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How to Write a Market Analysis for a Business Plan

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A lot of preparation goes into starting a business before you can open your doors to the public or launch your online store. One of your first steps should be to write a business plan. A business plan will serve as your roadmap when building your business.

Within your business plan, there’s an important section you should pay careful attention to: your market analysis. Your market analysis helps you understand your target market and how you can thrive within it.

Simply put, your market analysis shows that you’ve done your research. It also contributes to your marketing strategy by defining your target customer and researching their buying habits. Overall, a market analysis will yield invaluable data if you have limited knowledge about your market, the market has fierce competition, and if you require a business loan. In this guide, we’ll explore how to conduct your own market analysis.

How to conduct a market analysis: A step-by-step guide

In your market analysis, you can expect to cover the following:

  • Industry outlook

  • Target market

  • Market value

  • Competition

  • Barriers to entry

  • Regulation

Let’s dive into an in-depth look into each section:

Step 1: Define your objective

Before you begin your market analysis, it’s important to define your objective for writing a market analysis. Are you writing it for internal purposes or for external purposes?

If you were doing a market analysis for internal purposes, you might be brainstorming new products to launch or adjusting your marketing tactics. An example of an external purpose might be that you need a market analysis to get approved for a business loan.

The comprehensiveness of your market analysis will depend on your objective. If you’re preparing for a new product launch, you might focus more heavily on researching the competition. A market analysis for a loan approval would require heavy data and research into market size and growth, share potential, and pricing.

Step 2: Provide an industry outlook

An industry outlook is a general direction of where your industry is heading. Lenders want to know whether you’re targeting a growing industry or declining industry. For example, if you’re looking to sell VCRs in 2020, it’s unlikely that your business will succeed.

Starting your market analysis with an industry outlook offers a preliminary view of the market and what to expect in your market analysis. When writing this section, you’ll want to include:

Market size

Are you chasing big markets or are you targeting very niche markets? If you’re targeting a niche market, are there enough customers to support your business and buy your product?

Product life cycle

If you develop a product, what will its life cycle look like? Lenders want an overview of how your product will come into fruition after it’s developed and launched.

Projected growth

How do you see your company performing over time? Calculating your year-over-year growth will help you and lenders see how your business has grown thus far. Calculating your projected growth shows how your business will fare in future projected market conditions.

Step 3: Determine your target market

This section of your market analysis is dedicated to your potential customer. Who is your ideal target customer? How can you cater your product to serve them specifically?

Don’t make the mistake of wanting to sell your product to everybody. Your target customer should be specific. For example, if you’re selling mittens, you wouldn’t want to market to warmer climates like Hawaii. You should target customers who live in colder regions. The more nuanced your target market is, the more information you’ll have to inform your business and marketing strategy.

With that in mind, your target market section should include the following points:

Demographics

This is where you leave nothing to mystery about your ideal customer. You want to know every aspect of your customer so you can best serve them.

Create a customer persona

Creating a customer persona can help you better understand your customer. It can be easier to market to a person than data on paper. You can give this persona a name, background, and job. Mold this persona into your target customer.

What are your customer’s pain points? How do these pain points influence how they buy products? What matters most to them? Why do they choose one brand over another?

Research and supporting material

Information without data are just claims. To add credibility to your market analysis, you need to include data. Some methods for collecting data include:

  • Target group surveys

  • Focus groups

  • Reading reviews

  • Feedback surveys

Step 4: Calculate market value

You can use either top-down analysis or bottom-up analysis to calculate an estimate of your market value.

A top-down analysis tends to be the easier option of the two. It requires for you to calculate the entire market and then estimate how much of a share you expect your business to get. For example, let’s assume your target market consists of 100,000 people. If you’re optimistic and manage to get 1% of that market, you can expect to make 1,000 sales.

A bottom-up analysis is more data-driven and requires more research. You calculate the individual factors of your business and then estimate how high you can scale them to arrive at a projected market share. Some factors to consider when doing a bottom-up analysis include:

  • Where products are sold

  • Who your competition is

  • The price per unit

  • How many consumers you expect to reach

  • The average amount a customer would buy over time

While a bottom-up analysis requires more data than a top-down analysis, you can usually arrive at a more accurate calculation.

