Knowing Your Target Market
Daniel Nathanson, Ph.D. from UCLA Anderson Graduate School of Business answers the questions: What roles do feedback and test marketing play in a business start-up? Do you know your target market segment?
The advice I give most of my graduate students, as well as entrepreneurs, is: Don't write a business plan in your basement; don't get analysis paralysis! Before you start with the business plan writing and spreadsheet analysis that you learned how to do in business school, get out of your chair and start doing something. Get feedback from the market. So this is what I tell them to do: First, take your idea and talk to your friends and family. See if they go wow or not. If they don't go wow, you know you have a problem. But when you do talk to your friends and family say, "Look, please give me some good, honest, and critical feedback on my idea, because if you don't I'm liable to spend a fortune and a lot of time chasing something I shouldn't be chasing." Once you've got a lot of good feedback on your basic idea, the next step is to go out and test the target market. Ask them if they would like the product you have in mind. Now, that may take creating a prototype or a sample of what you're doing. It's very hard to get market feedback without a particular product or service you're going to be selling. The people who you're getting the market feedback from, your target market, the people you're going to be selling to, have to know specifically what the product is. They have to really understand the product or service. Sometimes you can describe it in words, screenshots, or powerpoints, but sometimes you need to build a prototype. They need to have a very clear understanding of what you're going to be selling in order for them to give you meaningful feedback. Now, why do I say to do all that before you start writing a business plan? Because you need to know the market well. You need to know the competitive products well. You need to refine your idea to what the market really wants, and you can't do that unless you really know the market. So get over your fear of talking to people, and start pitching your idea. If you start with an idea and just go directly to writing a business plan, you're going to end up writing it and rewriting it. As it is, business plan writing and business plan development is an iterative process. You go out to the market, get feedback, create what you think is the desired product, and do it again until you find out what the market really wants and what they will pay for it. You go back and forth, continuing to change the plan until you're ready to present it. So, it's not a static kind of thing, a business plan. The first thing I say to my students, therefore, and to my entrepreneurs, is to go out and do your homework. Your homework is to determine whether your potential customers will really buy your product at the price you can sell it for to make the profit you need to make. You learn that by first asking them, creating the product or a sample of the product, and trying to sell it. Once you have some convincing evidence that your customers will buy, then you write your business plan. The biggest problem small businesses have and why they fail, and they fail very often, is because there really is no demand for their product. This is because the entrepreneur has failed to explore that and test the assumptions they are making.