It’s scary to try something new, whether that be a sport, hobby, or complex dinner recipe.
Take, for example, my audition for high school dance. Although I grew up performing in plays and musicals, dancing remained slightly outside of my comfort zone. I attended the team’s try-out routine practices every day for a week, aware that I wasn’t picking the moves up as quickly as other, more experienced dancers.
I practiced that dance up and down and all over our backyard. My mom would watch and give notes on my clearly rough performance.
When it got down to the wire, I didn’t make the cut. My high kicks weren’t high enough for the Texas team, and I stayed in my acting lane. What I remember most from that time isn’t the disappointment of rejection, but rather the encouragement I received from my support system.
My mom presented me a card before the audition saying no matter what happened, she was proud of me for trying something new. And as I’ve gotten older, I’ve grown to understand her pride. Risks are much more difficult to take in our adult years. Bills become higher, and so do the stakes.
If you’ve decided to launch a business, you’re of a breed of adults who have decided the joyful prospect of following their dreams is more important than the potential for failure. You’ve determined the risk is worth the reward, and are ready to take on whatever challenges are to come. And oh, the challenges are sure to arrive.
Beginning a business goes beyond thinking up a catchy name and designing a logo. It entails market research and analysis, investors and loans, and developing a solid business plan. Those that commit are looking at months to years of hard work attempted at reaping results that are wholly unpromised, but ideally worth it.
“The stars will never align, and the traffic lights of life will never all be green at the same time,” said Tim Ferriss, author of The 4-Hour Work Week. “The universe doesn't conspire against you, but it doesn't go out of its way to line up the pins either. Conditions are never perfect. 'Someday' is a disease that will take your dreams to the grave with you. Pro and con lists are just as bad. If it's important to you and you want to do it 'eventually,' just do it and correct course along the way.”
If your someday has arrived, use the following chapters as guidance in the beginning of your business venture. Even the journey of a million miles begins with a single step. A single step’s not so hard, isn’t it?
Types of businesses
The type of business you choose to launch will affect many other professional and legal decisions made in association with said business. It’s imperative you determine your business type before taking any of the next steps to launch.
There are six widely recognized business genres. This chapter aims to clarify your options so you can move forward confident that your products or services are classified in the right space.
Types of Business Ownership
The following phrases and definitions define the various choices business owners have for ownership and distribution of liability. The type of ownership you choose will determine how taxes are filed, how profits are distributed, if employees are eligible for benefits, and other pertinent factors.
Sole proprietorship — A sole proprietorship is a business with one recognized owner. That owner is single-handedly responsible for the business and all that goes with it. This type of business is widely popular for its simplicity, low entry cost, and the owner’s ability to be independent. Because sole proprietorships do not separate the business from the owner, owners have unlimited liability for both the profits and the problems. If owners cannot make good on payments, their creditors are permitted to pursue the owner’s personal assets. Owners are also responsible for handling legal disputes. Hopeful business owners should research the laws in their location to determine what licenses or special requirements are needed for the establishment of a sole proprietorship in their area.
Partnership — The partnership structure is designed for businesses of two or more people working together. Partners share profits however they determine is best. Partners also share the liabilities associated with the business, depending on their partnership structure. General partnerships give each partner unlimited liability. As we mentioned before, this allows creditors to go after the various business owners and their assets should they fail to uphold payments or agreements. Even if your partner is the one defaulting on payments or responsibilities, creditors are able to come after the assets of all involved in a general partnership. In a limited partnership, certain partners have limited liability, meaning creditors cannot pursue their assets. Limited partners also have limited authority and little to no say in how the business is run. This type of business is popular among investors, who have claim to a business without any responsibility in its daily operations. Experts recommend professionals hoping to enter into a partnership document terms and expectations prior to starting their business. Should tensions arise or passions change, this documentation is a form of insurance that proves which partner is responsible for what and can help split assets up without need for legal action.
Corporation – In a corporation, the business owner is legally separated from their business operations and therefore is not held liable for its debts. This type of business provides the owners the most protection from financial or legal issues. Corporations are controlled by shareholders, or the people who own shares for that company. A board of directors sits atop a corporation and makes the majority of business decisions. The board consists of individuals who were elected from the group of shareholders. All owners and shareholders of corporations have limited liability and cannot be held responsible for the company’s mistakes, unless those mistakes are intentional acts of fraudulence, direct injury to an employee, or other unethical acts. A C Corporation is the most common and allows your organization to deduct taxes as if it were an individual. According to Business Dictionary, “A C corporation is a business term that is used to distinguish this type of entity from others, as its profits are taxed separately from its owners under subchapter C of the Internal Revenue Code.” C corporations are taxed twice, both at the corporate and personal level. Publicly owned corporations allow for the sale of company shares to investors and other interested individuals. Privately owned corporations do not publicly sell shares. Because corporations are registered at the state level, the state provides employee benefits. This structure differs, of course, from one country to the next, but is true of corporations in the United States. Corporations are uncommon among small businesses.