Step 5: Get to know your competition

Before you start a business, you need to research the level of competition within your market. Are there certain companies getting the lion’s share of the market? How can you position yourself to stand out from the competition?

There are two types of competitors that you should be aware of: direct competitors and indirect competitors.

Direct competitors are other businesses who sell the same product as you. If you and the company across town both sell apples, you are direct competitors.

An indirect competitor sells a different but similar product to yours. If that company across town sells oranges instead, they are an indirect competitor. Apples and oranges are different but they still target a similar market: people who eat fruits.

Also, here are some questions you want to answer when writing this section of your market analysis:

  • What are your competitor’s strengths?

  • What are your competitor’s weaknesses?

  • How can you cover your competitor’s weaknesses in your own business?

  • How can you solve the same problems better or differently than your competitors?

  • How can you leverage technology to better serve your customers?

  • How big of a threat are your competitors if you open your business?

Step 6: Identify your barriers 

Writing a market analysis can help you identify some glaring barriers to starting your business. Researching these barriers will help you avoid any costly legal or business mistakes down the line. Some entry barriers to address in your marketing analysis include:

  • Technology: How rapid is technology advancing and can it render your product obsolete within the next five years?

  • Branding: You need to establish your brand identity to stand out in a saturated market.

  • Cost of entry: Startup costs, like renting a space and hiring employees, are expensive. Also, specialty equipment often comes with hefty price tags. (Consider researching equipment financing to help finance these purchases.)

  • Location: You need to secure a prime location if you’re opening a physical store.

  • Competition: A market with fierce competition can be a steep uphill battle (like attempting to go toe-to-toe with Apple or Amazon).

Step 7: Know the regulations

When starting a business, it’s your responsibility to research governmental and state business regulations within your market. Some regulations to keep in mind include (but aren’t limited to):

  • Employment and labor laws

  • Advertising

  • Environmental regulations

If you’re a newer entrepreneur and this is your first business, this part can be daunting so you might want to consult with a business attorney. A legal professional will help you identify the legal requirements specific to your business. You can also check online legal help sites like LegalZoom or Rocket Lawyer.

Tips when writing your market analysis

We wouldn’t be surprised if you feel overwhelmed by the sheer volume of information needed in a market analysis. Keep in mind, though, this research is key to launching a successful business. You don’t want to cut corners, but here are a few tips to help you out when writing your market analysis:

Use visual aids

Nobody likes 30 pages of nothing but text. Using visual aids can break up those text blocks, making your market analysis more visually appealing. When discussing statistics and metrics, charts and graphs will help you better communicate your data.

Include a summary

If you’ve ever read an article from an academic journal, you’ll notice that writers include an abstract that offers the reader a preview.

Use this same tactic when writing your market analysis. It will prime the reader of your market highlights before they dive into the hard data.

Get to the point

It’s better to keep your market analysis concise than to stuff it with fluff and repetition. You’ll want to present your data, analyze it, and then tie it back into how your business can thrive within your target market.

Revisit your market analysis regularly

Markets are always changing and it’s important that your business changes with your target market. Revisiting your market analysis ensures that your business operations align with changing market conditions. The best businesses are the ones that can adapt.

Why should you write a market analysis?

Your market analysis helps you look at factors within your market to determine if it’s a good fit for your business model. A market analysis will help you:

1. Learn how to analyze the market need

Markets are always shifting and it’s a good idea to identify current and projected market conditions. These trends will help you understand the size of your market and whether there are paying customers waiting for you. Doing a market analysis helps you confirm that your target market is a lucrative market.

2. Learn about your customers

The best way to serve your customer is to understand them. A market analysis will examine your customer’s buying habits, pain points, and desires. This information will aid you in developing a business that addresses those points.

3. Get approved for a business loan

Starting a business, especially if it’s your first one, requires startup funding. A good first step is to apply for a business loan with your bank or other financial institution.

A thorough market analysis shows that you’re professional, prepared, and worth the investment from lenders. This preparation inspires confidence within the lender that you can build a business and repay the loan.

