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Sunday, August 17, 2008

How to Research Your Business Idea

Your brilliant idea may indeed be brilliant--or it may need some work. Here's how to find out whether you're ready for startup.

By: Karen E. Spaeder | 4/18/2007

Somewhere between scribbling your idea on a cocktail napkin and actually starting a business, there's a process you need to carry out that essentially determines either your success or failure in business. Oftentimes, would-be entrepreneurs get so excited about their "epiphanies"-the moments when they imagine the possibilities of a given idea-that they forget to find out whether that idea is viable.

Of course, sometimes the idea works anyway, in spite of a lack of market research. Unfortunately, other times, the idea crashes and burns, halting a business in its tracks. We'd like to help you avoid the latter. This how to on researching your business idea is just what you need to keep your business goals on track.

The Idea Stage

For some entrepreneurs, getting the idea-and imagining the possibilities-is the easy part. It's the market research that doesn't come so naturally. "It's a big red flag when someone outlines the size of the market-multibillion dollars-but doesn't clearly articulate a plan for how the idea will meet an unmet need in the marketplace," says Aaron Keller, an adjunct professor of marketing at the University of St. Thomas in neighboring St. Paul and a managing principal of Capsule, a Minneapolis-based brand development firm.

That kind of full-throttle approach can cost you. "Entrepreneurs are often so passionate about their ideas, they can lose objectivity," adds Nancy A. Shenker, president of the ONswitch LLC, a full-service marketing firm in Westchester, New York. "Rather than taking the time to thoroughly plan and research, they sometimes plow ahead with execution, only to spend valuable dollars on unfocused or untargeted activities."

Market research, then, can prove invaluable in determining your idea's potential. You can gather information from industry associations, Web searches, periodicals, federal and state agencies, and so forth. A trip to the library or a few hours online can set you on your way to really understanding your market. Your aim is to gain a general sense of the type of customer your product or service will serve-or at least to being willing to find out through the research process. "For example," says Shenker, "if you don't know if your product will appeal to the youth market, make sure you include a sample of that population in your research efforts."

Your research plan should spell out the objectives of the research and give you the information you need to either go ahead with your idea, fine-tune it or take it back to the drawing board. Create a list of questions you need to answer in your research, and create a plan for answering them. "Utilize experts in planning and conducting research sessions," Shenker advises. "They can recommend what type of research is most appropriate, help you develop statistically valid samples and write questionnaires, and provide you with an objective and neutral source of information."

The type of information you'll be gathering depends on the type of product or service you want to sell as well as your overall research goals. You can use your research to determine a potential market, to size up the competition, or to test the usefulness and positioning of your product or service. "If, for example, the product is a tangible item, letting the target audience see and touch a prototype could be extremely valuable," notes Shenker. "For intangible products, exposing prospective customers to descriptive copy or a draft Web site could aid in developing clear communications."

Analysis

When working with firms on brand development, Keller first looks at a business idea from four perspectives: company, customer, competitor and collaborator. This approach allows Keller to scrutinize a business idea before even approaching the topic of brand development. Here's what he looks at for each of the four issues:

1. Company. Think of your idea in terms of its product/service features, the benefits to customers, the personality of your company, what key messages you'll be relaying and the core promises you'll be making to customers.

2. Customer. There are three different customers you'll need to think about in relation to your idea: purchasers (those who make the decision or write the check), influencers (the individual, organization or group of people who influence the purchasing decision), and the end users (the person or group of people who will directly interact with your product or service).

3. Competitor. Again, there are three different groups you'll need to keep in mind: primary, secondary and tertiary. Their placement within each level is based on how often your business would compete with them and how you would tailor your messages when competing with each of these groups.

4. Collaborators. Think of organizations and people who may have an interest in your success but aren't directly paid or rewarded for any success your business might realize, such as associations, the media and other organizations that sell to your customers.

Another approach is to research is SWOT analysis, meaning analysis of the strengths of your industry, your product or service; the weaknesses of your product (such as design flaws) or service (such as high prices); and potential threats (such as the economy). "[SWOT] enables you to understand the strengths and flaws, [everything] from internal information such as bureaucracy, product development and cost to external factors such as foreign exchange rates, politics, culture, etc.," says Drew Stevens, a St. Louis professional speaker and consultant who works with entrepreneurs in researching and marketing their ideas. "SWOT enables an entrepreneur to quickly understand whether their product or service will make it in the current environment."

Whatever your approach to evaluating your idea, just be sure you're meeting the research objectives you've outlined for your product or service. With those goals always top-of-mind, your analysis will help you discover whether your idea has any holes that need patching.

