When conducting market research for your new business, do not forget to carry out external research, as it is essential for the long-term success and prosperity of any business.
External research is not necessary for every business. You should first examine the nature of your supply chain to determine whether external factors significantly affect your pricing and supply.
Once you establish that your proposed business is likely to be affected by external factors, conduct thorough external research from multiple sources. These may include foreign exchange rates, international trade trends, and supply dynamics — especially for products that rely heavily on imports, such as electronic devices, cars, and many others.
The moment a business begins trading, it cannot afford to stand still. Economic environments and demographics are constantly changing. Therefore, a smart entrepreneur must remain aware not only of what is happening inside the business but also of the external dynamics that influence it. This is because the external environment — which a business often cannot control — directly affects the internal environment (the systems and procedures that operate within the business).
Vigilance and proactive action are therefore required to ensure a good match between the internal and external environments. Below are practical steps designed to help you explore the external environment in which your business will operate:
1. Define What You Have and What You Wish to Do
Identify your current resources, short-term goals, and long-term goals. Write everything down. The process of writing helps refine your goals and clarifies your thoughts and solutions.
2. Evaluate Your Idea (or Product) and the Industry
Gather as many opinions as possible. Understanding how customers perceive your idea or product is far more important than your own interpretation. Key questions to ask include:
- What is the history of the industry (both globally and locally)? Is it growing, stable, or declining? Why?
- What are the benefits of the product or service?
- What are its uses?
- Is there a genuine need for the product? How long is that need likely to last?
- Can the proposed product be compared with existing products? How?
- Can the product be adapted for other, more profitable uses? How?
- Will the business be able to deliver what customers want, when they want it, and in the way they want it?
- Does the product require any special licenses, insurance, distribution systems, or unforeseen expenses?
3. Know Your Customers
- Who will use the product? (Be specific — no product appeals to everyone.) Create a detailed customer profile that includes age, gender, ethnicity, religion, income level, education level, life stage (singles, students, parents, retirees, etc.), transportation needs, and other relevant factors. You can obtain such data from a local census bureau.
- Where are your most ideal customers located?
- Why will customers buy the product?
- How will they use it?
- What benefits will they gain?
- How much of the product will they use? Can it be sold in appropriate quantities?
- Can prospective customers afford the product and continue using it over time?
4. Analyze Demographics
- Is the population of your target customer base growing or declining?
- What is the current and projected economic situation of the area?
- What are the local purchasing trends?
5. Research the Competition
- Are there existing businesses offering similar products?
- Can competitors produce the product cheaper or better?
- Will local stores be willing to carry your product?
For existing businesses, also ask:
- What do our customers think of our current products and service?
- Are our marketing programs effective? Why or why not?
- How many customers do we know by name? Have we asked for their feedback?
- Are we using purchase and credit records to build customer profiles? Can this data help predict future buying behavior?
- Do we offer incentives for repeat visits? If not, why not?
6. Analyze Your Research
- Do the demographics support a sustainable market?
- Does the information gathered fit the demand needed to sustain sales?
- Do any changes need to be made to the idea or product?
- Will producing or providing the product require more capital or time than originally planned?
Researching Overheads (Operating Costs)
Overheads are the expenses associated with running a business on a daily basis. These costs must usually be paid whether or not products are sold. They are a critical factor in determining long-term profitability. Common examples include:
- Raw material costs
- Equipment and supply costs
- Insurance premiums
- Telephone, printing, leasing, travel, and repair expenses
- Legal and accounting fees
- Rent and utility bills
- Advertising and marketing costs
- Shipping and storage fees
- Wages and salaries
Final Thoughts
External research is very important. By following the steps above, you will gain a clear understanding of your supply chain and market dynamics, helping you compete effectively. For any business, it is advisable to conduct both internal and external market research.
Assessing the internal environment requires honesty and openness. It should not rely on the judgment of just one person. Whether your business is still in the planning stage or has been operating for years, regular internal evaluations should address:
- Skills: How well can (or will) the business and its team perform what needs to be done?
- Systems: How efficiently does the business serve its customers?
- Structure: Does the business setup promote high performance?
- Values: What are the core priorities of the business?
- What are the strengths and weaknesses of the founder(s) or team?
- What are (or will be) the overhead costs?