4. Beat the competition

Your research will offer valuable insight and certain advantages that the competition might not have. For example, thoroughly understanding your customer’s pain points and desires will help you develop a superior product or service than your competitors. If your business is already up and running, an updated market analysis can upgrade your marketing strategy or help you launch a new product.

Final thoughts

There is a saying that the first step to cutting down a tree is to sharpen an axe. In other words, preparation is the key to success. In business, preparation increases the chances that your business will succeed, even in a competitive market.

The market analysis section of your business plan separates the entrepreneurs who have done their homework from those who haven’t. Now that you’ve learned how to write a market analysis, it’s time for you to sharpen your axe and grow a successful business. And keep in mind, if you need help crafting your business plan, you can always turn to business plan software or a free template to help you stay organized.

This article originally appeared on JustBusiness, a subsidiary of NerdWallet.

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How to Grow Your Small Business Startup: 4 Essential Steps

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Around 90% of startups fail. And while some of those failures can be attributed to bad luck, many others were the result of poor decisions at the early stages of building the company. 

But while that statistic may seem discouraging, it can also provide motivation to those entrepreneurs who are willing to follow the best practices of launching a startup and push through the various challenges that will inevitably come up during the process.

With the help of a few simple (but fundamental) strategies, you can separate yourself from the majority of other startups and give yourself a real shot of making a product that will break through and make a difference.

To help you get started, let’s look at four crucial aspects of launching a startup that you should consider.

Start with the “Why?”

The number one thing you should do when launching a new company is to ask yourself a simple question:

Why is this solution necessary? 

There are millions of startups globally, and the majority of them would fail to provide a viable answer. Some just want to break into a hot market because they think that will increase their chances of success. Others believe they have a unique idea without knowing whether there’s any demand for it. 

But in most cases, ideas that might seem reasonable at first glance crumble when their purpose is questioned even a little.

So, if you want to avoid pouring your heart and soul into a project only to find out that it was a waste of time, it’s a good idea to spend a fair amount of time thinking about the core purpose of your product and the effort it will take to launch it.

Most of the successful startups you might have heard in recent years started with a very clear idea of the purpose behind the company. It can be a feature that no other product in the market can offer. Or, it might be a unique process for solving a problem that will change the industry forever.

Most of the time, there’s at least a clear answer to why the startup needs to exist in the first place. If you strip away the gimmicks and the additional features, you should still be left with the core idea of what you can offer that no one else can.

Take Care of Your Employees

No matter how you decide to finance your startup, you won’t be able to go forward alone for long. And that means that at some point, you will need to figure out how you’ll take on employees and ensure that they are happy and protected.

Then, there are various state and federal regulations that determine how much paperwork you’ll need to file out, what protections you’ll need to offer, and countless other details that someone outside of the HR world has probably never dealt with.

Because of that, startups can benefit from using HR outsourcing services that can take over the entire process. The team at SnackNation recommends using services like Bambee or Workday, which provide comprehensive solutions for companies of all sizes.

These companies can offer HR consulting, benefits administration, performance management, payroll, bookkeeping, and various other services that can be a hassle to manage on your own when you’re just starting a new company and have a lot on your plate already.

Plus, it ensures that you implement the best HR practices of today and that your employees are taken care of. And that will make attracting the top talent you need for growth that much easier.

Use a Proven Website Platform

Launching a startup is impossible without a strong web presence. And that inevitably starts and ends with your website. But if you don’t have experience with building and designing websites, the entire process can be a bit overwhelming.

The good news is that with a platform like WordPress, you can have a website set up in a matter of days if you want something simple. But at the same time, the platform offers robust customization capabilities and it can get a bit confusing when picking the right ones. That’s why it’s a good idea to curate your own WordPress toolbox that includes a wide variety of powerful themes, plugins, add-ons and WordPress resources that you know would always work for your website. 

In the end, you want to find fast hosting, install robust security features, and provide a seamless User Experience (UX) to all of your site’s visitors.

Designing a site from scratch can be appealing. But WordPress can give you enough versatility to get any features you need while remaining user-friendly enough to keep costs down and provide you with a simple way to get started.

Maintain Focus

As a startup owner, you will probably never run out of avenues you could pursue. Whether it’s the new shiny marketing tool or a promising networking opportunity, there will be times when you’ll want to do everything at once because that’s what could give the company the best chance of success.