Limited Liability Companies — Limited liability companies (LLCs) are a combination of limited partnerships and corporations. Owners have limited liability and are not responsible for the repercussions of business decisions. Owners of LLCs are referred to as members. LLCs are either managed by the members, or they appoint a single manager to preside over daily decisions. The former is referred to as a member-managed LLC while the latter is a manager-managed LLC. Business professionals enjoy LLCs for their protection as well as lack of paperwork in comparison to other business genres. Unlike corporations, LLCs aren’t taxed as their own entity. Rather, members report the business’s profits and losses on their personal federal tax return. Also unlike corporations, LLCs are not subject to being taxed twice.
Cooperative — A cooperative is a business that exists to benefit its owners either with its products or services. Cooperatives are owned by a group of members who split earnings with no responsibility to make payments to external parties or stakeholders. Cooperatives are completely handled and overseen by its members who have authority in how the cooperative is run. The rules for becoming a cooperative are a little stricter than those for other organizations. Cooperatives require bylaws, a membership application, and a board of directors. Examples of these institutions are housing cooperatives, credit unions, and product cooperatives (such as a group of dairy farmers who sell farm products as a group).
Nonprofit — Nonprofits are organizations that exist for educational or charitable reasons. The term “nonprofit” or “not for profit” derives from the fact that any income accumulated stays within the organization and funds internal expenses, salaries, initiatives, etc., instead of getting dispersed among shareholders and leaders. Most nonprofits are tax exempt and do not have to pay income taxes on the money they earn. In order to become a nonprofit, you have to apply through the government, which then decides if you are a qualified candidate.
The following definitions are a few different ways businesses are described or classified according to what they do. These distinctions will not have any effect on classification regarding liability and tax exemptions, but are worth understanding as you move forward in trying to understand your business’s place in the professional community.
Small and Midsize Business — You’ve probably heard the term SMB before and wondered what it means. It stands for small and midsize business, which is a moniker for non-enterprise organizations who have less employees and less annual revenue. G2 Crowd defines a small business as having 50 or fewer employees, while a mid-market organization has 51-1,000 employees. This title is simply a way to refer to businesses of a certain size, and has no bearing on tax exemptions, owner liability, or any of the other previously mentioned factors. An SMB can also be a partnership, or a sole proprietorship, or another business type, depending on their overall setup.
Start-Up — Start-up companies are organizations in the beginning stages of their development. They are usually supported by their initial founders, and go on to be backed by venture capitalists or other firms. (To explore some of G2 Crowd’s journey from a start-up to a growth organization, check the Chicago Tribune article, “G2 Crowd raises $30 million for software reviews platform.”) Other than funding, there are not many hard and fast parameters of what a start-up looks like or can be. Some key characteristics are a fast-paced environment of constant change powered by agile workers united by their desire to problem solve.
Service Businesses — A service business is any commercial organization run by an individual or team that profits from performing work for consumers. Employees of a service business often have to be licensed or otherwise qualified for their position. Examples of service businesses are insurance agencies, law firms, landscaping services, hair stylists, hospitality, and entertainment.
Merchandising Business — Merchandising businesses purchase finished good for resale. Store owners purchase items at a wholesale price from a distributor and then sell them to customers for a profit. You most likely interact with merchandising businesses more often than any other type. Examples of merchandising businesses are department stores, grocery stores, gas stations, home improvement establishments, and toy stores.
Manufacturing Business — A manufacturing business is any organization that uses raw goods to assemble finished products. These products can either be sold straight to consumers, or to other manufacturing businesses that use those pieces to assemble their own products. For example, one company might assemble watch batteries, and a watch manufacturing business might purchase those batteries to complete watch assembly. Manufacturing businesses often work out of warehouses with assembly lines, and many modern structures utilize machine technology to help with the creation of raw goods or products.
Hybrid Business — Hybrid businesses can be a combination of the aforementioned three business types (manufacturing, merchandising and service). Consider a movie theatre, which offers the service of showing consumers movies. They are also a merchandising businesses in that they sell candy and other snacks, but they also manufacture goods such as popcorn and drinks. In the case of a movie theatre, their main offering is movies, which classifies them as a majority service role.
Beginning a business is quite the commitment. It requires a huge time investment, and can take over your life for weeks, to months, to years, depending on the varying difficulties you encounter. It’s an emotional process that has no guaranteed happy ending, and requires both strategy and resilience.
