Is Your Good Idea A Good Business
Author: Jeff Maglin
Every business starts with an idea but not every idea is a viable business.
Whether you write a formal business plan or not, you, the entrepreneur, should look to answer the good idea vs. good business question as soon as possible. To begin, model the economics of your proposed business. Initially, this can be a back of the envelope calculation using revenue and cost assumptions to get an idea of potential returns. If the results of this exercise show promise, validate your initial assumptions through market research. Much of this research will focus on market sizing and segmentation, competition and reference businesses (i.e. businesses inside or outside the industry that employ a similar business model).
The intended output of this effort is a more robust economic model, which ultimately will feed into your sales and financial forecasts. In this and my following two articles, I will briefly discuss uses and sources of the market research in the economic model building process.
Market Sizing and Segmentation - Market sizing and segmentation is used primarily to determine the quantity variable of the revenue equation (i.e. Price X Quantity). Market size is the total universe of potential customers for your product or service. Market segments are subsets of the larger customer universe that are more or less likely to purchase your product or service. Where to find this information varies by business. Below are some general resources to start.
US Census Bureau – provides residential population and demographic information for the entire United States in aggregate form and broken down all the way to the census track level. Free (i.e. City-Data ) and fee based (i.e. Simply Map) online sites and services also exist that attempt to make it easier to search and navigate census and other demographic information.
ReferenceUSA – if your customers are businesses, ReferenceUSA allows you to search a database of 14 million US businesses based on a variety of criteria including location, SIC/NAICS codes, private/public companies, etc. A feature that I have found extremely useful, especially for urban business, is to search businesses within a specified radius around a defined address. The Dun & Bradstreet Million Dollar Directory offers a similar service. Both ReferenceUSA and D&B are paid services.
- Industry organizations and associations – often provide information unavailable anywhere else about their respective industries. They sponsor surveys and reports that provide size, growth and trend information by industry segment. They also may publish membership directories.
Sometimes these resources provide direct answers to your market sizing and market segment questions. Other times, you will have to piece together information from various sources. Public business and university libraries are great places for market research. Libraries often have subscriptions to fee based services, costly reports and directories. Knowledgeable librarians also can guide you to the proper resources in their facility or other locations.
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