A lot of research goes into forming a new business. If you don’t look into real-world data to provide backup for your idea, it’d be like jumping off a cliff without knowing you’ll have a safe landing.
While there are no guarantees as an entrepreneur, doing the necessary research in advance sets you up with a parachute to back you up after you leap.
Performing a market analysis is an essential step when planning your business. Follow this guide step-by-step to gain confidence in the market you plan on entering, learn where you might need to make adjustments, and get ready to launch your business.
What is a market analysis?
When preparing to perform a market analysis, you first need to get familiar with the US Small Business Administration (SBA). It’s their mission to help entrepreneurs access the data and resources they need to succeed.
According to the SBA, market research uncovers the data you need to find customers for your business. And a competitive analysis is how you differentiate your offering. Together, their insights can help you identify your small business’ competitive advantage.
Since your market analysis investigates whether your business idea could be feasible, it’s something you need to complete before you can finish your business plan.
A market analysis uses hard data as justification for your business offering. Not only will this help you know that you’re pursuing a valid idea, but it’ll also show investors much of what they need to know before getting involved with your company.
How to develop a market analysis
There are two steps to creating a market analysis for your business. You need to understand your customers and your industry’s competitors to gain a complete picture of your market environment.
Step 1: Define your target market
Your target market represents the customers that can benefit from your offering. There are 6 measures you must use to develop a comprehensive understanding of your target market.
- Market size: How many people could be interested in what you provide?
- Economic indicators: Review income and employment rates to assess whether people can afford what you offer. If you’re selling locally, you can use KYSTATS. Otherwise, check out the market analysis resources section below for additional data sources.
- Location: Are you selling online, so location doesn’t matter as much? Or are you relying on a local customer base?
- Market saturation: Is the existing market crowded with well-entrenched competitors?
- Pricing: What do potential customers pay for competing offers?
- Demand: What need does your business fulfill for potential customers? What makes it in demand? Perhaps it’s a saturated market, and there’s room for more players. Or maybe it’s a new idea that will push the industry forward with innovation.
After exploring these 6 measures, use your findings to define your target market.
In the case of a business launching a group texting mobile app, their target market might read as:
“Families in the US with millennial parents and children aged 10+ that are privacy-conscious and tired of selling their data in exchange for free digital products.”
Step 2: Perform a competitive analysis for every major player
Your competitive analysis looks into how existing industry players are satisfying (or failing to satisfy) your potential customers’ needs. You’ll want to dig deep into how successful they are, their strategies to acquire and retain customers, and what makes them unique.
Determining whether there is room for your business idea — by identifying the most compelling differentiators of your offering — is the primary goal of this exercise.
Review these measures for every major industry player your business will compete with.
- Market share: How big are the existing competitors? Do they capture a majority of the market? If you can reach the number of customers you think is feasible, what percent market share does that give you?
- Strengths and weaknesses: Where do your competitors excel, and where do they not live up to expectations?
- Your window of opportunity: Is there space for you to enter, capture market share, and thrive? What will you provide that your competitors don’t, won’t, or can’t? (Your differentiators)
- Significance of target market to competitors: If you launch, will they spend extra marketing dollars on protecting their market share?
- Potential barriers: What startup costs, existing customer loyalties, and brand affinity for competitors might stand in your way?
- Indirect or secondary competitors who may impact your success: Are there tangential industries, service providers, or product alternatives that you may be indirectly competing with?
The startup group texting app will need to analyze major existing competitors, such as WhatsApp, Messenger, WeChat, Signal, Discord, and possibly others.
Market analysis resources
The market analysis process is research-intensive.
Use primary data sources for the foundation of your efforts. The highest quality data comes from independent studies and research by government agencies, industry research groups, think tanks, and credible non-profit organizations.
Avoid secondary data sources, such as blog posts and articles that cite enticing statistics. Always dig deeper by clicking on any mentioned links to evaluate their credibility.
SOAR Innovation recommends using the following free, reliable sources for business research purposes:
- US Small Business Administration for articles on market analysis
- US Business Statistics provided by US Census data
- KYSTATS for Kentucky-related data, especially on employment
- UK Cedik for county data profiles and industry comparisons
- North American Industry Classification System also derived from US Census Data
- USA.gov Statistics for relevant, government-sourced data
- US Census Business Builder for a tool to help you identify a good business location
If you want to download industry-specific reports, check out IBISWorld and Statista. Some data is publicly available, but full reports require a fee to access.
When researching competitors, you should look into what’s readily available online. Review their websites, scroll their social media, join their email lists, read their press releases, see who their partners are, and visit them in-store. If they’re publicly traded, you can review their most recent earnings reports to get a closer look at their financial status.
The Ghostery Privacy Ad Blocker Chrome extension is another way to gain insights into competitor activity. You can use it to reveal data tracking activity when visiting competitor websites. This will tell you what types of customer data they’re paying attention to — which may give you clues as to who their target audiences are.
Conclusion: Grow your small business in Eastern Kentucky
If you want to start a business in Eastern Kentucky, there are more resources than ever to back you up.
SOAR Innovation — powered by Kentucky Innovation — is here to help. Our Complete Guide to Entrepreneurship can help you plan, launch, grow, and improve your business.
For additional resources, don’t hesitate to contact us for a 1:1 consultation.