From the August 1997 issue of Startups

The most successful businesses flourish not only because they provide innovative products or services, but also because they fill a specific niche in the marketplace. As an entrepreneur, it's essential to learn as much as you can about your market and your product's potential consumers before launching your new business.

You need to know your market inside and out to develop an effective product or service people will pay good money for. Is your business idea something enough people want or need? Who are your likely customers, and how much will they be willing to pay? Who are your main competitors, and how many are there? Discovering the answers to these and related questions will require conducting some market research of your own.

The goal of market research is to learn who's most likely to buy your product or service and how many such people exist. Entrepreneurs go about this in a variety of ways. Some administer surveys or conduct personal interviews with consumers in their communities. Others research statistical and business information in local libraries and information about competitors at the local chamber of commerce. Often, several methods are combined into a comprehensive market-research project.

The depth and breadth of market research varies according to the distinct needs and prior related experiences of different entrepreneurs. As such, our Building Blocks entrepreneurs have returned to discuss the types of market research they conducted before launching their own successful businesses.

D. J. Waldow, B-School Cleaners

"We had access to survey results conducted at our business school several months before we started our business, and we conducted a few telephone and e-mail surveys ourselves," says D.J. Waldow, 21, who has run a dry-cleaning service from the University of Michigan Business School in Ann Arbor since January. Fellow undergraduate student Matt Campbell is Waldow's partner.

The pair got the idea for the dry-cleaning service as members of the business school's entrepreneur club. "Last year, the master's students in the club sent out an e-mail survey to all MBA students in the school, asking how many would be interested in having access to a dry-cleaning service within the business school, and how many items they would typically bring in for cleaning," Waldow explains. "They got a pretty good response rate, and about 85 percent of those responding said they would be interested in such a service."

Waldow and Campbell did additional market research. "One thing Matt and I did was to conduct an informal, over-the-phone survey of just about every dry-cleaning establishment in Ann Arbor, primarily to find out about prices and the demand for their services," Waldow says.

"We also conducted three different price-sensitivity surveys via e-mail to find out how much students in the school would be willing to pay for dry cleaning," he says. "Although the response rates were lower than we expected, we did find out that we had some potential prices that were really too high. We learned that we were going to have to charge prices very similar to those being charged by dry cleaners around town, or else our business wasn't going to succeed."

Al Schneider, usedmall.com

"The research we did involved talking to industry experts and finding out whether or not they believed a concept like usedmall.com would work," says Al Schneider, 57, co-owner of Engle-wood, New Jersey-based usedmall.com. Since March 1996, he and partner Harvey Berlent have run an electronic classified-listings service geared to companies wishing to buy or sell used and surplus equipment.

Before launching usedmall.com, Schneider and Berlent worked within the technology industry in various capacities for three decades, acquiring a good deal of information about the Internet along the way. "During the latter part of that 30-year period, we ran a business together marketing used and surplus computer equipment. The original genesis for usedmall.com was the recognition that we had two choices--to take our existing business and overlay that on the Internet, or to start a new business that was primarily Internet-based," Schneider says. After conducting some market research, the pair chose the latter option.

"Our market research was targeted to a range of individuals. Because of our relationships in the technology industry, we talked to a good number of computer dealers and lessors. We also talked to people in the leasing industry who understood the buying and selling of capital equipment. Everyone we talked to saw the value in providing a database-driven Internet platform for electronic classified listings," Schneider says.

Suzanne George, Suzanne George Shoes

"I was living at the business library here in San Francisco. I practically camped out there and used every imaginable resource," says Suzanne George, 34, who launched her made-to-order footwear business in the summer of 1995.

Much of George's library research was geared toward discovering the demographic and psychographic characteristics of her likely clients. "I was trying to define who my customer was, as far as socioeconomic status and lifestyle preferences," she says. "I found the people at the business library to be so helpful and knowledgeable. They directed me to tons of marketing guides and statistical information that I found really useful, pertaining to the nation as well as areas within San Francisco. I also read microfiche articles and every kind of shoe-industry journal I could get my hands on."

George also conducted a series of focus groups in her home. A focus group is a group interview, typically with eight to 12 individuals who are representative of the target market, led by a moderator who directs a discussion about a particular topic. She began each session by asking participants to complete anonymous questionnaires, then launched into a group discussion about purchasing habits and perceptions of custom-made goods.

"I really wanted to learn more about why people buy what they do --how people prioritize buying, how they make selections, and what kinds of behaviors surround that--so I did three focus groups with about 10 to 12 people in each," George explains. "These were people whom I already knew, but it was interesting to see how much the groups differed in their views. For example, people in the second group were people who didn't necessarily have as much money as those in the first group, but they were really into the idea that they wanted to have fewer, but better quality, things, and that they would support this kind of business. The people in the first group, who had more money, were like, `Suzanne, look, it's business. You've got to have good materials, but the bottom line is competition.' They were really much more hard-and-fast about getting quality goods at competitive prices."

As a result of her market research, George concluded there were three main target populations for her product: people in higher economic brackets who already purchase custom-made items; people in the special-event category, such as a woman getting married or a man needing a special pair of shoes for a black-tie event; and people with fewer economic resources who appreciate the value of handmade items and quality products and would be willing to pay a little bit more for custom-designed footwear.

Contact Sources

B-School Cleaners, djwaldow@umich.edu

Suzanne George Shoes, 526 Seventh Ave., #3, San Francisco, CA 94118

usedmall.com LLC, 25 Rockwood Pl., #4, Englewood, NJ 07631, (800) 683-1608