No matter how good a business opportunity is, and No matter how good a business opportunity is, and no matter how successful a business becomes, the need for gathering, updating, and interpreting information for the purpose of benefiting from constantly changing markets – and then acting upon this information – never ends.
Conducting External Research
The moment a business starts trading it cannot stand still. Economic environments and demographics are constantly changing, which means that an astute entrepreneur should not only be aware of what is going on inside his or her business, but also the dynamics that are in play outside it.
And that’s because the external environment of a business (which the business often cannot control) does affect the internal environment (the systems and procedures that operate inside the business).
Vigilance and action are therefore required to ensure that a complimentary match exists between the two. Let’s start with the external environment. The following steps are designed to help explore the external environment in which an entrepreneur conducts business:
Step #1. Define what you have and what you wish to do.
This includes identifying current resources, short-term goals, and long-term goals. Remember to commit everything to writing. The honing of goals and the defining and clarifying of thoughts and solutions always improves during the process of writing.
Step #2. Evaluate your idea (or product) and the industry to which it belongs.
Gather as many opinions as possible. Understanding how customers interpret an idea or product is always more significant than the entrepreneur’s interpretation. Among the many questions to ask when conducting external research are:
- What is the history of the industry in which the business idea is located (both in general and locally)? Is it on the rise? Is it declining? Why?
- What are the benefits of the product or service?
- What are the product’s uses?
- Is there a real need for the product? How long will that need last?
- Can the proposed product be measured against an existing product? How?
- Can the product be adapted for other more profitable uses? How?
- Will the business have the ability to provide what is wanted, when it’s wanted, and how it’s wanted?
- Does the product require a previously unforeseen special license, insurance requirement, distribution system, or other expense?
Step#3. Know your customers
- Who will use the product? (Be specific. No product can be sold to everyone. A good customer profile takes into consideration: sex, age, ethnicity, religion, income level, education level, stage-of-life [i.e.: singles, students, parents, retirees], transportation needs, etc. Contact a local census bureau for details. In the USA, this information can be accessed at www.census.gov).
- Where are the most ideal customers located?
- Why will customers use the product?
- How will they use it?
- What benefits will they derive from the product?
- How much of the product will they use? Can the product be sold in the right amounts?
- Can prospective customers afford the product – and afford to keep using it?
Step #4. Demographics.
- Is the population of the targeted customer base on the rise or is it decreasing?
- What is the current (and projected) economic situation of the area?
- What are the local purchasing trends?
Step #5. Research the competition.
- Is there a business that currently provides a similar product?
- Can another business produce the product cheaper or better?
- Will local stores carry the product?
Step #6 (For existing businesses)
- What do our customers think of our current business, products, and service?
- Are our marketing programs working? Why or why not?
- How many customers do we know on a first name basis? Have we asked their opinion?
- Are we using purchase and credit records to build customer profiles and data bases? Can we use this information to determine what our current customers might want to buy in the future?
- Do we offer incentives for return visits? If not, why not – and what can we do about it?
Step #7 Analyze your research
- Do the demographics support a sustainable market?
- Does the information gathered from steps 1-5 fit into the demand needed to sustain sales?
- Do any changes need to be made to my idea or product?
- Will providing/producing the product require more capital (or time) than was originally thought?
- Conducting Internal Research
- Assessing a business’s internal environment requires honesty and openness and should not rely
- solely on the judgment of one person. Whether a business is in the design stages or has been up and
- running for years, regular internal evaluations should address the following:
- Skills. How well can (or will) the business and its people do what is supposed to be done?
- Systems. How efficiently does the business serve its customers?
- Structure. Does the set-up of the business promote peak performance?
- Values. What are the priorities of the business?
- What are the strengths and weaknesses of the person or people behind the business?
- What are (or will be) the overhead costs?
Researching the Cost of Overheads
Expenses associated with the everyday running of a commercial enterprise are called overheads. Generally speaking, overheads must be paid whether or not a product is made or sold. Overheads are therefore an important factor in determining long-term costs. Examples of overheads include:
- Raw material costs
- Equipment and supply costs (including raw materials and office supplies)
- Insurance premiums
- Telephone bills, printing costs, leasing or hiring fees, travel expenses, repairs, etc.
- Legal fees
- Rent and utility expenses
- Advertising and marketing costs
- Shipping and storage fees (the monthly costs of transporting and warehousing)
- Wages and salaries
- Accounting fees