Checking Out the Competition

Assuming your research process has helped you uncover your competition, you now need to find out what they're up to. Shenker advises becoming a customer of the competition, whether by shopping them yourself or by enlisting the help of a friend. "Visit their Web site and put yourself on their list," she says. "Talk to your competitor's customers, too-ask them what they like or don't like about your competitor's product or service. If you conduct formal research, include a question like 'Where do you currently go for that product or service? Why?'"

Your aim is to understand what your competition is doing so you can do it better. Maybe their service is poor. Maybe their product has some flaws-something you'll only know if you try it out yourself. Or maybe you've figured out a way to do things better, smarter, more cost-effectively. Find your selling point. It's going to be the core of your marketing program, if and when you're ready for that step. It's also going to be what sets you apart and lures customers your way.

Karen E. Spaeder is a freelance business writer in Southern California.

Conversations With a Teen Entrepreneur

Ben Cathers shares his tips and tactics for successfully marketing your business.

By Devlin Smith, Mar. 2004

Ben Catherswas just 12 when he started his first business, a Web marketing and advertising firm geared towards teenagers that eventually grew into two offices and 10 employees. Not ready to stop there, Cathers also launched a nationally syndicated radio show, again with teenagers as his target audience.

Now 19 and a student at the Boston University School of Management, Cathers is launching his third venture, a software company that recently raised a round of venture capital. He's also written Conversations with Teen Entrepreneurs(iUniverse Inc.), a book of discussions about business topics-from marketing to funding-with experienced teenaged businesspeople.

Because marketing in particular is such a crucial part of business success, we decided to speak with Cathers about it, focusing on some of the common mistakes teen entrepreneurs make in order to learn the essentials of successful marketing.

Entrepreneur.com: Is there one main marketing mistake you see teen entrepreneurs making over and over?

Ben Cathers: The main thing I see is, [entrepreneurs] just not knowing who their customers are, not knowing who they're marketing to, not knowing what they want. Sometimes entrepreneurs take the cheapest route possible thinking, "Marketing is marketing," but I've seen a lot of people who have skimped on their marketing budgets and have had just absolutely no results [compared to] the people who put a little extra out. You can buy ads online, just a general ad that will appear on any site that's not that expensive, and think, "I'm marketing, I'm advertising. Obviously, I'm doing well." But if you do that, you don't know who your customers are-you're just doing blind ads.

If you don't know who your customers are, if you don't know how you're going to market to them or what they want, then there's absolutely no way to reach them. I had somebody on my radio show advertise once. He was representing an eye care company, and he bought the ad because we offered him a good package, but he didn't get any sales, and he complained to us and I said, "Look, you knew that all the people listening to the show were teenagers. You marketed a product toward 45-year-olds-there's obviously not going to be a connection." Mistakes like that are what really hurt people in marketing.

Entrepreneur.com: How can teen entrepreneurs figure out who their marketing should target?

Cathers: They should first develop a marketing plan-they should really research who their customers are and see what they're doing. If they're targeting teenagers, they have an advantage because they know how they get their information: They know that teenagers don't really click on online ads, that they look more at magazines, that they like getting fliers handed out to them.

If they're marketing to adults, they need to do some research. For example, if they're marketing to 25- to 30-year-olds, [they need to determine how] they'd rather get their messages: Would they rather get them through a magazine, through TV, through radio? They need to research that target market first to understand what influences them-is it word of mouth, should you start a guerilla marketing campaign where you have people telling them what to do, should you do a push campaign or a pull campaign. If you don't research your target market and you don't know how you [should be] marketing, the probability of it working is low.

Entrepreneur.com: Do you think it's easier for teen entrepreneurs to go after customers their own age?

Cathers: That was one of my advantages when I ran my Internet company because I targeted teenagers. It was very easy, because all I ever thought about was, "This is how I get my information." When you start a business, there are hundreds of people begging you to buy ads from them, and I knew that I would never get a response from some of the [companies] who contacted me-I knew those weren't going to work for my customers because it wouldn't work for me.

Entrepreneur.com: Sometimes, though, experts warn against basing your strategies too much on yourself. Do you think that may be a problem, if entrepreneurs take for granted that, "I do everything this way, so all 16-year-olds must be like me"?

Cathers: You can't just rely on one source. If you market to teenagers and you're marketing based on yourself, your research is based on just one person and that won't work because the teenage demographic is very big and very different and very diverse. You have to base your research on a larger target group. If you base your marketing research on just one person, no matter who that is, that's a bad strategy.

Entrepreneur.com: Most teenage entrepreneurs don't have a lot of start-up funds, so what would you suggest as free or inexpensive ways to do market research?

