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How to research your business idea?

    You have obtained your business idea, but are you wondering whether it will survive once acted upon? This blog should help you conclude whether or not you should start your business and invest both time and money into your idea.

    1. Identify a target market

    You won’t be able to accurately quantify your model’s potential until you have a clear understanding of your audience, their size, and their spending habits, among many other variables. Understanding factors like these will help you down the line; such as when calculating startup costs compared to modelled profitability. 

    Understand who you are selling to. It is helpful to construct a profile of your ideal customer based upon personal observations, analysis, third-party market research and any feedback you’ve received from mentors or test users, for example. 

    The more accurately you can define and anticipate your ideal customer, the more potential your business has of anticipating and serving their needs. Understanding your ideal customer will also help you accurately pinpoint your competitors too. This will further help you analyse your target market.

    Ideal customers might fall into these demographics:

    • Age
    • Location
    • Income
    • Gender
    • Profession
    • Income
    • Education
    • Marital Status
    • Family Size
    • Homeowner

    Once an audience has been established, you should analyse how big the market is. This includes weighing up factors such as the number of customers and the number of competitors within that market. This will help you decide whether there is room in the market for your product or service.

    A helpful test to decide whether your product will succeed is to select a sample of your target market to determine their reaction to your product. You could do this through a survey or even by giving a select group some of your product to try.

    2. Research your competitors

    When evaluating your business, researching competitors allows you to get an understanding of how saturated your market is. If there are too many competitors or too strong a competitor, you should think about re-evaluating your business idea. However, being faced with competition underscores the importance of your own product/service, helping you identify why a competitors’ product/service can’t match your own.

    Researching your competitors will also give you an insight into things such as, how high you should be pricing your product or what marketing strategies have worked best for your competitors. This allows you to be inspired by their methods without making the mistakes they have. Overall, you’ll be able to get a competitive edge over other businesses sharing your target market.

    Going into more depth about how to research your competitors is our blog Best Ways to Research your Competitors. Using the techniques shared in this blog, you will be able to get a detailed overview of the strengths and weaknesses of your competitors along with tips on how to recognise what your own competitive advantage is. Using this, you will be able to strongly break into your target market as a new business and win customers from your competitors.

    3. Weigh up your capital

    In order to weigh up your capital, you will need to find the answers to the following questions:

    • What will the initial cost of your business be?
    • Where will the money come from?
    • What are the initial ongoing expenses of your business? (e.g. rent if you’re a Cafe)
    • How will you bridge the gap between the startup process and sustained profitability?
    • How much profit, per month for example, do you think you will make when the business is fully operational?

    To start a business you will need at least some capital. Even the smallest businesses require capital. Forbes estimates that micro-businesses can get started “for as little as $3000” (£2300). However, according to most studies, a business costs approximately $30 000 (£23 000) to start up. If these startup costs seem intimidating, try re-evaluate your costs after taking tips from our blog on How to Start a Business on a Limited Budget. If, even after this, your estimation of your startup costs still seems too high, you should re-evaluate your business idea.

    After calculating the amount of money it will take you to start your business, you should consider where you will get the money from. Often entrepreneurs cover the costs with personal funds such as saving accounts and credit cards. Others rely on donations from family, grants or crowdfunding. While many also use small business loan programs from banks and private lenders.

    You will likely need more than one of these sources to secure the funds for your business idea. Again the most important aspect of this is planning: you do not want to be indebted to a loan shark after starting a failing business. Furthermore, the time between launching your business and making a profit can be long. Take this into account when financing your business venture.

    4. Should you carry on with your business idea?

    If, after reading this, your business idea seems to match the criteria of what makes a good business – you should certainly go for it. Although there is no absolute way of asserting whether your business will be successful, having a target market, an idea of your competitors and sufficient funds to start your business, will stack the odds in your favour when making the plunge.

    It is important to note that even if you evaluate your business model and deem it infeasible or risky, recognise that you will have saved yourself much money and time not pursuing the business venture.

    If you have determined that you want to carry on your business venture, check out our blog on Top 10 Business Plan Questions.

    Do you find this helpful? If so, there are plenty more MachFast blogs which give free business advice for small businesses. 

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