How to Research Your Market

This article was written by Brad Sugars of Entrepreneur.com

Starting a business is a little like buying a car: You need to do some research before taking the plunge. First, figure out if there's demand for your product or service. Do a competitive analysis. Find a place to set up shop. And create a plan to differentiate your offering.

Doing your due diligence can mean the difference between success and failure, and it doesn't have to cost a penny. Networking, online research, informal focus groups and other do-it-yourself methods can often do the trick.

Consider the case of an event facility in the South. It started as a place to hold weddings. Located in a beautiful old house, it attracted wedding business, but wasn't turning a profit because it usually sat empty on weekdays.

So the owners contacted members of a nationwide wedding planners' association with similar estate-type settings in other geographic markets. They discovered that others in their situation filled the gap with corporate meetings and by offering bed-and-breakfast arrangements. Today 40% of the facility's business is corporate events, and the owners are building a lodging facility on the grounds to expand their offerings.

Before you get the research ball rolling, you need to come up with a solid business concept. Once you have a concept, you need to determine whether it's viable. To figure out if you should go ahead with your business idea, you need to ask questions like these:

• Is the market saturated? Does your city really need another hardware store or flower shop? How much money is spent in your industry each year in your area? Is there room in the market for one more business?

• Does the market want what you're offering? If you're thinking of providing day care for dogs or a facility where people can cook a week's worth of meals in a group setting, will anyone care? Or if you're developing a new online service for day traders, is it something they can't live without?

• What's the competition doing? What do they do well? What do they do poorly? What's unique about them? Can you offer something different that'll encourage customers to patronize you instead of more established businesses?

• Can you reach your target audience? If you're selling inline skates, are you opening in an area with a population of the right age and disposable income?