I am a big believer that when writing the market research piece of a business plan, one needs to concentrate on the specifics of the marketplace not on painting a broad stroke of the industry. Here are three mistakes I see regularly in the market research section of the business plan, and how to shift one’s perspective.
Many entrepreneurs paint a rosy picture of the industry in their business plan as if they want to convince the reader of their great idea. Some entrepreneurs tell readers that the product or service doesn’t exist elsewhere and therefore they have no competitors. Leave that pitch for Dragon’s Den.
Instead, be realistic and focus on what the current options are for your customers. For example, If you have created a one-of-a kind shoe, then don’t just talk about how unique the shoe is, focus on how your customers will categorize your product (i.e. high-end, luxury, etc.) and where they can buy a similar product. Once you know that, you will know who your main competitors are. Customers always categorize products or services and they will choose the one they prefer from that category.
In developing business plans, another pitfall some entrepreneurs fall into is overestimating the market and industry size and including page after page of statistics that are not directly relevant to their business. For example, you may tell the reader that there is a trend that everyone is “eating healthier” and therefore your “new vegan high-energy bar” will have no problem selling. As a reader, I’m less interested in “why” your idea will work and more interested on “how” you will make this work. Write about the local market – where can a customer get energy bars locally right now? Who sells energy bars and how are they distributed? What gaps are left untapped or not serviced well? Don’t be afraid to focus on the challenges in the marketplace. This tells the reader you really understand the intricacies and nuances of your business.
Traditionally, most start-ups like to compare themselves to their biggest competitor. In many instances, you will not be competing with them when you start. However, you can learn a lot about the business by examining your three immediate competitors who are ahead of you by three years. What marketing techniques have these competitors used? What are their best customer service practices? A good business plan is about gaining insight and improving on the best practices of others.
The RBC Financial Group did a Special Report on Small Business Start-ups back in 2007. Rina Pillitteri, Director, Small Business Client Strategy for RBC had this to say: “When successful small business owners look back on what helped them get off the ground, it’s the fact that they knew what they were facing—they researched who their competition was, they understood what gaps they could fill in the marketplace, and they delved into the likes and dislikes of their potential customers. They also networked to find out as much as they could from other entrepreneurs.”
Optimism and doing one’s homework goes hand-in-hand when starting a business. After all, how many exams did you pass without doing your homework?
Written By: Dominik Loncar, Entrepreneur-in-Residence, Futurpreneur Canada