The first thing you need as an entrepreneur is a good business idea. You might identify a problem that you can solve for consumers or spot a gap in a current market.
You might be confident and enthusiastic about your idea – and there’s no doubt confidence and enthusiasm will help you start and run a business. But they’re not enough on their own. You need to research your business idea to make sure it’s as good as you think it is and has the potential to be turned into a profitable enterprise.
There are plenty of clever ideas that fill gaps in the market or provide solutions but aren’t really viable business-wise. You need to find out if there’s a real demand for your product or service, and if costs and revenue will add up to a sustainable profit.
### Primary and secondary research
You can judge the business potential of your idea by carrying out two types of research: primary and secondary. Primary research is actively gathering information that will be useful to you. Secondary research is analysing relevant information published by other sources. Both types of research will be essential for assessing the viability of your business plan.
Secondary research will be especially useful when it comes to assessing the wider marketplace and underlying economic conditions. You need to research financial reports, sales figures for you industry and official statistics, etc., to build a picture of the size of your potential market.
For primary research, you can look into how your idea differentiates from the competition in the market. If someone is going to pay for your products or services, they’ll need a reason to choose them in preference to similar offerings on the market. You also need to research how your offering compares with the competition in terms of price, quality, customer service, etc. – people won’t pay more for less.
You also need to research your costs thoroughly. You need a realistic picture of the amount of money you will need to set up your business and keep it running day to day, because it will directly affect how much profit you can extract from your idea.
It is also be worthwhile to reach out to your potential customers to find out what they think about your idea – you can’t be sure consumers or clients will pay for your product or services without either going to market or asking them first, and the latter strategy is much less risky.
An effective way to carry out consumer research for your idea is to set up a focus group. You can recruit participants by offering some kind of incentive – perhaps a small fee – and then host a discussion on your business plan. Members of the focus group can give their honest opinions on what they like or don’t like, how your offering compares with the competition, how much they’d be prepared to pay, etc. They can offer feedback that could prove useful for honing your idea.
Another way to gauge the market is to trial your business idea on a limited scale. This can offer a low-cost, low-risk way to test the water and get an idea as to whether your idea is viable for the long-term. It can also help you refine your offerings, potentially making a good idea even better.