RESEARCH AND ANALYSIS
DEVELOP YOUR IDEA BY TESTING IT
THOROUGHLY
Time spent on research and investigation into the business concept will yield results
in the long term. Dr Stephanie Hussels explains the key areas to examine.
Entrepreneurs who want to establish and grow their
businesses need to understand the market in which they
decide to operate. It is virtually impossible to test the
feasibility and value of a business idea, and subsequently
develop a strategy to exploit it, without an in-depth
knowledge of customer needs and the direct and indirect
competition. Intuition and personal expertise provide
limited market information, which is often muddled by
strong personal bias and beliefs.
It is not surprising that entrepreneurs frequently
overestimate customer demands, underestimate
competitor responses and ignore negative market
information. Hence, it is often advisable to conduct
additional market research before starting a new venture.
When conducting market research, people starting a
business should first analyse the key features of the
product or service they want to offer. Subsequently, they
should identify the benefits of this product or service to
potential customers and, thus, define the target customer
group. Thereafter, they should assess whether there is a
market gap or not. Throughout, market research should
focus on the customers’ needs. Therefore, it is, for
example, important to analyse the direct and indirect
competition from the customer’s instead of the business’s
point of view.
To get an indication of the industry demands,
entrepreneurs should ask themselves how big the market
is and how much potential customers will be willing to
pay. Moreover, a realistic assessment of potential entries
into the market is helpful to get an idea on how
competitors will react to a new market entry. Will the
competition, for example, drop prices or introduce new
‘ When assessing the current
state of the industry, you
should start by considering
its key players, customers
and the sector’s future
growth potential ’
Dr Stephanie Hussels is a lecturer in
entrepreneurship at Cranfield’s
Bettany Centre for Entrepreneurial
Performance & Economics.
stephanie.hussels@cranfield.ac.uk
08
product lines? You should never assume that the market
will remain unchanged. Therefore, answers to the
following questions are also essential.
● How rapidly will a product life cycle evolve and how
will this affect the need for ongoing product
innovation?
● How sensitive is demand to environmental factors such
as legal change, demographics, and the business cycle?
● How will this affect the overall viability of the product
and strategy?
Market research can only contribute to the new venture’s
success if it is based on reliable and relevant market data.
Therefore, the choice of data collection methods is of
particular importance. Subsequently, five approaches are
considered in more detail.
Analysing the market at an aggregate level
When assessing the current state of the industry, you
should start by considering its key players, customers and
the sector’s future growth potential. Industry reports,
industry data sources published by industry federations,
public sector industry sources, as well as social media
sites, deliver a good initial source of information.
Depending on the nature of the business, both national
or local data and reports should be used as appropriate.
Benchmarking competitors
To gain a good understanding of the direct and indirect
competition, it is useful to look at other companies’
accounts (see Companies House,
www.companieshouse.gov.uk), use companies’ websites,
and examine their published reports. In addition, you
should refer to studies of companies in the popular
business press and in academic literature. Examine
industry directories in order to assess the location of
competitors, and track entry and exit rates (this gives a
proxy for survival and, subsequently, risk). Moreover, by
actually visiting firms and inspecting their products, levels
of service, prices, and their volume of business often
delivers very insightful data. Benchmarking competitors
can reveal the extent to which the market is supplied,
and provide an indication of consumer demand for your
product or service by assessing the successful
characteristics of other products and services. It also
highlights acceptable market prices and strategies, and
suggests reasonable volumes of business.
Benchmarking similar firms in other markets
This is a similar approach to benchmarking competitors. If
possible, choose firms that supply the same market gap in
another area. This approach can provide insights into
your own product characteristics, supply logistics, prices,
and volume of business. For example, when Tristram and
Rebecca Mayhew started GoApe!, the UK high-wire forest
adventure company, they used a parallel business in
icaew.com/fmfac
‘ Looking outside your own industry
sector can provide innovative ideas on
how to develop your own business ’
France to shape their service offering and to understand
the habits of their customers. Alternatively, you could
compare your business with firms in the same market,
but operating in other industry sectors. Looking outside
your own industry sector can provide innovative ideas on
how to develop your own business.