Cathers: Most of the research is available online for free. If you do a Google search for market research, you'll find that most of these sites have basic demographic information available for free, and that demographic information alone is helpful. If you have an idea-for example, that you want to target people in their early 20s-you find a magazine that you know is read by 20-somethings, then go to their rate card or media kit. Those companies have already done all the research you need, and you can use their research to help you plan your strategies as well. Most of what you need is available for free or at a very, very low cost, and if you put the effort into it and you search around, you'll definitely be able to find it.

Entrepreneur.com: If somebody did have the funds available, would you suggest they use a third party or consultants to help with their market research and campaign?

Cathers: It really depends. If it's going to be a large-scale marketing campaign and you've dedicated a large portion of your funds to marketing, [using an outside source] is going to give you the most accurate results. If you get someone who really knows statistics and really knows marketing well and they can do some kind of market analysis for you, that would be fantastic.

But if you could also get it cheaper and put those funds into something else, that's also very efficient. I just actually raised a large amount of financing [recently] for a company I've started, and I can tell you we've dedicated almost nothing to marketing because we know we can do most of the marketing at very low costs. We're developing a software company, so if we do that, we can divert more funds into the software itself and help the main business.

If you're targeting a very different or very hard-to-reach group and there's not a lot of information available, like if you get very specific and you're looking strictly for teenagers aged 16 to 18 who don't drink and don't smoke and live on the East Coast, then obviously that's when you might have to look at paying for [market research].

Entrepreneur.com: How do you determine how much money and time you should put into your marketing?

Cathers: When you write your business plan or your plan of action or your strategy, that's one of the things you're going to have to look into-you're going to have to do some research on the costs. If you contact a market research company, they can give you an estimate or you can ask around to find out what the average prices are. It really depends on what kind of business you have-some marketing is 1 percent of the budget because marketing isn't that important. But if you're a consumer company that's just released a new product, you're probably going to have to dedicate 40 or 50 percent of your budget to marketing.

I can't just say you should be 10 percent in because 10 percent for one business might not be enough for another business. If you know you have to reach massive amounts of people to be able to make a profit, then obviously put more into marketing.

Entrepreneur.com: In your book, you focused quite a bit on Internet marketing. Do you think that's the most effective way for teenager entrepreneurs to market their businesses?

Cathers: For teenagers, absolutely, because the reason why Internet marketing works so well is that you don't have to spend much money and you pay only for results. Focusing on search engine marketing, which is basically paying for positions in a search engine, is probably one of the best ways you can go because when people use a search engine, they're specifically looking for your product. If somebody types in "video games," they're obviously looking for video games, and then if you have a video game sponsor, you can broadcast your message on video games only to the people who are looking for video games. From there, you only pay when somebody actually comes to your site and does business with you. It really minimizes your risk because if you buy an ad in a magazine, there are no guarantees; if you buy an ad on TV, there are no guarantees. But if you buy an ad on a search engine, you're getting a guarantee that someone's going to visit your site. Then it's up to you to make the sale or not. If you find you have a lot of people coming to your site and you can't make a sale, there's something wrong on your end and you'll have to do research to find out why aren't people buying.

Entrepreneur.com: For teen entrepreneurs with a Web site for their brick-and-mortar business, is Internet marketing effective for them as well?

Cathers: This is where research is really important, because you can find out how many people search for that product online. Let's say you're selling baseballs and you only sell those baseballs in your store. If you find out people are searching for information about baseballs and that [keyword is] searched 20,000 times a month, then Internet marketing is still going to work for you because there are 20,000 people searching for information on baseballs.

It still works because it's still very cheap: You can start Internet marketing for as low as $50-most entrepreneurs have an advertising budget of $50. It's also effective, and at least then you're exposing your product to people who have an interest in your product. If you go and buy an ad in ESPN magazine, readers might not be interested in your baseball products. At least with the Internet, you're guaranteed you're going to have somewhat of a match. This is the cheapest way to get somewhat of a guarantee of results.

Proven Ways to Expand Your Business

These entrepreneurs found a variety of approaches to successful growth.
By: Eve Gumpel

You've worked hard to create a successful business, and now you're ready to take it to another level. There are plenty of ways to expand; you just have to decide which method is right for you.

To help you work through the problem, we shed light on several entrepreneurs who found ways to grow their businesses and boost their profits.

1. Merge with or acquire another business. When Jayne Hancock Group acquired 14-year-old Townsend Inc. in July 2007, it was simply the next logical step in a 2-year-old relationship.

The two agencies had been working under the same roof for two-and-a-half years. Jayne Hancock's firm was a fast-growing marketing group specializing in media, sports and technology, while Jackie Townsend's was a leading technology PR firm focused on branding and PR.

"It was almost like a no-brainer. It was almost like, we can't do this and not come together," Hancock says.

