One of the most important steps in starting a new business is conducting a thorough market analysis. This analysis will serve as a basis for a marketing plan and also should support your sales projections. Market analysis and research are critical to the success of any business venture, but it seems to offer one of the greatest challenges for clients involved in a start up.

Simply stated, the market analysis or market research should yield answers to these very basic questions. Is there demand for my product or service? Who will buy my product or service? What price will they be willing to pay? Where are customers located and how many of them are there? Is the market over saturated? Who will be my competition? Why will customers do business with me instead of my competition? What does the future look like for the industry?

Would you not want the answers to these and other questions prior to investing time and money in a new business venture? The following is a simple list of steps you can follow in order to evaluate a market prior to entry. Try one or all.

Begin with your local area Chamber of Commerce. Many chambers offer a wealth of information on area demographics. The Chamber can also give you a list of how many similar businesses are operating within your market area…but be careful, not all businesses are Chamber members. Joining the Chamber can provide you with countless networking and low cost marketing opportunities.

Let your fingers do the walking! Simply visiting the Yellow Pages will give you a good perspective on the demand for your product or service as well as provide you with a list of local competitors. Yellow Page ads are expensive but may be necessary. The quantity and size of the competitions’ ads will give you some idea as to whether or not you need to advertise in the Yellow Pages. For example, attorneys, florists, and any business involved with automotive repairs will need a strong presence in the Yellow Pages. Most consumers seeking these services go to the Yellow Pages first. On the other hand, a gift shop or specialty retail shop may only need to have a one-line phone number listing.

Now that you have the names and locations of competitors, why not pay them a visit? Pretend to be a potential customer and gather all types of useful information such as product offerings, packaging, store design or layout, business hours, and price ranges.

You should already have a “mental picture” or vision of how you want your business to look and operate. By visiting a similar business you can create a “visual checklist” of how your business compares to the competition. Try to determine and list their strengths and weaknesses. What will you offer as a unique feature that will be of benefit to a potential customer? Analyze ways to make your product or service distinct. Why will a customer of the competition leave them and do business with you? Will you compete on price, quality, reputation or service?

Small business owners love to talk about themselves and their businesses. Visit businesses that are similar to yours but that are geographically separated by distance so that you will not be a direct competitor. You eventually will run across an entrepreneur that is willing to share his or her experiences with you. Interviewing this person could help you gain a wealth of information on things such as pricing, seasonality, unforeseen start-up obstacles, things they would do differently, and expectations for follow on years.

Most industries or businesses have trade associations where you can gather useful information. Find out if there is a trade association for the industry you are researching and contact them. Most trade associations hold shows or conventions where you can meet with fellow business owners, suppliers, vendors, potential customers, and other industry associates. Many trade associations produce monthly, quarterly, or annual publications such as newsletters or magazines that are filled with industry-specific information. Consider joining at least one trade association and be active.

Vendors and suppliers are another valuable source of information on the market. They can share with you the facts on industry trends, hot selling products, and market saturation. These suppliers will most certainly want you to succeed in order to supply you with their products. Their information will be both useful and valid.

Stay abreast of any business and professional meetings being held in your area. Attend as many of these meetings as you can and use them as networking opportunities. Try to determine the current and anticipated trends for the industry or business.

Talk to friends and family members. Interview potential customers. Try to uncover a need or desire that is not being fulfilled and try to modify your product or service to fill that void. Simply ask 100 people what they think of your product or service? Would they use it or buy it? How much would they be willing to pay? Don’t be upset, turned off, or discouraged by a negative comment. Listen closely, pay attention and make note of those less than desirable comments. They may turn out to be more valuable than flattering praise.

Make a list of and utilize all free resources available to you such as Internet search engines, local community libraries, community colleges, universities and business school libraries.

(Source: Cecil McDaniel)