Scaling Down the Risk

Opening the Business as Part of Marketing Research

It is vital to conduct marketing research for a start-up business in order to determine, at the very least, revenue projections. Typically this research consists of surveying your target audience and asking how much will you spend and how often. You can also use focus groups in your primary research and determine, hopefully, an accurate demand forecast. In secondary research you use industry data and public company information to fill in the underlying business climate. Additionally, I recommend the following:

1. Asking a non-competitor in a similar market about his customer traffic.
2. Researching public company information and applying it to your business model and market.
3. Reverse engineering your expenses and asking, "how much do I have to make?"
4. Using consumer spend data for your market and applying it to your business.
5. Conducting a test, trial run or opening small.

The bottom line is that opening a small business is risky: 8 out of 10 fail within the first 5 years. Thus, it is always prudent to look for ways to scale down the risk. One of the ways to do this is to open small. Even thorough marketing research with target market input cannot 100% predict what will happen in reality when you open the doors. The best way to find out is by opening the doors ... on a small scale at first.

Instead of borrowing $500,000 to buy a building for a restaurant and make improvements, how about leasing a small place at first in order to determine if it will work. Or if you make handmade furniture, perhaps intially sell it through local flea markets and gather customer feedback on how to improve your product or sales process. Additonally, the web provides numerous opportunities to start small and test the market: You can easily set up an eCommerce site at low or no cost, you can list on eBay and you can use Google's keyword tool in order to determine if there is demand for certain keywords that relate to your business.

In summary, many people jump two feet first into a small business only to find they have landed in the deep end of the pool. You can mitigate this risk by conducting marketing research: Primary Research involves talking to your target market and Secondary Research involves researching your industry. In addition to these methods you can open up as the final proof in the pudding. Just open small and then when you prove the model works, scale it.