But in reality, maintaining focus and clarity in terms of priorities might be the most practical choice for your startup in the long term.

By only focusing on a few things at a time, you will allow yourself to really give them time, tweaking your approach until you find what’s working. Moving on to something else is easy, but then you might miss out on incredible opportunities because you were too quick to dismiss something without giving it a real shot.

So, whether it’s a marketing approach or adding features to your product, always weigh the potential benefit against the resources it would require and against how it would impact what you’re doing right now.

Sure, at some point, you will need to cut your losses with projects that didn’t pan out. But it’s a good idea to stick with them for a bit longer than you might want to, especially if you know that it’s a sound strategy that could deliver big if you would just find the right approach. 

Final Words

Launching a successful startup is a dream that drives millions of entrepreneurs worldwide. But only those that follow sound business principles and are disciplined in their decision-making can expect to see success.

The strategies listed above may not be flashy, but they represent essential parts of running and scaling a startup. And sometimes, taking care of the less flashy details like HR management can set you up for exceptional results in the future.

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Business Ideas

Starting a new online business during the pandemic: Two COVID-era tales of renewal in Miami

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The pandemic forced more than three-quarters of small businesses across the U.S. to temporarily close up shop in the spring of 2020, and thousands have since shut down for good.

But the COVID-19 pandemic also led to a record number of people trying to start their own businesses: 4.5 million filed new business applications in 2020, according to an analysis of U.S. Census Bureau data by the Economic Innovation Group.

That’s the highest number ever and a 24% increase from 2019.

 

And the momentum isn’t slowing. The Census Bureau says 492,000 new business applications were received in January 2021, a 43% jump over the previous month. Many more informal businesses are believed to have been created, often as side hustles, but never registered.

Few cities saw more aspiring entrepreneurs than Miami. Although new business creation was not distributed evenly across racial and socio-economic lines, green shoots of entrepreneurship popped up across the metro area, helping to bring a dose of resilience to the local economy.

[At the same time, untold numbers of existing small businesses — restaurants, neighborhood shops, salons — decided to establish a digital presence, allowing them to find new customers and take orders from beyond their immediate area.

In all, the number of digitally connected microbusinesses in Miami-Dade County rose 6.7% from 2019 to 2020, according to data from GoDaddy’s Venture Forward project, which studies the economic impact of these small online businesses. The Miami metro area, which includes the neighboring cities of Fort Lauderdale and Pompano Beach, has more microbusinesses per 100 people than any other large metro area in the country.

These everyday entrepreneurs make a big impact on their communities, with each new one leading to the creation of two additional jobs, Venture Forward data shows. Additionally, each new microbusiness per 100 people can reduce the unemployment rate by .05 percentage points.

And between 2016 and 2019, every microbusiness per 100 people that’s active online was associated with a $485 increase in a community’s household median income.

Here are the stories of two inspiring women entrepreneurs who took the initiative when the pandemic upended their lives.

Natasha Nails: Rethinking the press-on

It took a painful case of contact dermatitis, a type of allergy, following a visit to a nail salon for Natasha Williams to come up with an online business idea for the future of press-on nails.

The Miami native, who lives in Little Havana, has had her nails done since her teens.

But after her allergic reaction in March 2020, she was forced to switch to press-on nails that used hypoallergenic adhesive pads.

Unhappy with the appearance of what was available — they felt cheap and plasticky — Williams started buying clear nails and hand painting them with her favorite colors and designs.

Around the same time, the pandemic shut down the local economy. A well-known tap dance performer and teacher around Miami, Williams suddenly had a lot of time as lessons and gigs dried up.

By July, buoyed by the admiring comments she got from friends and strangers on the street, she realized there was a market for her creations, so she quickly built an online store and Natasha Nails opened for business.

At first, it was as much a hobby as a career plan. But soon she started asking questions and understanding the opportunity was real.

Why did women tend to apply press-on nails and leave them on and then throw them out? Given how easy they are to remove and reapply, particularly the adhesive-pad type, wouldn’t it be more fun and affordable to have collections of nails so they could match outfits or daily moods, the way they choose which shoes to wear or purse to carry?