Those wishing to start a business should be aware of the cost commitment they’re making, as well. The price tag associated with business ownership will differ from one situation to the next, but the following factors and information should help give you an idea of what all goes into this process.
According to the US Small Business Administration, many home-based sole proprietorships can get up and running for $3,000 or less. AARP sings a different tune, having stated that, “the Ewing Marion Kauffman Foundation estimated in 2009 that the average cost [of starting your own business] was just over $30,000.”
That’s a huge range, and frankly, one that can make it feel impossible to determine exact cost. In order to get the most accurate quote for your business, it’s best to make a detailed game plan of the following costs and factors. This will be the most helpful in determining if you can currently afford to put money down on something that might not have a return on investment for some time.
Start-Up Expenses - In the same way you map out expenses for your home, bills, groceries, and soccer team sign-ups, you’ll need to meticulously plan out what the start-up expenses for your business will be. Start-up expenses are anything you put money toward for your business before it begins to generate revenue. Many of these costs are tax-deductible up to the amount of $5,000 within the first year of business. Consider everything that goes into your particular venture, such as, but not limited to:
- Fees associated with registering or legitimizing your business, dependent on which business type you choose
- A brick and mortar location with monthly rent or mortgage payments, electricity bills, repairs or renovations, furniture, office supplies
- Website domain name, hosting, design, development, and upkeep
- Beginning marketing materials or campaign products
- Payroll for employees
Capital Expenditures - Capital expenditures are the other type of start-up cost. According to the US Small Business Administration, capital expenditures are, “one-time costs to purchase assets such as inventory, property, vehicles, etc.” They are not often eligible to be qualified for as deductions, but can be written off through depreciation. Examples of capital expenditures include, but are not limited to:
- Company Vehicles
Assets - Assets are not an expense, but rather an examination of the money you already have in the bank. Study your finances and the amount of money you have to put toward this investment. What amount of your assets do you need in order to maintain your current lifestyle? What can reasonably be invested into the launch of your business? Understanding your financial standing in the beginning will deter you from making decisions you cannot afford.
Determine Exact Numbers - Once you’ve determined exactly what you need to put money toward, begin researching how much each aspect will cost. Look up potential sites for your store to determine rent or overall cost. Estimate how many employees you’ll need and what the cost of supplies will add up to. Assigning numbers to these expenses will make the costs more real, as opposed to operating off of vague estimations.
If you don’t have the financial resources to launch your business out of pocket, you’ll have to look for these dollars externally. There are a couple of different ways to do this.
Small Business Loan — First of all, you could consider a small business loan. Small business loans are a good idea if you need help financially, but don’t want external stakeholders to have a say in how you run business. Loans are usually not approved unless you have a detailed business plan that is able to make at least five years worth of financial projections. You’ll also need an expense sheet filled with the information we previously discussed. Having all of your information laid out will help determine how much you’re offered by the bank or credit union.
Crowdfunding — Crowdfunding is another method of raising the necessary resources to launch your business. Crowdfunding has become a lot more popular in recent years with the advent of sites such as GoFundMe and Indiegogo. This strategy consists of pitching your business idea to the general public in the hopes that they will feel compelled to give. There is no responsibility to repay donors, but certain funding sites will not give you any portion of your goal unless you’re able to raise all of it. In the crowdfunding scenario, it is up to the business owner to market this process and ensure people are donating. This usually consists of sharing the campaign on various social media platforms or sending it out to contacts via email. Make sure you understand the regulations of various crowdfunding sites before making your decision, as not all will follow the same rules for financial dispersal.
Venture Capital — Venture capital is not a popular method of funding for small businesses and freelancers, but it’s worth investigating to see if your business goals have a shot. Venture capital consists of individuals or firms who make varied investments in your business in exchange for an ownership share, as well as an internal role such as board member. Venture capital is mostly intended for high-growth companies, which is what makes it such a popular option for start-ups and other fast-paced work environments. While there is no expectation of repayment, business owners do pay by giving up control. By accepting money from these shareholders, business owners become less autonomous and are expected to view their VCs as advisors and decision-makers.
If you do want to pursue venture capital, you’ll have to seek after firms or individuals and pitch them on your business plan. They will only invest if your business meets their standards and fits within their areas of concentration. Venture funds are dispersed in various rounds, with businesses receiving more funding after proving to be successful.
Chapters two and three go hand in hand. You cannot entirely determine your business plan without knowing the cost of your venture. You cannot entirely determine the cost of your venture without a fleshed-out business plan.
A business plan is a document that outlines your professional objectives and the specific strategies with which you intend to achieve them.
“In its simplest form, a business plan is a guide—a roadmap for your business that outlines goals and details how you plan to achieve those goals,” Tim Berry said for Bplans.
