You have a business idea you’re passionate about. But before you take another step, you need to find out if there’s a demand for that business in your community.
Conducting market research will reveal whether the area has enough potential customers, if they’ll buy what you’re planning to sell, and who your competitors are. Here’s what you need to find out.
Is the industry thriving?
Start by researching the industry you want to enter. Is it growing, mature or declining? How do others in the industry sell their products or services? Where are most of them located? How much money do they make?
You can find a lot of information by searching online. Suppose you want to start a boba tea business. The search “is boba tea a growing industry?” reveals that the bubble or boba tea market is expected to reach $3,214 million by 2023. Look for search results from legitimate sources such as government websites, industry analysts, industry publications or industry associations. Tap into trade associations and trade publications for industry trend data, too. Using the North American Industry Classification System (NAICS) to identify how your industry is classified will help you find more information.
Are there enough customers in your community?
Just because your community has a lot of residents doesn’t mean it has a lot of customers.
You need people who fit your target market profile. For instance, the primary customer base for boba tea stores tends to be millennials and Asians, so starting this business in a community full of white retirees won’t work.
To see if your business idea is a fit, get demographic information such as age, ethnicity, marital status, education level, household income and size, and homeownership for your community. The following sources can help:
- The Census Business Builder Small Business Edition tool lets you plug in information about your desired business and find the best location. Use the Census Bureausite for more detailed information.
- USA.gov Statistics offers easy-to-use tools to find government data.
- The Bureau of Labor Statistics has demographic data you can sort by location or region.
- City-Data combines government and private sector data into city profiles.
Will those customers buy what you sell?
Even people in your target market won’t buy from you if they don’t have sufficient disposable income. For instance, boba tea is a luxury, not a necessity, so consumers on a budget may not buy it. Use consumer spending data to research your market’s spending habits.
- The Bureau of Economic Analysis shows income levels by location.
- The Consumer Price Index shows how much people pay for various products.
- Employment and Unemployment Statistics reveals employment levels in your area and what types of jobs people have. For instance, if you want to start a beauty supply store targeting hair stylists (a business-to-business venture), find out how many people in your area work in salons and how many salons exist that might become customers. The cost of starting a beauty supply store may not be a strong investment if the market of customers isn’t there in your local area.
- Consumer Spending shows overall spending trends.
Conducting surveys is a good way to see if prospective customers will buy from you. SurveyMonkey Audience lets you survey people in your desired region and demographic. If your customer base can be easily found (such as hair salon owners) you can also contact them directly to ask questions.
Who’s the competition?
All systems seem go—your community is full of hair salons and hairstylists, not to mention style-conscious women who can be potential customers for your hair salon supply store. Not so fast! What competing businesses exist?
Use the resources mentioned above to find local competitors. Visit them to get an idea of how they position themselves, what products they sell and the level of service they provide. This will help you identify opportunities to differentiate your business.
What if your research shows a sizable Asian, millennial customer base that spends a lot on eating out—but there are already three boba tea shops in your community? There might be room for another, but only if you can distinguish your store by offering something the others don’t. Could you serve more than just boba tea, or stay open late at night and host poetry readings and live music?
If there are nocompeting businesses in the area, that’s not necessarily a green light. Maybe there are no hair salon supply stores near you because local salon owners and hairstylists buy all their supplies online. You’ll need to dig deeper by contacting them to ask.
If all this research seems overwhelming, the experts at SCORE or your local Small Business Development Center (SBDC) can help you conduct market research on your community at no cost. (Disclosure: SCORE is a client of my company.)
Whatever option you choose, don’t neglect this important step. It can make the difference between a successful startup and an empty storefront.
About Rieva Lesonsky
Rieva Lesonsky is CEO and Co-founder of GrowBiz Media, a custom content and media company focusing on small business and entrepreneurship, and the blog SmallBizDaily.com. A nationally known speaker and authority on entrepreneurship, Rieva has been covering America’s entrepreneurs for more than 30 years. Before co-founding GrowBiz Media, Lesonsky was the long-time Editorial Director of Entrepreneur Magazine. Lesonsky has appeared on hundreds of radio shows and numerous local and national television programs, including the Today Show, Good Morning America, CNN, The Martha Stewart Show and Oprah.
Lesonsky regularly writes about small business for numerous websites and for corporations targeting entrepreneurs. Many organizations have recognized Lesonsky for her tireless devotion to helping entrepreneurs. She served on the Small Business Administration’s National Advisory Council for six years, was honored by the SBA as a Small Business Media Advocate and a Woman in Business Advocate, and received the prestigious Lou Campanelli award from SCORE. She is a long-time member of the Business Journalists Hall of Fame.
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