Market Research

[KristineS]

One of the recommendations I often read about starting a business involves doing market research. Despite this fact, I've talked to a lot of successful business owners who didn't do any research. They just found a product or service they wanted to offer and went for it. I also know of some companies that didn't do their research and bombed spectacularly.

I'm just wondering how many of you that own businesses did market research before you opened your doors. If you did do market research did that market turn out to be like your research said it would be?

[Paul Elliott]

I didn't do any market research as I began my marketing business many years ago. I suppose, because I had started out in the printing business, I knew where the particular market was I wanted to enter and where some of the business already was. Of course, my directions quickly changed as I acquired different clients than I had initially pursued.

However, I do do market research for my clients (or get them to do it for themselves) before I accept them as formal clients. I also require them to put together a written business plan, if they don't already have one, including a 24-month pro forma. This is more for them than it is for me, since I insist they know where they are headed before we leave the blocks.

Your experience bears out mine. Far too many people begin a business doing what THEY wish to do rather than what their market needs. Of course, they may fall into an excellent niche, but they may also fail spectacularly.

Many restaurants are begun this way. Certainly there always hungry people and there always room for one more Chinese Buffet or Mexican restaurant, . . . but if those hungry people aren't close to your restaurant, or there are already 5 Mexican restaurants in your town of 2,500 people, excellent food and excellent service are simply no enough. You have a real marketing problem on your hands.

Yes, you can be the last Mexican restaurant standing . . . and make a profit, but your marketing program has to have excellent engineering and flawless execution carried out persistently and consistantly for that result.

But I LOVE those desperate marketing problems . . . provided I get to them while the owners still have the money to fund their success and the desire to put in the hard work necessary to succeed . . . massively!

Paul

[KristineS]

I see the restaurant thing all the time where I live. There are a couple of locations where restaurant and after restaurant has failed and people still keep starting new ones. It seems like after three or four had failed in that location someone would get wise to the fact that maybe that particular location is not a good one for a restaurant.

[orion_joel]

The biggest issue with market research that i have found is that if you want quality up to date information which will really help you to see what the true market is like it costs money. This is money that you do not always have, while for less money or no money you may be able to get some market information generally you are more then likely to find it is out of date and may not be overly relevant to current market conditions.

The way restaurants come and go in some area's i don't think always comes from what people really want to do but can also come from the leasing companies. For example i am sitting in a cafe now, next to an empty store, which in the last 6 or 7 years has been probably just as many different cafe's or restaurants. But this has for the major part been due to the shopping center management pushing to have this type of business in that location, despite the fact that type of business keeps failing their, the center does not care as long as they are getting a lease payment for that space.

[KristineS]

I think you're right about the leasing company thing, Joel. Of course it isn't really the leasing company's responsibility to provide accurate market data. If you're starting a business, even if it's a franchise, it should be your responsibility to figure out whether or not the business will work.

I will agree, however, with what you said about accurate marketing data costing money. I think you're right about that.

[Paul Elliott]

I see the restaurant thing all the time where I live. There are a couple of locations where restaurant and after restaurant has failed and people still keep starting new ones. It seems like after three or four had failed in that location someone would get wise to the fact that maybe that particular location is not a good one for a restaurant.

Yes, it may simply be the location, though it just as easily due to poor planning on the part of the restaurant operators. I can usually eat a single meal at a restaurant and tell you about how long it will last or whether it will be successful. That has little to do with the decor and only a little more to do with the food and service.

Problems with the location are sometimes subtle. Frequently a lot can be told by simply spending a few hours observing the traffic patterns around such establishments.

For example, one location with which I'm familiar, appeared to have plenty of drive-by traffic. Unfortunately, that's all the traffic did--drive by. There were few tourists passing by on this highway looking for a meal.

As it turned out, the traffic was either going to work after breakfast or back home to eat supper. As it turned out the restaurant offered a very efficient drive-by/take-home service in the evening which gradually produced more dine-in customers. Still a major part of their business is taking food home for supper.

Of course, parking and visability also play an important part. I have also seen restaurants opening in places where others have failed suffer the poor reputation of those that have been there previously.

Where one has previously failed the new owners/operators must work harder, perhaps much harder, to convince the passing public that they are different AND better--worth another try.

Paul

[orion_joel]

Paul your last line is what really got me. This was exactly what i think came from the previous example i mentioned. Plus i have read so many thing's like this, which i think comes down a huge amount to the fact people do not really pay much attention to a name or even the look, but to what the business does and where it is.

If one restaurant in a location has given bad service and closed down, then when another opens in the same location, many people will not differentiate, let alone know the difference. Then the group of people that do realize it is a new restaurant, if they have dined there and got poor service at the last restaurant will be thinking "I wonder if this will be better then the last place here"

[KristineS]

I think you guys are both right on the money with your observations. In the locations in my town where restaurants have failed, it is hard to tell the new place from the old place. So I'm guessing a lot of people do just drive by and go to somewhere they already know is good.

[Paul Elliott]

Kristine, you and Joel are right.

I've not only seen new restaurants in locations where others have failed have to dig themselves out of the holes left by the previous failures, I've also seen ones where the previous ones did NOT fail have difficulty differentiating themselves with merely a brand change.

For example, a Mexican restaurant that went in where an Italian restaurant had been. Customers didn't even realize there was a different restaurant there inspite of changes in signage.

After all, the flags of Italy and Mexico have the same colors! It just never soaked in because the new restaurant never grabbed the drive-by traffic's attention.

It's often a challenging marketing task to dig oneself out of a hole someone else dug. The first part is simply recognizing that you are starting out your new business in a psychological hole prepared for you by someone else.

Yes, you realize there is all the difference in the world, but you have to get that point into the minds of those in your marketplace and make it stick.

Paul

[orion_joel]

One other thing that does not help with Market research i think is doing it in a short period.

For example, a local town near me has three or four restaurants on a shopping strip, if you walked down that strip on say a friday and saturday night for 2 or 3 weeks, you would get some market research that tells you the numbers do go up and down each week. However While on a percentage base this change may be the same week to week through the year on a weekly basis, in summer the average number of customers is much higher then winter, though the weekly averages go up and down just the same.

So to get true market research depending on the industry it needs to be over a period of time, probably the longer the better. In my above example, if someone did their research in summer for 3 or 4 weeks and then went and opened a business based on that when they hit winter they are going to be sorely disappointed when the numbers drop off. However in reverse if they did their research in winter, they would get a pleasant surprise in summer and would possibly be better prepared. However neither is a god way to do the research because you only know half the picture.

In addition one thing i have seen some other businesses suffer through is research provided by the leasing agent. Things such as "Local community population of 20,000, or 15,000 vehicles pass each day" And things like this. While this is one small piece of the research you need relying on this which so many small business people do is practically business suicide. Yes maybe their is 20,000 local residents, but how far away does this go, 1km, 3km, 5km what is classed as local, yes you may be able to find this out but it usually wont be freely given out without request. It may be 20,000 people within 5 km radius when you start to look within 5 km there could be half a dozen competing businesses.

The same thing comes up when you get figures like 15,000 cars pass per day. This tells you nothing there could be half of these vehicles, are trucks and buses, or 40% could be male drivers who have no interest in knowing that your female gym, is there. While all this is good parts of the information you need very often it is limited information that really does not give you all the information you need. And to many business owners do not realize they need to look for more information.