Running a successful small business is so demanding that around half fail in the first five years. One of the major reasons for this is that their owners’ business plan is not properly informed by market research and competitive analysis.[1]

All businesses likely consider both consumer and competitor behavior and the economic trends that affect the products or services they sell. However, this is arguably even more important for small businesses since they typically aren’t resilient enough to absorb the consequences of insufficient insight.

Small businesses might consider blending market research and competitive analysis to ensure that their product or service is unique, meets a market need, and has the potential for growth.

Big companies spend a lot of time and cash on market research — two commodities that small businesses don’t have in large amounts. Here are some ways that time-pressed small business leaders and entrepreneurs might do the job well, for less.

Start With the Right Questions

The big questions to answer quickly and simply are:

  1. Is there a demand for my product or service?
  2. How extensive is the market for it
  3. Who else is providing it - and how?

There are some free federal resources that small businesses can tap to help answer these questions, including general business statistics, production and sales statistics, and trade statistics.[2]

Spend Money Where it Matters Most

This ought to give the general shape of the market for your offering. However, more detail is essential. Small businesses might consider spending research and analysis cash wisely on getting up close and personal with their potential and current customers.

This means spending money on surveys, questionnaires, and wide-ranging interviews and spending time scouring the internet for blogs, vlogs, social media, videos, and Google Trends. This will help inform your understanding of where loyalty and profit lie.

But that’s just the start. Look closely at your competitors, too, to understand how much of the market you can compete for (market share) when and where it is best for you to launch your offering or focus next, what might get in the way, and second-order effects that aren’t as obvious (like indirect competitors). Consider Porter’s Five Forces Framework for help with this.[3]

Dives Deeper for Essential Data

Porter’s Framework helps business owners (and investors) understand the competitive lay of the land, and sets the five forces at play in any given industry:

  1. Internal competition; 
  2. Potential for new entrants;
  3. Negotiating power of suppliers;
  4. Negotiating power of customers; 
  5. Ability of customers to find substitutes.[3]

Small business owners will likely need to dig deeper into the details of each. This will take time but deliver important insights. Take buyer power (customer negotiating power), for example. In this area, research and analysis have to focus on the customer’s ability to reduce prices, improve product or service quality, and pit industry participants against one another. To understand buyer power, Porter says that you have to break down the elements of price sensitivity and customers’ bargaining leverage.

This means looking at a wide range of areas including things like:

  • Consumer type (commercial or retail);
  • Buyer volume - including whether and how demand fluctuates;
  • Purchase frequency;
  • The cost of switching between companies for similar products or services;
  • Brand value;
  • Willingness to pay (are customers more willing to pay for a brand name?);
  • Product differentiation across the entire market for what you’re selling (i.e., how is your product or service different from your competitor's and why that might make customers more likely to buy it —or not.)

All of these factors can help you target your customers carefully and set prices intelligently. Small businesses might consider this kind of detail for each of the five pillars of the framework—no small endeavour!

Analytics Dashboards can Lighten the Load

It doesn’t stop with data collection. Data analysis comes next. Since your research is likely to generate a lot of information you’ll likely need to sift, it might be a smart move to invest in an analytics dashboard. These can be configured to your needs, regularly updated, and have the capacity to generate rapid, visual insights.

Market research and competitive analysis can seem overwhelming, but the effort you put into them will pay dividends.[4] Armed with this information from your efforts, you can help your business meet a specific need, more closely target customers, and be both more clever and more confident about planning wisely for growth.