“I want people to be able to mix and match, like ‘let’s see what I have in my closet to wear today,’” she says.

If she can popularize this approach, women may one day not feel obliged to suffer the daily inconveniences of wearing long nails.

“Just try typing all day with these things on,” she laughs, showing off long, olive nails. “You really can’t do much. And anyone who tells you differently is lying!”

While her new business doesn’t make enough money for her to quit her teaching, she spends about the same number of hours on both.

That includes 30 minutes each morning tending to her growing Instagram account — where she has amassed more than 5,000 followers who account for most of the orders on her website — and a few hours in the evening painting nails, including custom orders, and packaging up boxes for customers who opt for her monthly subscriptions.

Many challenges remain ­— particularly how to scale production beyond her ability to hand-paint nails while maintaining the artistic quality. But Williams is definitely a long-term thinker who hopes that, some day, her creations will be featured at major retailers.

“I don’t see obstacles as problems, but as challenges,” she says of the process of building a company. “You just have to follow the steps.”

Read more about Natasha’s story here.

Starting an online charcuterie-to-go

Like so many healthcare workers around the world, Maryam Kheirabi faced new demands when the pandemic hit. An oncology pharmacist with a Miami-area hospital, she suddenly had more hours, more stress and more fears of the unknown.

To deal with the growing pressure, Kheirabi decided she needed a new activity, something that would take her mind off her stressful job and give her a newfound source of fulfillment.

That’s when Fig & Brie, a charcuterie-to-go business, was born.

 

“I’m happiest when I’m extremely busy, and I wanted to create something beautiful for people to share,” she says. “In a way, I think the business got me through the worst days of the pandemic. It gives me hope, and hopefully it gives other people hope, as well.”

The idea came to her soon after the pandemic began, when she saw groups of friends eating from plastic containers full of snacks at a park across the street from her home for socially distanced get-togethers.

“How cool would it be to have a charcuterie box to go,” she remembers thinking. It would give people the option to pre-order a food board that could be delivered just when it was needed.

A native of Queens, N.Y., who moved to Miami with her speech pathologist husband in 2016, Kheirabi grew up being responsible for creating food platters for family gatherings.

“We Persians are very big on hospitality, and I never lost my love for creating beautiful, delicious things,” she says.

Once the first spike in COVID-19 cases began to ease in August, she started doing research, which included the creation of a variety of charcuterie platters for colleagues at the hospital.

A cousin in New Jersey agreed to help her secure a domain name and choose website-building tools.

“The rest was left up to me, but it was mostly dealing with aesthetics, which I love, anyway,” she says.

In early November, Fig & Brie officially launched, with a range of offerings, from a $20 “solo” platter to an $85 “soiree” box.

The seed capital was $2,000 that her husband, Francisco, urged her to take from their savings, with the understanding that they wouldn’t spend any more if the business wasn’t profitable after a month. She ended up spending $1,900 of it in that time, but by early December the business was making money.

Kheirabi’s digital marketing strategy initially was solely based on Instagram, in part because she wanted to grow slowly at first. But sales jumped more quickly than expected over the holidays, as friends and fans spread the word. One local real estate broker ordered platters as gifts to her clients.

It wasn’t easy, but she and her husband managed to keep up with demand while maintaining their jobs in healthcare. It helps that most orders come on Thursdays or Fridays, for delivery on Saturday.

Francisco does everything from taking photos to taste-testing to driving their only car around the city making deliveries. When he once asked what he would be paid for all his work, she quipped, “Sorry, but we pay in cheese.”

Her near-term goal is to have enough demand to hire a driver or two, and then to find a way to ship around the U.S. (That will require some innovation, to either find a way to keep fruits and veggies crunchy and fresh, or to come up with boards that meet her standards without those foods.)

Ultimately, she’d like to open a storefront in Miami and share her business model so women in other places could follow suit.

“I wouldn’t be doing this if it was only for the money,” she says. “That’s just icing on the cake.” The primary reward, other than enriching customers’ lives, is to empower women, including herself.

“We’re living in a time when women are standing up and taking charge of themselves,” she says. She even welcomes the competition from other female-owned online charcuteries in the city. “There’s enough demand to go around,” she says. “Women shouldn’t compete with each other. We should lift each other up.”

