Many entrepreneurs are so enamored with their product vision that they believe their own hype, and are convinced that the market for their solution is so huge that no one will ask them for independent market-research data. They don’t realize that business projections with no third-party validation have no credibility with investors.
Every good business plan needs an early section that sizes the total market opportunity, and then breaks down that total into the most relevant segments for your focus. If 10 percent of these numbers, multiplied by your average product price, will get you the revenue you need to scale your business, you will get the love you need from angel and venture capital investors.
A common excuse I hear from entrepreneurs for not doing the work is that real market research takes too much time and costs too much money. Perhaps that was once true, but in this age of the Internet, big data and pervasive business intelligence in every industry, you can use the following steps to get the data you need with very little time and cost:
1. Start your research with Google. Use your favorite search engine and keywords describing your solution to find online sales reports, trade association statistics and online newsletters with the latest statistics. The wealth of data available online is already much larger than the entire Library of Congress, and much more current.
2. Modern libraries are still worth a visit. Universities and large municipalities still maintain subscriptions to the latest market-research reports from key sources, including Nielsen, International Data Corporation and Gartner Group. In most cases, these are available to the public for free access, and can be referenced and footnoted in your plan.
3. Explore municipal-development resources. The local Small Business Association (SBA) offices, or their equivalent in other countries, can often provide statistics on key market domains in your area. New business-development specialists there can also provide good additional sources for the specific information you may need.
4. Browse the business section of your favorite bookstore. These days, it’s a great way to get some work done, while enjoying a cup of coffee, so you may not even have to buy a book. Pay particular attention to the titles discussing the latest big opportunities, such as alternative energy, global warming and technology trends.
5. Peruse company reports from your business domain. Competitor's annual reports, white papers, press releases and presentations are great sources of data and trends that you can use to support your own efforts. These are also important for your product positioning in the competitor section of your business plan.
6. Conduct your own customized market research. With social media and the new survey tools, it’s easy and fast to set up and run your own focus group or opinion survey. Just make sure your results are statistically significant, rather than anecdotal, and avoid any personal biases in the questions that may be used against you.
You need to find just enough information to quantify the real need out there for your product or service. For example, if you are offering an accounting service for small-business owners, you would want to quantify the number of enterprises in your area, with the size, age and spending demographics that you are targeting.
Buying large detailed reports from market-research freelancers and name-brand providers usually costs several thousand dollars, and often is not required to find the summary data you need to satisfy investors. One of the free sources above, or just the teaser data from an online report advertisement, is often more than adequate as a third-party reference for credibility.
We all know that people can use statistics to prove any point they want, but not having any opportunity sizing is certain to raise a red flag above your whole business plan. On the other hand, spending your entire startup budget on market research won’t improve your odds of success or funding.
Successful entrepreneurs get the job done quickly, without breaking the bank.
Related: The ABCs of Market Research