How to Do Market Research for A Business Plan
You’ve gotten to the point of needing to do market research for a business plan, and you know it’s critical, so you want to be able to get it right. Especially as the market research section is the part where bankers and investors perk up because this is where you talk numbers and facts.
In today’s post, I’m walking through how to do market research for a business plan and providing you with specific tips for gathering information.
Before we dive in, it’s important to understand what makes for an effective market analysis. Here are three things you need to ensure to include:
- Your numbers. They should be accurate and specific.
- Facts. Avoid rambling narratives. Don’t talk entirely from personal experience.
- Backup for your figures. Cite all of your sources — clearly.
Why You Need Market Research
The purpose of market research is to figure out and analyze the reasons people might choose your product or service. For example, are you making the claim that your business can secure a portion of the market? This is the part of your business plan where you show how you will accomplish this.
Market research serves to:
- Demonstrate that you understand your market backward and forward. You want to show that you have a strong enough grasp of the market that your idea is the perfect solution to solve their problem.
- Clarify any statements you’ve made about your market and their interest in your idea.
- Show the numbers to back up your idea.
Good market research effectively answers the questions: What does the market look like? What has it done in the past? What are the trends for the future?
What to Research
Your research section should be bucketed into different categories. The more specific and detailed information you provide, the better you’ll be able to paint an accurate picture for investors and bankers. More importantly, it will help you to strategically understand your own market in a deeper way.
Here are a few suggestions for categories that can provide insight and valuable data as part of your market research for your business plan:
Broad Industry Research
This is your general research about the industry and an opportunity to identify key pieces of information. No matter the size of your industry, it’s critical that you narrow your scope and only include relevant, related data.
If your industry has a professional association, seeing what sort of data they have available can be an excellent resource. Other resources you can tap into include:
When gathering your data, there are some key questions you should be looking to answer:
- Key Players: Who are the “big names” in the industry? What products and services are these key players selling? What is their business model?
- Growth: What is the current growth trend in the industry? Is it getting bigger or smaller? What does the historical data indicate in terms of future predictions?
- Trends: What are the current trends in the industry? How do these trends impact your business?
Look at companies running a comparable business within your industry. To effectively portray the landscape of your industry and demonstrate your expertise, data on your competition must be included in your research. Should you not have any direct competitors, you can look for indirect competitors.
When choosing which competition you’ll be comparing your company against, if possible, find competitors whose businesses are of a similar size and age but may be addressing customer needs in a different way.
Some questions you may want to research are:
- Who are your direct (and indirect) competitors?
- What strategies are they using that you may not have employed?
- What’s their pricing and marketing strategy?
- What’s the differentiating factor between your business and theirs?
Customer Profile Research
A customer profile is simply a description of characteristics that make up your target customer. Knowing who you’re targeting and what they’re looking for is a critical part of market research for a business plan, so there are some key attributes you need to be aware of.
Focusing on a specific audience — instead of trying to target everyone — is going to be a much more effective strategy when trying to get investors on board.
Some areas of data you can look at when researching customer profiles include:
- Buying patterns
- Purchase history
Components of a Solid Market Analysis Section
It takes a trained eye to correctly determine what’s happening within your industry and what the future holds. Be sure your numbers are accurate, concise, and grounded in facts.
With the market analysis section of your business plan, you’ll need to be careful and purposeful. Investors are quick to spot a weak market analysis section. They can tell when you don’t have the numbers to support your idea and won’t hesitate to walk away if that’s the case.
Solid market research is one of the first steps that will help you avoid the most common business plan mistakes I see with clients.
Finally, when it comes to conducting market research for a business plan, remember: The most important thing is to do your homework. Research thoroughly and properly, and cite your sources to show where you came up with your information. By taking the time to ensure you have all your data well put together, you’re that much more likely to have the outcome you want.