A business plan should not be extensive in length. Investors, creditors, and other stakeholders will be looking at this document to help determine what part they’d like to have in your success. Do not waste their time with a 100-page document.
While you understand how your business works, remember that your readers might not. When writing a business plan, stay away from acronyms and phrases that only insiders regularly use. While you want to sound knowledgeable on the topic of your business, you don’t want to exclude others by using language they don’t understand.
“It's a tool for understanding how your business is put together. You can use it to monitor progress, hold yourself accountable and control the business's fate. And of course, it's a sales and recruiting tool for courting key employees or future investors.” —Entrepreneur
There are many specific elements that go into writing an effective business plan. They require research and a deep understanding of what your business and employees are trying to do. If you want to create the most informative, well-rounded business plan, include all of the following elements.
Title Page — The title page or header of your business plan is simply a place to put your name, company name, and other pertinent information.
Executive Summary — The executive summary is the introduction to your business plan. It gives readers an overview of what to expect in the coming segments. Consider the executive summary to be the elevator pitch of your business plan.
In this short introduction piece, you let investors, lenders and other potential shareholders know why they should care. You should also include a clear call-to-action, so people understand why they’re reading it. Make it clear what you’re looking for with this business plan, and compel them to continue reading.
An effective way to begin an executive summary is by proving the need for your particular product or service in its current market. Some people also like to take a narrative or anecdotal approach. No matter which, remember to keep it concise.
“The summary should include the major details of your report, but it's important not to bore the reader with minutiae. Save the analysis, charts, numbers, and glowing reviews for the report itself. This is the time to grab your reader's attention and let the person know what it is you do and why he or she should read the rest of your business plan or proposal.” —Eric Markowitz for Inc.com
After the first paragraph of your executive summary which delivers a clear explanation of why your business deserves attention and investment, you’ll include the succeeding elements in a bulleted format.
- History and Objectives: How did this company begin, and why? This relates to what we mentioned earlier, where your executive summary seeks to make others care about your project. Talk about your business’s place in the market, adn who will benefit from its existence.
- Product/Service and Mission: A brief description of the product or service should follow, accompanied by an outline of your mission.
- Financial Requirements: Although this will come up in more detail later in the business plan, clearly identify the kind of funding or assistance you’re looking for in order to get your business moving. Be sure to include how your business intends to profit and when you expect to see some initial ROI.
- Short-term and Future Goals: Once you’ve explained the mission, include some immediate goals as well as your goals further down the line. If you’ve already had significant business achievements, include those here. Investors and lenders will be happy to hear that your product or service is already finding success.
Business Description/Company Summary — This section is your opportunity to lay out the value your business is bringing to the industry. For example, if you’re starting a small shoe store, talk about the shoe market in your community and why your specific establishment deserves a spot in that competitive space. In this section, you’re presenting the bigger picture of your company and proving you’ve done the research to justify your business’s existence.
Discuss the type of business you’re hoping to start, as well as the intended or existing management structure. While you don’t need to include specific names of team member (as some roles may not yet have been filled), you should show you have a good understanding of team and hiring needs.
Earlier, we discussed service, manufacturing, and merchandising businesses. This part of the business plan is where you classify your company as one of the aforementioned. Also be sure to include the business type, ie sole-proprietorship, LLC, nonprofit, etc. This helps interested stakeholders understand what their participation would entail.
Prove that you know your audience and intended consumers by offering up information on your target market. (Later, you will explain your plans to market to them—but don’t worry about that just yet.)
Talk about distribution and how you plan to transport products to the store or consumers, or how you plan to provide services. Prove you understand the operations of this intended business, and not just the idea or creative concept. Talk about your business location, if applicable, and show any plans you have or renovations you’ve already made.
Product Description — This is where you take readers on a deep dive of exactly what you’re selling. The product description is your opportunity to truly sell it, pun intended. It goes into detail on exactly what the product is, including the benefits it provides consumers.
The product description takes competitors into account. What are you providing that your competitors aren’t? What would make a consumer walk into your store or use your website versus a competitor’s? By now, everything has been done. We’re onto third, fourth, fifth and even tenth (in the case of the iPhone) iterations of products. Why is your store worth attention?
While you don’t have to have exact numbers fleshed out, the more accurate you can be, the better. Use economy and business forecasting methods to prove why your product or service would be a profitable investment. What kind of demand is there for what you’re selling? Is that demand increasing or decreasing? Do you have a competitive advantage that leads you to believe you’ll profit more than competitors? These are all things potential stakeholders or lenders will want to know.
