If you use formal techniques such as market research and market-share analysis to identify new markets, you're in the minority among small-business owners. That's because the most common techniques are the relatively basic ones: defining a market (49 percent) and identifying prospects by assessing products (42 percent).
Is that a problem? Perhaps not. "[Small-business owners'] markets are usually well-defined," says Gioia. "The question is, How do you communicate with that market so they'll want to buy from you?"
According to Gioia, small businesses that want to identify their target markets should focus on the attitudes of existing customers. "Talk to them and ask them what's most important to them," she says. "Make sure you have your finger on the pulse of what your customers value."
Many small businesses, such as Washington, DC-based Temps & Co., are already one step ahead of the game. The employment services firm founded by CEO Steve Ettridge in 1981 routinely polls existing customers, as well as past prospects who chose competitors, to identify new needs and see how well Temps is serving them. "We're customer-driven," explains Ettridge. "We find out what people want, and we deliver it."
Overall, small businesses do a poor job prequalifying clients, according to the survey. Only about half make sure they market only to people who are willing and able to buy. Of the entrepreneurs that do, 16 percent rely on credit reports, 12 percent use estimates of a prospect's sales potential, 8 percent consider demographic variables and 7 percent use other prequalification methods.
That's not a good sign, says Doescher. "They forget the rule that says they should [cultivate past] customers," he says. "That's the best place to find new business."
You can do a better job of prequalifying by paying close attention to your marketing costs and determining what it costs you to market to a poor prospect. "You don't want to pay $10,000 for something when you don't know if it's going to work," says Gioia, who recommends test-marketing as a relatively inexpensive and focused way to prequalify prospects and measure the effectiveness of your marketing materials.