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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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10 Software Tools to Keep Your New Business Documentation Organized

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When it comes to documenting SOPs, training materials and other important internal business processes, what’s one tool or software (not your own) that you would recommend new business owners use, and why?

These answers are provided by Young Entrepreneur Council (YEC), an invite-only organization comprised of the world’s most successful young entrepreneurs. YEC members represent nearly every industry, generate billions of dollars in revenue each year, and have created tens of thousands of jobs. Learn more at yec.co.

1. Google Docs

Stay simple and use Google Docs. With direct edits and commenting features, it’s easier than ever to constantly improve upon your living documents. That way, your SOPs can continue to evolve along with your business.

Firas Kittaneh, Amerisleep Mattress

2. Loom

You can use Loom, or a similar screen-recording software, to record short videos for your team and create sections within the platform to optimize your SOPs and onboard new hires. Video information is easier to retain for most and is also easier to look up again and parse out. Certain processes are timeless and can also be used if someone needs to take over a process in an emergency.

Matthew Capala, Alphametic

3. GitBook

Although Google Docs is an elegant and convenient resource, I think GitBook might be the next best thing. It’s far more functional than a simple Google Doc, since it allows you to structure your SOP more like a wiki page or a full website instead of a handful of files in a folder.

Bryce Welker, Testing.org

IT documentation

4. JobRouter

JobRouter is one tool that I love using for documentation purposes. It helps you manage your documents from creation, editing, approval, release and distribution. It also integrates beautifully with Microsoft Word for ease of use.

Thomas Griffin, OptinMonster

5. Process Street

When documenting SOPs, Process Street is a great option. It’s a user-friendly process management software that allows you to create, track and schedule workflows. It also lets you create checklists, collaborate with your team, capture data and more so you have full control over your processes.

Stephanie Wells, Formidable Forms

6. Trainual

Trainual is a software that helps business teams run internal processes faster, better and smoother. A pain businesses face is maintaining performance as teams are assembled, grow, mature and are refreshed. The onboarding process is one process that plays a significant role in growing and refreshing teams but, if botched, organizational performance suffers. Trainual focuses on that onboarding.

Samuel Thimothy, OneIMS

7. Trello

While I wouldn’t necessarily recommend it for distributing official materials, an excellent system for organizing, commenting on and discussing internal documents among multiple teams is Trello. Trello allows you to share, sort and comment on documents in an easy-to-manage system. With their team functions, you can also ensure only those who need the materials will have unrestricted access.

Salvador Ordorica, The Spanish Group LLC

IT project management

8. systemHUB

One tool that I love using for any documentation purpose is systemHUB. It lets you integrate your existing project management software and continue working on it. You can replicate the existing documents or start from scratch as per your requirement. You can also share it with your team and do a lot more.

Josh Kohlbach, Wholesale Suite

9. ETQ

The most important thing about document control software is retrieving what you need when you need it. I like ETQ because it streamlines the entire process from document creation through retrieval and training. ETQ lets you set up permissions for employees to access the information they need and automation to notify employees of upcoming/pending training.

Matthew Podolsky, Florida Law Advisers, P.A.

10. Your Own Internal Wiki

Create your own internal wiki. There are many plug-and-play WordPress templates that are easy to use and pre-built to act as an internal wiki. Allocate a login to each employee, categorize content and use hashtags to make your SOPs and other processes easily searchable.

Chase Williams, Market My Market

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How Startup Studios are Bringing New Ideas to the Startup Space

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By Startup Studio Insider

Even as businesses have struggled through COVID-19, investors have been eagerly bringing capital to startups with the hope that new and fresh businesses will catch on and become the latest and greatest success. This influx of capital is primarily due to the exponential growth of new investment models that have exploded into the mainstream in the last five years. It is these new funding models that are helping connect entrepreneurs with investors who fit their wants and needs.

This new phenomenon of the ‘perfectly matching’ entrepreneur is a beautiful symbiosis capable of helping startups avoid risk, increase efficiency, and continue business development in a forward trend.

In this explosion of entrepreneur-startup matching, startup studios have developed almost a cult following. As many entrepreneurs have strong ideas, but lack the experience, finances, or team to bring them to fruition, studios provide a sort of safety net, capable of helping entrepreneurs deal with business and operational aspects, leaving them the time necessary to focus on ideas. With this initial investment, the special teams behind startup studios are mobilizing to mitigate risk for new businesses and help entrepreneurs focus on what matters most.

Startup studios are a critical competent of the startup and entrepreneurial space due to their capabilities to usher new ideas and practices into the industry. As this model continues to change the startup space as we know it, take a look at the list below to learn more about how a startup studio can single-handedly turn any entrepreneurial project into a juggernaut.

A Concrete and Singular Vision

Startup studios are built to do one thing and one thing well: build companies from the ground up. As this is the core initiative of these studios, they are better equipped than any other organization to take an entrepreneur from initial idea stages all the way to launch and beyond.

Because of this singular focus, startup studios are in the business of churning out these business over and over again. What this means is that they have not only repeated the process many times, but also standardized it down to a science. They’ve experienced every step of the process, and can often forewarn against roadblocks or concerns inexperienced entrepreneurs would plow headlong into.