Competitive Analysis — This part of the business plan shows readers you’ve done your research on the market and demand. Sometimes referred to as a market analysis, this section looks at how your industry is performing in the economy, who your competitors will be, and what kinds of threats or opportunities may benefit or hinder you.
For example, if you’re trying to open a movie theatre, this section would discuss how surrounding movie theatres are doing financially. Based on market research and the economy overall, what percentage of the population still goes to the movies with their spare time and disposable income?
Include an analysis of your proposed business’s strengths and weaknesses, as well as the strengths and weakness of your competitors. Where do they come up short that you don’t? Identifying where competitors fall short could help you and your team develop a winning, and ultimately superior, strategy.
Include a thorough list of both direct and indirect competitors. Is there just one movie theatre in the area, or four? Where are they located in comparison to your space? As for indirect competitors, have streaming services such as Netflix and Hulu eradicated the popularity of spending a night at the movies?
Sales and Marketing Strategies — If you think it’s premature to have a sales and marketing strategy developed before your business doors are open, you’re not thinking like a business owner. It is your job to be three steps ahead of the game, and you should complete initial audience research in time to include it in your business plan.
The way you market your product is entirely affected by who you’re selling to. Are you selling to a younger crowd that gathers the majority of their information from mobile news and Instagram? Are you focused on an older demographic who might be more likely to see your marketing campaigns through Facebook or television commercials? How much money does your target market make, and how will that affect their willingness to spend money on you?
Communicate the price you intend to sell your units at. If you’re a photographer, what will you charge per session? If you’re a restaurant, provide a sample menu with prices per plate.
Because you’ve done consumer research, you have the information necessary to create a sales and marketing plan. How will you get customers into the store or onto your site during the initial start-up phase, and beyond? (For help with this, check out our article on How to Increase Your Consumer Base in Three Days, or 10 Cost-Efficient Ways to Market Your Small Business.) Do you plan to have promotional deals, either through the start-up phase, or on a regular basis? Essentially, communicate how you plan to pull in consumers for profit.
Financial Plan — Here is where you communicate all the previous work you’ve done to determine expenses. Include your financial projections, taking into account any blockers or boosts. For example, you may have a sharp increase in sales during the holiday season, but a sharp decline throughout January and February.
If your business is just starting out (ie, not operating off of any active data), predict when you’ll begin seeing a return on investment so investors can understand what that timeframe looks like.
The forecast of income is communicated with and referred to as the income statement. The income statement is basically the formal report of how much money you intend to make. The income statement should be regularly updated, as its accuracy depends on factors such as expenses, cost of materials or goods, capital, and revenue.
A cash-flow statement is a vital element in any fully-formed business plan. According to Investopedia, a cash-flow statement is, “a financial statement that summarizes the amount of cash and cash equivalents entering and leaving a company. The cash flow statement (CFS) measures how well a company manages its cash position, meaning how well the company generates cash to pay its debt obligations and fund its operating expenses. The cash flow statement complements the balance sheet and income statement and is a mandatory part of a company's financial reports since 1987.” This statement will help a company get to positive cash flow.
Give your business a timeline. Will opening day depend on construction projects or renovations? Does any part of your project require permits or other permissions? While these dates may be affected by things beyond your control, try and forecast as accurately as possible. People reading your business plan will be interested in these landmarks.
Make sure you present this information along with your balance sheet. According to Entrepreneur, a balance sheet, “uses information from all of the financial models developed in earlier sections of the business plan; however, unlike the previous statements, the balance sheet is generated solely on an annual basis for the business plan and is, more or less, a summary of all the preceding financial information broken down into three areas:1. Assets2. Liabilities3. Equity”
Design and Development Plan — If your product or service requires design and development, you’ll include that here. Design includes both the design and functionality of the product itself, as well as detailed updates on its progress.
The design phase of the business plan is especially relevant for businesses that are creating an entirely new product, such as a mop with a patented new handle. This section would inform readers on the progress of production as well as communicate the the development plan and costs.
Operations and Management Plan — Whereas some business plans will include this section with the business description, other plans advise you make this section stand out on its own. This part of the plan communicates management structure as well as logistics. It outlines which roles and teams will accomplish which tasks, ensuring work is reasonably dispersed.
Include your organizational structure, communicating what teams will be part of the payroll. Not every organization needs a development team, while some organizations couldn’t function without one.
Create your organizational structure with goals in mind. If you intend to have a sales team, be sure to hire the right amount of people. Hiring either too many or too few employees can throw off your gameplan.
Appendix — The appendix is an optional area wherein you can wrap up the business plan by including you and your partners’ resumes and any corresponding legal information that might be important.
And there you have it, all of the many elements that when combined, make up a business plan. If you’re a visual person who would like an example to accompany the description, consider this template from HubSpot. It’s a free download in exchange for your email that helps you develop your own professional-grade business plan.
