It is very important for you as a startup to take calculated steps to build your product or services business, so you need to be very accurate about the market where you are going to launch your product or services business. The best way to determine your success is to do a market analysis and figure out how you will deal with the challenges on the way to a successful business.
What is a Market Analysis?
Market Analysis refers to the study of opportunities, and dynamics of a specific market. We analyze strengths, weaknesses, opportunities and threats to define adequate strategies related to the business of a company or a startup. It can be helpful for planning, decision making for the future of your business or startup. By doing a market analysis before starting the business or product development, you will be able to know more about your prospective customers/buyers to build a better pricing strategy and learn about your competition in subjected market.
How to start Market Analysis?
You should start with an overview of your target industry, and look onto your target market, analyze your competitors, set targets and analyze any potential risks and find proper mitigations.
Industry / Niche
You have to define the current dynamics of your target industry or niche along with information about its future on the basis of current available data. You should be particularly focusing on relevant industry metrics like size, trends, life cycle, and projected growth of your specific industry or niche.
It is very important to calculate a very clear idea about your target market. Many new entrepreneurs and startups make this mistake of thinking that everyone is their potential customer, which looks like a huge market. But in reality, they’re not.
Better way is to narrow down to your actual potential customers, so that you can focus on them by targeted marketing efforts and buy their loyalties to such a level where they will be spreading the word about your products or services business and help you get new customers without putting more efforts.
To determine a workable target market, you must have following information
You must collect information about the prospective customer or user such as his/her demographics, age group, education, income and interests etc. to determine why your solution is best fit to their need. Creating a customer profile or persona is very important, without knowing your customer/ buyer you can’t say if your solution/product or services will get some share of target market or you are working on assumptions, which might result in a failure.
You should be realistic while calculating the market size for your product/solution or services business. Do very extensive research about how big is your potential market for your business? Try hard to find about your competition, and purchase power of your customers. This information is very important for the execution and survival of your business idea/startup.
You can determine the market size by using data from following sources
• Government data
• Trade association data
• Financial data from major players
• Customer surveys
One of the most important part of market analysis is to do an aggressive analysis of your competition, there is a general perception among fresh startups and new entrepreneurs is that they are working on a unique idea which is out of this world and there is no one who have tried this before in any form, so they have no competition – and here is the biggest mistake they make when they do not identify the competition or take it very easy.
It is great to know that you have a competition, it gives you chance to know the potential weakness of your competitors as well as about their customers, and problems their customers are facing, which enables you to fine-tune your product/solution or services to the level of customer needs.
A good competitive analysis should include following information; size of market for your product, services or solutions, the growth rate (based upon trends of market), direct competitors or indirect or secondary competitors and how they can impact on your business.
Competitor strengths and weaknesses:
You should be keen to learn what are the good points of your competitor? What are the weakest points where they fall back? Be thorough to spot opportunities and use them to your improvements.
Importance of your target market to competitors:
You should be well informed as you are going to grab the customers who are not satisfied from existing providers.
You should be well aware of potential pitfalls of entering your particular market? What will cost you for entry—is it high? or can anyone enter in this specific market? This is where you examine your weaknesses too. So, be honest about it. Being unrealistic is not going to make you look successful.
Is it an Opportunity:
Here you are have to answer, is your time to enter the market right? Is it an emerging market? Do you have reach to all the tools and technologies to fulfill the need of time? Your price is right enough? If you don’t have answer to any of these questions, you should find the answer before moving further.
If you have calculated how much your potential customers will spend, you’ll know about your market share too. Be practical, but don’t sell yourself short. Make sure you have all the information to explain how you came up with your numbers.
Pricing and gross margin:
Make a reasonable price structure or packages with any discounts you plan to offer. Your gross margin is the difference between your cost and the sales price. Again, be realistic yet optimistic. Optimistic projections can be a good motivator for you to start.
Risks & Mitigation
Every startup, idea, or business has potential risks, such as any specific governmental regulations or restrictions on target niche or industry? If so, you have to come up with a solid plan to comply with them. You also have to address the cost of compliance. Similarly if you are risking technology shift, customer adoption issue or fearing a smart competitor, you must have an equally smart mitigation strategy to counter any kind of threats or risks to your business.