Complete Operational Guidance

With the repetition behind the core of startup studios, they have a layer of shared resources which allow for a more rapid development and faster growth process than many other incubators or accelerators. From strategy playbooks to cross-collaborative teams, processes, and backing, these resources have allowed companies to take their development to the next levels.

Additionally, startup studios are invested in the process of developing a product beyond its launch. As such, many studios have developed programs to share resources and guidance beyond the launches from the startup studio and into the spaces beyond them.

Startup team doing planning

Oversight on Strategy

As startup studios are deeply entrenched in the day-to-day operations of their projects from the very start, especially when compared to incubators and venture capital firms, they are more capable of providing strategic oversight than other investment styles.

By utilizing a repeated process, as well as the experience of the entire team, these studios are capable of developing plans from the start, and imparting wisdom and experience onto younger entrepreneurs. This strategic guidance has been cited by many who’ve gone through the startup studio ecosystem as one of the most essential tools they’ve taken away from their experiences.

While the startup studio model is not for everyone, it is a true partnership that provides more than just financial backing. A studio is a great model for entrepreneurs who thrive off of teamwork and collaboration, and who may be looking to deepen their experience and learnings. While they can require flexibility and trust in their studio’s guidance, they are often a critical tool in pushing startups to the next level.

As the old adage goes, if you want to go fast, go alone; if you want to go far, go together. If you want to truly take your idea to the next level, consider developing it under the help and guidance of a startup studio. For more on startup studios, be sure to check out Startup Studio Insider, the newest journal providing daily insights into the startup studio space.

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5 Mistakes Business Owners Make When They Open a New Dental Clinic

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Starting a dental clinic is a daunting task, especially for young, budding entrepreneurs. The medical equipment can be pricey, putting the owner at great financial risk. Because of that, planning is a crucial step of the process that can save you a lot of money and stress down the line. Luckily, even if you don’t have experience running a business, you can learn most of these things.

photo credit: Tima Miroshnichenko / Pexels

With that in mind, here are the five mistakes business owners make when they open a new dental clinic:

1. Hiring Too Quickly

Due to high expenditures, business owners tend to rush the initial processes when opening a clinic. Hiring the right staff is crucial for your success, but unfortunately, some entrepreneurs make a decision for all the wrong reasons.

As a way of cutting expenses, lots of owners will hire young professionals straight out of school. Sometimes, they will put them on probation even if they have experience. When the time comes to hire them as full-time employees, they might not have enough loyalty to stay with your organization.

Having enough experience is crucial for dentists, but you also need to consider if this person is the right fit. Business owners neglect long-term plans and team suitability for short-term financial goals. Hiring a reputable professional is usually a better idea as it will bring stability to your team.

2. Not Creating a Beautiful Website

Word-of-mouth marketing was always crucial for companies, and it is especially important for small businesses such as dentistry. Unfortunately, getting those first clients is always a choir.

Many owners neglect the power of promotion, thinking that it’s enough to have a good service. However, unless you’re able to attract those initial patients, you will never be able to scale the business.

Having a great website is important as it sets up the basis for search engine optimization. Down the line, it will help you reach more people through Google. But it also works as a digital business card. Like your clinic, the website needs to be clean and to instill confidence in potential patients.

3. Ignoring Search Engine Optimization

Performing search engine optimization or SEO is a time-consuming job. However, small local companies can achieve great results in just a few months.

According to several professionals that conduct dental SEO by Dental Marketing Guy, local search engine optimization is an ideal way of promoting dental services to your local community. When a person looks for medical experts in their home city, your clinic should appear at the top of Google search pages. By investing some money in this promotional activity, you can get thousands of new clients in a short time.

Among others, search engine optimization is great for branding. Unlike other digital marketing activities, such as pay-per-click, the SEO results will remain even when you stop paying for the service.

Dental assistant working on a laptop

4. Not Having a Stellar Customer Service Plan in Place

We can argue that customer service is more important for dental clinics than most other businesses. This is because lots of patients are anxious before treatments and exams. Like with any other medical procedure, a person wants to be certain they’re in good hands.

Most patients are willing to pay extra for premium dental services. However, if you have poor customer service, it can dissuade them from giving you a chance. Even if they visit your clinic once, they might not return.

Retaining a patient is especially important in dentistry. Like with some other services, a patient is willing to travel long distances to perform an exam at the same clinic. Once a person chooses a dentist, they will likely return to the same person for most of their lives. And the lifetime value of one patient can be high.

5. Not preparing for the unexpected

Similar to other businesses, dental practices are subject to inherent business risks. For example, an equipment malfunction can set you back for months. In some situations, it might take weeks before you can get back to business. Losing a staff member can also be a major problem.

Although you cannot avert some potential issues, you need to have a contingency plan. First off, a business owner needs to have a healthy cash flow to cover any unexpected expenditures. Having debt is normal for dental offices, but you need to reduce liabilities as soon as possible.

One way to protect yourself is by getting insurance. Certain policies can cover dental practice overhead and provide you with income when you go on a hiatus.

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