Imagine you work in a traditional outdoor marketplace. If you’re looking to start selling fruit, you’ll have to do some research. First, what is the demand for fruit? How many other sellers in the marketplace are also selling fruit, and what kind are they selling? Is there a surplus of apples, but a shortage of bananas and kiwi?
Next, how is their fruit selling? Is it the first thing to empty out every week, or do sellers end up going home with boxes of papaya that will only go to waste? If people are buying fruit, then who are they, and for what purpose are they buying it?
After you’ve determined the answers to these questions, there is yet more to determine. Does your property lend itself to growing healthy and delicious fruit? Do you own or rent land that would help you become a top supplier?
These questions are all examples of market research. According to Oberlo, market research is, “a systematic process of collecting, analyzing and interpreting information about a target market, consumers, competitors and the industry as a whole.”
Market research is imperative to beginning a business. Without it, you risk selling a product that already exists at a higher price than your competitors. You risk misunderstanding your target market and wasting money on doomed marketing efforts.
In order to avoid these catastrophes, get your market research done early. Market analysis is a necessary part of your business plan, meaning it’s a vital step in the pre-launch process. In this chapter, we’ll dive into the necessary elements of market research.
Market research is conducted through primary and secondary research.
Primary information, much like a primary source, is any data you’ve gathered firsthand. Examples of this include any studies you’ve performed yourself, or hired a research group to perform for you. One perk of primary information is that it’s private and you’ve had an involved role in gathering it.
Private research firms help you procure information that gives your organization a competitive advantage. Some benefits of a private research campaign are direct access to audience feedback, customized survey research, and real-time reporting.
Primary research is either exploratory or specific. According to Entrepreneur, “Exploratory research is open-ended, helps you define a specific problem, and usually involves detailed, unstructured interviews in which lengthy answers are solicited from a small group of respondents. Specific research, on the other hand, is precise in scope and is used to solve a problem that exploratory research has identified.”
If you’re interested in learning more about private research opportunities, check out our Marketing Strategy Agencies category. These services, “assist businesses across many industries with the mapping and execution of their marketing strategy.” You may also find something of use in the Technology Research Services category.
Secondary information is what’s readily available to you in a public format, such as studies published online or at your local library. With secondary information, you are gaining access to the same data as everyone else. While some data may cost money or require a subscription, it typically comes at a much lower cost than private research. It is more difficult to find secondary information that precisely fits your needs, as you’ve had no control over the process and/or variables that affected the studies.
Both primary and secondary information can be split up into qualitative or quantitative information. Quantitative information is anything that can be represented numerically, such as survey responses, statistics, or financial data. Qualitative data measures sentiment. Examples of such data are focus and tester groups, which use questions to analyze how participants feel about a certain product or topic.
If you’re trying to determine the kind of market research your project or business requires, use the following questions to lead you to a conclusion.
- What specific business problem or question do you need this market research to answer? Determining the question or questions you’re asking will help you design a more effective route to the answer.
- Who can answer these questions for you? If they’re quite specific questions, the answers might not have been published in a public journal. If these questions are customer-specific, you may need to conduct some research of your own with focus groups or surveys.
- Are there enough existing resources to answer your questions? This question requires you dig into public records or available studies to determine what’s out there and what’s lacking.
- What is your timeline? A short timeline will limit a lot of individual research efforts (such as focus groups), as procuring this unique data requires time and energy. If you don’t have a lot of time to get these numbers in, that will affect the type of research you perform. Secondary research will take less time than primary research.
- What is your budget? Research is an investment, like any other part of your business process. Determine how much of your expenses you’re willing to put toward research. This means figuring out where research fits in as a company priority. Secondary research is more cost-effective than primary.
Sources for Market Research
We’ve talked about the different types of research, but where can you find these resources?
For secondary research, you don’t have to dig too deep. It’s often publicly available (sometimes for a one-time fee or subscription cost) in the following locations:
- Government studies
- Scholarly Articles
- Digital Repositories
- Case Studies
- Trade Associations
- Existing Market Data
- Competitor Data (ie annual reports)
Being that you are on this page for help launching a business, you likely do not have a plethora of internal resources that can help with market research. As your business progresses, make sure you begin to utilize your own balance sheets, inventory records, sale records, etc. Keeping these documents handy can make it easier for you to perform market research later on.
When performing secondary research, make sure you’re taking credibility into account. Academic resources and government websites are always going to have more trustworthy information than a random blog you found by searching on Bing. With secondary research, the onus is on you to make sure data is true.
