic Johnson, as we all know, is one of the greatest basketball players of all time. But what you may not know is that since his retirement he has gone on to become an incredibly successful entrepreneur – teaming with companies like Starbucks, opening movie theatres in inner-city neighborhoods, and generally seizing upon opportunities missed by others.

Have you ever been in one of his Magic 32 retail stores? You haven’t? Let’s hear why from Magic, writing in his 2008 book, 32 Ways to be a Champion in Business: “We never made it past the first store. Looking back, I can give you a whole list of reasons why this startup flopped. The major factor was our crazy main buyer, who ordered clothing he liked rather than stocking up on what our customers might buy.”

So who was this main buyer? Magic himself. “I knew what I liked in sportswear, yet I didn’t have a clue what our customers would or could buy,” he writes.

Magic learned the hard way a lesson you can fairly easily avoid. You might have a good idea for a business or product. Maybe you think it is such a fantastic idea that you can’t even share it, lest someone steal it. Too bad. If you are going to succeed with you idea, then you simply must get some feedback on it, and the earlier the better.

There are two main steps to determining the viability of a product or idea. The first is to dig in and do some old-fashioned research. Read books and magazines about the industry you are interested in. Learn the lingo and the latest trends. Find out how big the market is. Get information from trade associations and read their trade publications. Google the idea, business, and/or product and learn as much as you can. If you really want to go for it, get a job for a few months in the sort of business you want to start. You need to understand both the way the business works as well as what your potential costs will be as you ramp up.

This sort of research and experience will serve you well. It will give you the foundation with which to analyze and finesse your plan and it will give you the numbers you need to crunch. And once you do that, then you are ready for Step Two: Go out and get other people’s opinions about what it is you want to do. Combined, you will be armed with industry information, book learning, and personal feedback. That mixture will let you know if you are on the right track.

Here’s how to get the feedback you need:
1. Ask: Speak with people whose opinions you respect and trust and see what they think of your product, idea or plan. Ask your mate, your best friend, your sister, work associates, members of your clergy, etc. Get a big cross-section of opinions. Honest feedback, one way or the other, will be very valuable.

2. Draft a non-disclosure agreement: A non-disclosure agreement (also known as an NDA) is a simple legal document that basically says your ideas are yours and the person with whom you are sharing them cannot use them without your written consent. You can then use this when speaking with industry insiders and other people you don’t know as well.

3. Speak with competitors: Go to a nearby town and talk with people in the line of business you are interested in. Make sure they offer similar products or services to the ones you will offer, and quiz them. What do they like and dislike about your plan? What obstacles do they envision? What mistakes did they make that you can avoid? How much did they spend and what will your costs likely be?

By going to a different town you will not be considered competition, so the small-business owners with whom you speak will be far more likely to help you and give you realistic, honest feedback. And remember, you don’t just want validation for your idea; you want to know the good, bad, and ugly.

4. Consider using a focus group. A focus group is an independent group of people who gather together to evaluate and give feedback on a product or other business idea. When candidates want to know if a campaign slogan or TV ad works, they convene a focus group to discuss it before rolling it out. That is a fine plan for you too. By Googling “focus group” and where you live you will be able to find companies that can put a focus group together for you.

But focus groups can be less formal as well. If the idea is to get the feedback from independent third parties, then that can just as easily be done online, and at less cost. Consider going to various online forums and posing your query. Or get involved with Facebook groups or become part of related Twitter discussions – all would be affordable, powerful ways to get feedback and conduct market research.

5. Evaluate the feedback. Some of it you will like, some of it you won’t. Take the best of what you have learned and incorporate it into your plan of action. Hopefully, people will like your idea and they will have reinforced your instincts. If so, congratulations. But bigger congratulations might be in order if they don’t like your idea or plan all that much. In that case, they either will have saved you a lot of money and time or would have given you enough other feedback such that you can refine your plan and make it more marketable. Either way, constructive criticism should be very welcome.  

The final thing you must do before rolling out your plan is to take all of the financial assessments you gathered and come up with a rough idea as to how much it will cost you to launch. Be conservative. Things always take longer and cost more than you expect.
 
If you take the time to find out what it is that people want, and then figure out how you will give that to them, you can be assured that your ending will be more magical than Magic’s.