The company that emerged out of the acquisition, JHG-Townsend, helps companies create their branding and messaging, then helps them apply it in traditional and new media markets.

Hancock and Townsend decided against a co-CEO setup for the new company.

"You don't want any cloudiness about the structure and who's going to make the decisions," Townsend said. So Hancock took the top position, and Townsend became executive vice president.

Both say the merger thus far has been terrific. "Everybody's starting to feel and see an energy that we all visualized by doing this," Hancock says. JHG projects $8 million in earnings for 2008.

If you're considering an acquisition, Townsend says you should get to know your potential partner well before committing to a relationship.

"Know what it's going to be like to work things out in the tough times," she says. "If you know you can get through the difficult conversations you need to have, then you know you can get through a partnership." Such conversations, Hancock says, involve strategic or operational decisions, ranging from investing in new systems to opening a new office, bringing in a new hire or making an acquisition.

2. Spin off new profit centers. Jocelyn Silverman started 304 Media, a boutique advertising agency, six-and-a-half years ago. Since then, she's branched out with two more companies: Short Run Cards and Creative-Juice. Short Run Cards can produce small runs of plastic, personalized VIP cards in only two days. The cards are used for loyalty programs that offer discounts or points to cardholders. Creative-Juice offers creative outsourcing solutions that produce design services for larger advertising and PR agencies.

Short Run Cards came about after 304 Media ordered its own set of VIP cards.

"No one could do the turnaround on the cards," Silverman, 28, says. So, like many an entrepreneur, Silverman decided to do it herself. She purchased equipment, and leverages her employees' free time to design the cards and print them in-house. Now 2-and-a-half years old, Short Run Cards made a small profit its first year and has gained traction each year.

Creative-Juice was born out of necessity in March 2007, to make up for the loss of a client that provided 30 percent of 304 Media's business. The gamble is working well.

"Every month has been better than the last month," Silverman says. The three companies combined grossed nearly $400,000 last year, and Silverman anticipates a 40 percent increase in 2008.

With the success of her spinoff businesses, Silverman will launch another related business, StorkMagnets.com, this month. It will produce birth announcement magnets online. It's the ultimate example of leveraging resources, Silverman says, because all of the design and programming are already complete and the website is completely automated. In fact, Silverman expects StorkMagnets to quickly become her primary source of revenue.

"We have received incredible feedback through our initial testing and have several people anxious to place orders," she says.

3. Use subcontractors. Kris Putnam-Walkerly founded Putnam Community Investment Consulting in 1999 to help foundations and other nonprofits develop effective grant-making programs and initiatives. She has a full-time office manager and an executive assistant but relies on subcontractors to provide the consulting expertise needed on various projects.

"It's an effective way to bring on people for a short period of time," she says. It gives her a wide pool of experts. It also allowed her to grow the business while raising children "and not grow into a crazy person," she says.

All subcontractors use an e-mail address linked to Putnam and also rely on Putnam's 800 number to make the organization look seamless.

4. Open a second, virtual office. Putnam achieved a new level of growth in 2007, when Putnam-Walkerly moved from Oakland to Ohio to join her fiancé. She opened a virtual office in San Francisco in place of her Oakland office and announced that Putnam was expanding nationally to serve clients better.

"It didn't hurt my California business at all," she says. In fact, Putnam-Walkerly says, she grossed $800,000 in 2007, twice the amount amassed the previous year. She hopes to exceed $1 million this year.

The virtual office in San Francisco keeps expenses down. The rental company provides a phone number and a receptionist, plus office space and equipment that Putnam-Walkerly can use when she's visiting California.

5. Launch a new division. Kristen Marie Schuerlein is founder and CEO of Affirmagy, which sells cuddly blankets with inspirational messages. Affirmagy, which launched on Valentine's Day 2005, sells direct to consumers through its website and also wholesales the blankets to independent retail shops, including church bookstores.

After a couple of churches used the blankets as profitable youth group fundraisers, word started to spread. Shortly thereafter, Schuerlein realized that 60 percent of her wholesale sales could be attributed to church fundraisers.

"My business partner and I looked at each other and said, 'Wouldn't it be extraordinary if we built a turnkey way to be in service to this community of people and grow our business through fundraising?' "

That idea led to Positively Fundraising, launched as a separate division in March 2008.

"It's an effortless way to encourage and take advantage of the natural buzz and word-of-mouth that was taking place with our product," Schuerlein says.

It's also in alignment with Affirmagy's core philosophy of service to others.

"From my perspective, it's a really cool way to grow my company. It feels right," Schuerlein says.

About Me

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Cathy Harris is an Empowerment and Motivational Speaker, Non-GMO Health and Wellness Expert, Self-Publishing and Business Coach.