If you need some more specific ideas, try going to your local library or looking at their website. Campus and public libraries are ripe with resources to assist you in scholarly studies. Digital repositories also have searchable databases that could be of assistance in your hunt for secondary sources.
As for primary research sources, you’ll have to either lead your own efforts, or hire someone to do it for you. Examples of primary research include:
- Unique survey results
- Focus group data
- Ethnographic research
Make sure you abide by any laws or ethical regulations when conducting primary research. Participants should always know they are part of a study or focus group and understand what that data will be used for. Observational research should not reveal identity, as your subjects may not know they are being observed. If you hire an agency to help with this research, ask up-front what their ethical policies are.
Performing primary research means you have complete control over the process and the specifics of the study. Although you have no way of controlling the specific quantitative or qualitative information derived from the studies, you can ensure the variables are relevant to your business problems and help answer the exact questions you set out to resolve.
Analyzing Market Research
After you’ve gathered your information, you have to make sense of it. Let’s return to the fruit market metaphor. You’ve taken stock of all types of fruit that are sold in this particular market. You’ve conducted interviews with various market-goers to determine what kinds of fruit they’re buying, and for what purpose. You’ve observed which fruit sellers run out of supplies, and which are left with bundles at the end of market day.
Now that you’ve done all of this primary research (which would have been secondary research, had you gathered this information from previously-published resources), it’s time to make something of it. In the process of analyzing, you’re able to develop strong forecasts on how your product would perform in that same marketplace.
You have a couple of options when it comes to analyzing market data. You can use a tool or service to do it for you. Market research firms can help gather and make sense of data. This is a good choice for professionals who have no experience or confidence in their ability to analyze market data.
One option for analyzing quantitative data is to do it manually. This requires having some understanding of statistics. The Balance SMB provides the statistical methods of analyzing market research data as follows:
- Multiple Regression - This statistical procedure is used to estimate the equation with the best fit for explaining how the value of an dependent variable changes as the values of a number of independent variables shifts. A simple market research example is the estimation of the best fit for advertising by looking at how sales revenue (the dependent variable) changes in relation to expenditures on advertising, placement of ads, and timing of ads.
- Discriminant Analysis - This statistical technique is used to for classification of people, products, or other tangibles into two or more categories. Market research can make use of discriminant analyses in a number of ways. One simple example is to distinguish what advertising channels are most effective for different types of products.
- Factor Analysis - This statistical method is used to determine which are the strongest underlying dimensions of a larger set of variables that are inter-correlated. In a situation where many variables are correlated, factor analysis identifies which relations are strongest. A market researcher who wants to know what combination of variables (or factors) are most appealing to a particular type of consumer, can use factor analysis to reduce the data down to just a few variables.
- Cluster Analysis - This statistical procedure is used to separate objects into specific groups that are mutually exclusive but also relatively homogeneous in constitution. This process is similar to what occurs in market segmentation when the market researcher is interested in the similarities that facilitate grouping consumers into segments and also interested in the attributes that make the market segments distinct.
- Conjoint Analysis - This statistical method is used to unpack the preferences of consumers with regard to different marketing offers. Two dimensions are of interest to the market researcher in conjoint analysis, the inferred utility functions of each attribute, and the relative importance of the preferred attributes to the consumers.
- Multidimensional Scaling - This category represents a constellation of techniques used to produce perceptual maps of competing brands or products. For instance, in multidimensional scaling, brands are shown in a space of attributes in which the distance between the brands represents dissimilarity. An example of multidimensional scaling in market research would show the manufacturers of single-serving coffee in the form of K-cups. The different K-cup brands would be arrayed in the multidimensional space by attributes such as the strength of roast, number of flavored and specialty versions, distribution channels, and packaging options.
For qualitative data, the analysis process differs. You should begin analyzing qualitative data as soon as it is gathered. You must carefully record the data from various sources and sort through it to scope out patterns or other consistencies, as well as interesting findings and observations.
The next step is data reduction. Throughout the procurement of qualitative data, you should be narrowing data down to whatever is most meaningful and relevant. Remove data that has no relation to the study. For example, if multiple focus group members say your product is difficult to use, record that as a meaningful observation.
After data reduction, you must group data into observed patterns or themes via both content analysis and thematic analysis. According to the Pell Institute,
“Content analysis is carried out by:1. Coding the data for certain words or content2. Identifying their patterns3. Interpreting their meanings.”
Thematic analysis is, “grouping the data into themes that will help answer the research question(s). These themes may be (Taylor-Powell and Renner, 2003):—Directly evolved from the research questions and were pre-set before data collection even began, or—Naturally emerged from the data as the study was conducted.”
The display of data follows, and can vary depending on what you determine to be most useful. You can use a data visualization software tool to help turn numbers or patterns into graphs and matrices. Data visualization helps you to see patterns in a different light.