Related: Research shows that women have what it takes to make great CEOs

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New to Entrepreneurship: Here Are 6 Tips You Can Bank On

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Entrepreneurship is not a career, it is a life choice. Many people have mind-blowing business ideas. It’s almost enticing to jump right into starting up your new business. But as fun, as that sounds, the reality of running a successful business is a lot more complicated than that.

Most times opening up a business is usually a learn-as-you-go experience, but it doesn’t have to be this way. Here are essential tips that when implemented well can be the smartest decision you will ever make for your business.

Brand Your Business

What does the term branding mean to you? Most people perceive branding as the logo, colors, and visual component that you associate your business with, but it’s a little more than that. Branding is the entire identity of the business. It is what makes your business stand out in crowds.

In a fast-growing business world, it is important to create a strong brand for your business. This way it outshines your competitors, gets people’s attention, and makes it more recognizable. Branding gives you a chance to get some control over how people perceive your business. 

Build a Team

Manpower is a vital part of any successful company. It is significant for ensuring that operations are running smoothly and efficiently. Coming up with a good workforce is the secret ingredient for achieving a good relationship between your company and your customers. They are the face of the company and give an essence of the human touch to your business.

It can not go unmentioned that with improved technology manpower is rapidly being replaced with machines. That said, creating and maintaining a reasonable amount of manpower for your business can be a life-saver hack. Coming up with a team of educated and well-trained individuals will improve productivity, provide innovations, and maintain the relevance of your business in the market, something technology can’t provide.

Buy Raw Materials in Bulk

Depending on what your company’s end product is, consider purchasing the raw materials required at wholesale. Stockpiling the raw materials when they are at their lowest prices is a money-saving hack. Buying raw materials at a low enough wholesale price reduces the cost of production and in the long run, maximizes profits from your retail sales.

Consider finding a reliable wholesale distributor, this makes purchasing more efficient and you are assured of the quality of materials you will be getting. Ensure they supply within your geographical region, have prices you can afford and are trustworthy.

Advertise Your Business.

Promoting your business is a key aspect if you want to outshine your competitors and make your product or service known to your potential customers. Businesses have different ways of promoting their brands; they range from handing out flyers to postcards to brochures to advertisements in newspapers to online marketing.

Using social media platforms to promote your product or service is a no-brainer. It is the best way to get your name out there fast enough, while also providing solutions to about ninety percent of the population online searching for similar products. Some businesses opt to invest in a large indoor LED screen because of its efficiency in displaying stunning images. These types of screens are eye-catching, outstanding, and popular for their diversity in use, hence playing a major role in advertising brands.

As a business owner, take time to research which medium of advertisement will best suit your enterprise and proceed to invest in it.

Invest in Packaging

While most new business owners overlook the need to properly package their product you must seize the chance and stand out. packaging is the first touch that customers will have with your brand.

It is therefore important to create enticing packaging for your consumers that will draw attention to your brand. It is imperative to incorporate eye-catching shapes, colors, quotes, and packaging material that is unique to your brand. This will make the unpacking experience for your customers exciting and unique hence creating loyalty and enhancing customer retention. Keep in mind that with evolving people and markets, your packaging must evolve to keep up. 

Be Sure to Keep Records

For any business, accountability is key. Efficient record keeping will help to keep everything in order and help to analyze your company’s financial status, provide insight into what your real profit is, answer tax problems, or keep track of deductible expenses.

Precise record-keeping of finances and expenses throughout a business’s lifespan makes it easier for you to adjust your business plan accordingly to help solicit new business partners or investors. 

Even after a business picks up, managers are tempted to focus more on production and profits and overlook record-keeping, so don’t fall into this trap. 

Choosing whether to keep the record in soft copy or hard copy is totally dependent on the business owner’s preference.

Conclusion.

Let’s be honest, starting a new enterprise can be a little bit hectic because it requires a lot of planning, sacrifice, and money. That said if you have your business idea don’t wait for the right moment because it will never come. Take the leap and trust your instincts. All you need to do is apply the six tips explained above and you are good to go. Good luck setting up your new enterprise.

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