Direct contact with customers
To define and understand your target customer market,
talk to actual and/or potential customers. In doing so,
you can identify their key characteristics, such as age,
income, and geography, as well as buying patterns. In
addition, within reason, conduct customer surveys,
observe consumers’ buying habits, and/or create a focus
group to gain feedback on the suitability of pricing,
product characteristics, and the business model.
Pilot launch
Although it is not possible to know in advance whether
an idea can turn into a successful business venture, the
best way to determine whether a given idea is a good
opportunity is to go ahead and implement it creatively
with low levels of investment. By initially selling the new
product or service on a pilot basis to a small segment of
the market, you will gain the most reliable feedback on
pricing, potential sales volumes, key product features,
the consumer profile, and the business model. This will
help prove the concept and verify or refine the business
model. For example, Organic Apoteke, a UK
’cosmeceutical’ company based in Bedford, started
selling their products in independent boutiques. The
success of the initial uptake of their products helped
them to refine their product offering and to identify their
target customer group. The pilot required a relatively
low investment, but made it clear that the business was
for real, subsequently enabling them to sell their
products in Whole Foods Market and Macy’s stores
across the US and elsewhere.
In general, it is recommended that you use as many of
the above-mentioned research approaches as rigorously
as possible in order to derive a comprehensive
assessment of the market and subsequently identify a
profit opportunity and develop a strategy to exploit it.
While conducting market research, you need to be openminded and use your findings, where appropriate, to
alter the product or service you are offering so that it
matches the preferences of the target market more
closely.
To be successful, it may be necessary to gradually
change to the most competitive product style through
successive stages of market research, followed by
product alteration. This maximises the firm’s competitive
advantage.
Entrepreneurs conducting market research often face
the challenge of having limited financial and managerial
resources and time. Consequently, it is important to
identify in advance where the most pronounced data
shortcomings are and, hence, which areas need to be
focused on.
A sound market understanding should help you to
decide on whether to start a business or not. Moreover,
market research is essential when putting together a
business plan for the early years as it provides firm
foundations for the operating plans. It will also help you
greatly when trying to raise external finance. The more
robust the market research and hence the company’s
understanding of its external environment, the higher
the confidence of the external investor in the business
plan and, thus, the venture.
Market research alone is, however, no guarantee for
success. You can only know for certain whether the
venture will be a success once you have actually started
it. Entrepreneurs should think about what they are
willing to lose, rather than what profit they are expecting
to make when deciding on whether or not to start a
business. Although a prosperous venture cannot be
guaranteed, solid and well conducted market research
will contribute to its success.
FURTHER READING
● M McDonald, (2007) Marketing Plans – How to
prepare them, how to use them, ButterworthHeinemann.
● S Hussels, (2008) ’Organic Apoteke Case Study:
Being Spoilt for Choice is Not Always Easy’,
International Journal of Entrepreneurship
Education 6 (3).
● Hussels S, Molian D (2010) Live Life Adventurously
Go Ape Case Study Part A: Monkeying
Around?. International Review of
Entrepreneurship, 8 (4) 337-346.
● Hussels S, Molian D (2010) Live Life Adventurously
Go Ape Case Study Part B: Eight Hundred Pound
Gorilla?. International Review of
Entrepreneurship, 8 (4) 347-356.
FINANCE & MANAGEMENT FACULTY
This article was published in ‘Starting a business’, a special report produced in September 2013 by the ICAEW’s
Finance & Management Faculty. The faculty helps members in business to perform at their best. For more
information on the benefits of membership see icaew.com/fmjoin
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FINANCE & MANAGEMENT SPECIAL REPORT SEPTEMBER 2013
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