After you’ve displayed data, you can look at groupings of information all at once and use them to draw conclusions. Again, according to the Pell Institute,
“To draw reasonable conclusions, you wil need to (Krathwohl, 1998; Miles and Huberman, 1994; NSF, 1997):—Step back and interpret what all of your findings mean—Determine how your findings help answer the research question(s)—Draw implications from your findings”
The process of analyzing market data is lengthy, but is a proven method of understanding the current market and developing an effective marketing plan. According to Pestle Analysis, marketing data analysis can provide answers to the following questions:
- How are the marketing initiatives for our company doing today?
- How well will it do in the long run?
- Is there any room for improvements?
- What can be done to improve the current performance?
- How well are our competitors doing?
- Is there something different that they are doing but not us?
- Should we rethink our approach?
- Are our resources being efficiently used?
- Do we need to invest our time and money in something different?
- What should our main priorities be?
Ultimately, these questions serve to strengthen your impact in the existing industry by providing the context needed to differ from the rest. Additionally, they help you form effective marketing strategies that specifically and reliably cater to your intended audience.
In its simplest form, a mission statement is defined as an official summation of the goals and priorities of a business, organization, or professional individual. Mission statements serve to outline your business while justifying and communicating why it exists.
Mission statements are longer than a motto, while remaining short enough for consumers and employees to remember. This statement is responsible for explaining what you sell, who you sell it to, and what solution your product or service offers. Your mission statement has to say much with very little, emploring readers to care.
In case the purpose of a mission statement is unclear, here are a few examples from companies that have executed theirs seamlessly:
“To connect the world’s professionals to make them more productive and successful.” -LinkedIn
“To give everyone the power to create and share ideas and information instantly, without barriers.” -Twitter
“To be Earth’s most customer-centric company, where customers can find and discover anything they might want to buy online, and endeavors to offer its customers the lowest possible prices.” -Amazon
Vision statements look to the future. They narrate where you’re hoping to go with this venture, either mid-term or long-term. Vision statements provide your investors or consumers an idea of what your product might look like in five to ten years.
View it as your professional new year’s resolution. They don't have to be complicated or overly-detailed, so long as they communicate the hopes and, well, visions you have for what’s to come.
“To receive national recognition as the most innovative, dedicated, and productive marketing and communications firm in the United States.” - Walker Sans
“To move the web forward and give web designers and developers the best tools and services in the world.” -Adobe
“Toyota will lead the way to the future of mobility, enriching lives around the world with the safest and most responsible ways of moving people.” -Toyota
How to Write a Mission Statement
Having your mission and vision statements fully fleshed out before launching your business ensures that all parties are on the same page. As these statements aim to establish purpose and plan for the future, they’re a natural source of consistency.
Mission and vision statements also help your brand become a more cohesive and consistent experience for users. They personify your organization by establishing brand identity.
Writing them does not have to be an extended headache. In fact, all you have to do is ask yourself a few simple questions in order to narrow down what really needs to be communicated with these two statements.
The mission statement should answer the three w’s-why, how, and what. Once you know the answer to the following questions, you should be able to condense them into a mission statement that quickly encompasses everything your consumers truly need to know:
-Why are you in this industry, or this market? What makes your industry stand out among competitors?
-What does your product or service offer to consumers that other companies fail to provide?
-What is the key business problem you set out to solve in creating this product or providing this service?
The vision statement is all about the future. In order to create a vision statement that is valuable to consumers and employees, you have to consider the following:
-How do we stay one step ahead of this industry and the competition within it? How can we foresee problems before they arise? What might change about this industry, and how would that affect our business?
For example, if you’re looking to start a brand new magazine, your vision statement would have to consider the growing preference to digital media and decipher whether that might affect print sales.
-Take long-term business goals into account. These have likely already been established earlier in the launching process. and they can only help you create a stronger vision statement.
-Remember not to overdo it. While it’s great to be ambitious, your vision statement should also be realistic. Don’t set yourself up for failure by establishing goals you know you can’t meet.
Launching your business is only the first step in a journey that is bound to change your life. Becoming a business owner gives you perhaps more responsibility and authority than you’ve ever had before.
After you’ve launched your business, there is much more to consider and maintain. Marketing campaigns continue, inventory is updated, learning how to make a website, and teams are expanded to have both junior and senior level employees.
Launching the business is just the beginning, but what an important beginning it is. By taking these initial steps and planning stages seriously, you are bound to increase the likelihood of financial success.
G2 Crowd began in a cramped office out in Highland Park, IL. Today, it has office locations in both downtown Chicago and San Francisco, and boasts nearly 200 employees.