Every business owner needs to answer three vital questions about their target market and customers to avoid failure. If you can’t answer them, it might be time to hit the books…
Do you plan to build a multi-million dollar business? If yes, that means you believe your business has huge market and revenue potential. But is that a proven fact or just your own speculation?
Did you know that one of the most common causes of business failure is the failure to clearly understand both your market and customer?
The point is that we as entrepreneurs should know exactly what and who we are dealing with. That includes everything about your target customer, your market condition and size, and whether you have strong competitive edge for your product/service. This research has to be done before developing a product, launching marketing campaign, speaking to potential investor, or even before deciding to open the business. Otherwise your business may become the victim.
Here are three significant marketing points you should take time to answer, honestly assess, deeply research, and re-strategise if necessary:
1. Do you target people who urgently need your product/service? Not just need it, but urgently need it?
If you sell headache medication to healthy people, do they need it? They might when they have migraine one day, but not for now. If your target market for handgun is young female, do they need to have one? Absolutely, in case someone tries to rob her when she’s walking on an empty street. But is having the product a priority for her? If I were a girl I would say, “I’d rather spend the money to shop at Myer.” Better to offer the gun to local gangsters, right?
The question shouldn’t be whether or not they need the product, but more of how ‘urgently’ they need it. Ideally we should target a group or industry that sees your product/services as a priority purchase. Ideally, they should want it now because they’re desperate to find a solution to their problem. As a result, they’ll also be more willing to pay higher price since they value your product more.
The lesson I learned from selling CRM software to different types of businesses is that the compelling need for the software is not big enough. The businesses I targeted could easily delay the purchase or choose the cheaper alternatives for their database, such as Excel spreadsheet, Outlook, or Google Docs. However, if I was targeting businesses that hire many sales consultants, record of all their sales processes from the lead generation to post selling activities, or have massive customer databases, they probably would have higher appreciation for the software.
It goes back to the basic principle of targeting the right niche market that needs your product/services the most. If you believe everyone needs your product/services, you have a big problem.
2. Is your target market big enough to generate the revenue forecast you desire?
If you want to earn $10 millions revenue in 5 years, and you try to secure 5 percent of the market, that means the market size must be at least $200 million. Where does the $200 million come from? Maybe there are 100,000 people or businesses in your marketplace and your price is $2,000 per product.
Before you set that price, you must know whether your targeted niche market is willing to pay $2,000 for one product. If they are willing, can they afford it? If they can afford it, you need to reconsider the first point in this article – is buying your product a priority for them? Lastly, don’t forget to research about where you can reach those people and their buying behavior.
Every entrepreneur must know their market back to front, especially its size, before they start developing product, open the business, or especially they seek to raise capital. In equity capital raising, Christopher Golis mentioned in his book Enterprise & Venture Capital if the potential market of the business is lower than $100 million, venture capitalist would pass the opportunity. So, having clear understanding about your market will help you decide what best actions to take in your business planning.
Begin by getting reliable data about your market from local libraries, the Australian Bureau of Statistics (ABS), or market research company like IBIS World, even though you might have to pay for the information. The other lesson I have learnt is that you shouldn’t hesitate to pay for good advice, knowledge and information, as it can save you significant amount of time and money. Isn’t it smarter to spend few bucks on reliable information than open a business or develop a product without knowing whether the market is big enough or in a good condition?
3. If you have a competitive advantage, how do you plan to protect it in order to stay ahead?
First question, if there 10 sushi shops next to each other on one street and you own one of them, why should people buy from you and not nine other shops? Is it because of the taste, the price, the special lunch package, or maybe the long established reputation?
Don’t just say what makes my business unique is “Our Good Customer Service”, because in today’s competitive environment, good service in only a minimum requirement to run good business. Have you ever heard anyone say, “We have awesome product but our service is just standard!”?
If you have a competitive advantage your customers appreciate, how will you make it sustainable? Can it be easily copied by new entrant or existing competitor? Do you leverage from patents, design rights, copyrights or trademarks? If yes, do you have a big enough litigation budget to protect it if someone copies it?
The best way to stay ahead of competition is to be constantly aware of your market (via competitive analysis, focus group, customer satisfaction survey) and continually innovating (eg. processes, distribution channel, technology, product and service offerings) in ways that are valued by the customers.
Remember these wise statements: “Advertising people who ignore research are as dangerous as generals who ignore decodes of enemy signals” – David Ogilvy; and “Innovation distinguishes between a leader and a follower” – Steve Jobs.
Edwin Lucas is the Business Development Director of Digital Office Builder, an Online Business development company in Melbourne. He has passion to educate small business owners to leverage from Online Technology and Capital Raising in order to grow their business smarter and faster. He is also passionate to influence Gen Y and Gen Z to have strong entrepreneurial mentality and mindset.