The best approach to evaluating a market is a process that begins with looking at indicators to decide whether to take another step forward or to abandon the business prospect altogether. One tool we use to do that is the SWOT Analysis.: Strengths ,Weaknesses, Opportunities and Threats. The first two items in the litmus test are introspective in nature. They are about our circumstances & qualities (also our team's qualities) that would tend to compliment the business opportunity, and also those factors that would be detractors. It is important to list all of the known variables and to be honest with ourselves about what we would be able to do on our own and where we will need help.
Assuming that you are thinking of opening a bakery. Maybe you have been baking since you were a young child tugging at the apron of your grandmother. You would of course list that factor under strengths. If you recently inherited a million dollar estate, you could also list that as a strength. These are both factors which we can reasonably assume would contribute to such a business’s success and they both have to do with your specific situation.
But what if you were looking at the market potential of buying an Automotive Garage?
I know that I for instance have a lower than average mechanical aptitude. Therefore as much as I like to tinker with things they don't always get put back together properly, a fact that must be listed as a weakness and given due consideration. Every circumstance has internal strengths and weaknesses. This is a good time to survey others;who know you well and whom you trust to get their impressions . You must be prepared to accept the truth to become an effective leader. Most people stumble upon opportunities in life, but too few are prepared for them. Hence the proverb: “Preparation is half of the battle”,
Let’s say as an example that XYZ Auto shop is a distressed sale and it is going for cheap. Also the building is just a half mile drive from your home. These are two factors that you probably value highly. You like bargains and you like the idea of being able to walk to work. But if you are not a capable mechanic than your lack of key knowledge is a weakness in many respects. It is a weakness that perhaps could be overcome by hiring certified and competent people who possess the skills that you need to run the company. But without a basic understanding of automotive repairs you will be at a disadvantage in the respect that you must rely on the recommendations of others. Delegations are fine, but if the leader does not ask the right questions the team will not know to find the right answers. For this reason the best market opportunities are the ones where you possess a core competency. Remember what happened when Apple hired a soft drink CEO to run the IT Company.
Sometimes threats in markets are not as readily apparent as others. For instance, when I first thought about starting a Legal Document Assistance firm, I saw that many people would like to fill out prescribed legal forms and handle certain matters without the need to hire an attorney. Attorneys tend to be expensive; Legal Document Assistants save people money and offer convenience. However there were threats as well. Foremost is the fact that LDA’s walk a fine line. They are not allowed to dispense legal advice. Although to do the job a LDA must have a proficient understanding of the law and legal procedure (Albeit within a narrow framework of highly specific and routine tasks) he is restricted from discussing certain aspects of the client’s case which can make communication between the client and LDA cumbersome to say the least. In most jurisdictions the LDA is permitted to draft a form at the client’s request. The LDA can ask the necessary questions of the client so that he can fill up the prescribed form, but is unable to answer questions that may arise without risking the charge of practicing law without a license. Much of the information dispensed by the LDA therefore must be generalized. The threat is that Attorneys tend to be very protective of their privileges and do they do not look kindly upon nor appreciate encroachments on their territories. On the Opportunity side, inscribed on the Supreme Court Building are the words"Equal Justice Under the Law". many people simply cannot afford a lawyer, and are willing to have a competent LDA prepare their legal papers.
Often when thinking about a market we think in terms of presence , and a particular market it is more or less urgent than other markets. Emergency repair of a bursting appendix is one example of a highly urgent market. When people need surgery, they need it done immediately. However the surgery market is limited in size. Another example of high urgency is the recent Mayweather vs. Pacquiao boxing match which commended the most expensive ticket prices in boxing history. The first competition between two legendary athletes is a once in a lifetime event. A Starbucks might present yet another a high urgency opportunity (on a smaller scale) in the right location.
The next thing to consider is the market size. You want to know how many people are actively purchasing such items. This is what makes less glamorous industries like janitorial a forty billion dollar mammoth and the limousine industry which conjures up images of Ed McMahon only a seven billion dollar industry. (Source: First Research).
Per unit revenue is the next big question to research. Of course there is a huge difference between scaling a company which is selling a low priced item like say bubble gum, as Wrigley managed to do during the Great Depression, and building a firm selling commercial real estate.
It can be very expensive to acquire customers in some market segments while others lend themselves more readily to bootstrapping and sweat equity. With just a squeegee someone can literally clean up, pulling in revenue without spending a dime on advertising, simply by soliciting business door to door. However, if you are looking to make your mark as a lawyer, there are rules of ethical behavior which limit your ability to market your services. This is known as customeracquisition cost.
The four P’s of Marketing (Product, Price, Place, and Promotion), as published by Edmund Jerome McCarthy (Source: Wikipedia) offer a quick reference guide.Deciding place could mean that you going to have a brick and mortar location, sell online or both. Solving the mode of delivery for your product is finding the right “place” to be. This needs to by quantifiable; you must understand the costs involved as COGS or COS, who will man the operation, overhead and whether this mode will incur long term liabilities. You cannot serve a market unless you can somehow finance the upstart. Would you sell equity or take on a loan? Will there be sufficient revenue to make it work? Again the opportunities and threats in each compartment of your imagined build must be examined fully.
Is the market mature or perhaps it is just in the early adoption stage of thediffusion of innovation curve? I once thought it would be great to startup a tour company. Was thinking of calling the fun venture Alaska Frontier Tours. After a few days of planning I scrapped the idea because I learned that it would take a full two years to bring the tour company to market. The first year would be spent developing the tours themselves, meeting restaurant owners, river guides and so on and cultivating those relationships. Since people plan their vacations six month to a year ahead, it would be awhile after visiting tourist agencies in major cities before I could gather the minimum parties required to begin to schedule tours. It was more of an investment than I was prepared to make at the time. But it took a evaluating the market to discover that truth.
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