One of the key reasons why so many start-ups fail is because they think they know that there will be demand for their product or service, launch, and then realise that there is none. Obviously if you have no demand, you have no one to supply, therefore no income and, probably, no company!
Market research is a key step to take before you launch a product or service into the market. Not only if there is a demand for what you are offering, but also does a market already exist? If it does, how large is it and what competitors are there in that marketplace already? If you find that you are going to face huge multinational firms, how are you going to be able to offer something they don’t? How will you then ensure that you have sufficient intellectual property rights in place to protect yourself, so that these rivals can’t create a similar product when they see how successful you are becoming? Also consider that these competitors may have far larger resources than you, in terms of finance and people power, and benefit from Economies of Scale (the cost advantages gained from being big). People have of course entered competitive markets in the past and established themselves through a mixture of unique spins on existing products and patent protection, but this is not easy.
The other end of the spectrum is entering a market which does not yet exist. If this is the case, is it because your idea is so innovative that no one else has thought of it yet, or is it in fact because people have tried and failed in the past, to establish enough demand as this newly created market is too small?
In either scenario, once you have a clear idea of who your target market is, you should research into the market place to determine market size (how many people are you aiming at) and competition within this area. Once you’ve identified your market and competitors, you can then set about establishing if there is demand. There are several ways to do this, but essentially you need to ask people if they would buy your product. This can be done through use of online surveys, which can reach a large number of people, but your feedback may be restricted due to the nature of the beast. Another option is to go and speak with these potential customers face-to-face either through focus groups, or by simply approaching people and getting their thoughts. You will probably get a smaller response rate, but much more detailed feedback.
For Access Regional, we identified our target market as being students and young people. We tracked down figures showing how many people fitting that description were in the West Midlands area, and then spoke with people one-on-one to see if they liked the idea and if this was a service they could see themselves using.
Whichever way you decide to undertake this, doing your homework on your market could save you a lot of time and investment. It is not the most interesting thing to undertake in the company formation process, but it is one of the most key.