Conducting Business Research
Sometime after the collapse of the Berlin Wall in late 1989, numerous Polish intellectuals, who had previously been living and working outside Poland, journeyed back to their native country to capitalize on the demise of communism as well as a baby boom that had resulted 20-years earlier due to a strict curfew imposed by communist authorities (as reported in The Economist, Polish workers took to their beds during this period because there was little else for them to do).
In less than two years, over 350 private higher education institutes sprang up like mushrooms after a spring rain. But by 2009, higher education enrollments peaked; and by 2020 the number of 19-year olds in Poland is predicted to fall to 361,500 – which is half the size it was in 2002.
Many universities, both in state and private sectors, are now under threat because there are simply not enough students to fill available classrooms. The result is that departments and faculties are feeling the pinch and financial cutbacks are taking their toll. International students are being targeted more than ever before with tuition and accommodation costs that are lower than those in their respective countries. And admission standards are reportedly lower than ever. ‘Some colleagues say that the average student in the 1990s was much better than the current ones,’ says Benjamin Stanley, who taught at a university in Warsaw from 2011-2013. He adds that Poland now has too many university students of doubtful academic quality and that too many are graduating with degrees that cannot get them a well-paying job. This sentiment is echoed by former Polish Prime Minister Donald Tusk, who publically put this situation into perspective for young adults by remarking that it’s better to be a well-paid welder than an unemployed social science graduate.
What does all this mean for the entrepreneur? No matter how good a business opportunity is, and
No matter how good a business opportunity is, and no matter how successful a business becomes, the need for gathering, updating, and interpreting information for the purpose of benefiting from constantly changing markets and then acting upon this information – never ends.
Conducting External Research
The moment a business starts trading it cannot stand still. Economic environments and demographics are constantly changing, which means that an astute entrepreneur should not only be aware of what is going on inside his or her business, but also the dynamics that are in play outside it. And that’s because the external environment of a business (which the business often cannot control) does affect the internal environment (the systems and procedures that operate inside the business).
Vigilance and action is therefore required to ensure that a complimentary match exists between the two. Let’s start with the external environment. The following steps are designed to help explore the external environment in which an entrepreneur conducts business:
Step #1. Define what you have and what you wish to do.
This includes identifying current resources, short-term goals, and long-term goals. Remember to commit everything to writing. The honing of goals and the defining and clarifying of thoughts and solutions always improves during the process of writing.
Step #2. Evaluate your idea (or product) and the industry to which it belongs.
Gather as many opinions as possible. Understanding how customers interpret an idea or product is always more significant than the entrepreneur’s interpretation. Among the many questions to ask when conducting external research are:
- What is the history of the industry in which the business idea is located (both in general and locally)? Is it on the rise? Is it declining? Why?
- What are the benefits of the product or service?
- What are the product’s uses?
- Is there a real need for the product? How long will that need last?
- Can the proposed product be measured against an existing product? How?
- Can the product be adapted for other more profitable uses? How?
- Will the business have the ability to provide what is wanted, when it’s wanted, and how it’s wanted?
- Does the product require a previously unforeseen special license, insurance requirement, distribution system, or other expense?
Step#3. Know your customers
- Who will use the product? (Be specific. No product can be sold to everyone. A good customer profile takes into consideration: sex, age, ethnicity, religion, income level, education level, stage-of-life [i.e.: singles, students, parents, retirees], transportation needs, etc. Contact a local census bureau for details. In the USA, this information can be accessed at http://www.terforum.org).
- Where are the most ideal customers located?
- Why will customers use the product?
- How will they use it?
- What benefits will they derive from the product?
- How much of the product will they use? Can the product be sold in the right amounts?
- Can prospective customers afford the product – and afford to keep using it?
Step #4. Demographics.
- Is the population of the targeted customer base on the rise or is it decreasing?
- What is the current (and projected) economic situation of the area?
- What are the local purchasing trends?
Step #5. Research the competition.
- Is there a business that currently provides a similar product?
- Can another business produce the product cheaper or better?
- Will local stores carry the product?
Step #6 (For existing businesses)
- What do our customers think of our current business, products, and service?
- Are our marketing programs working? Why or why not?
- How many customers do we know on a first name basis? Have we asked their opinion?
- Are we using purchase and credit records to build customer profiles and data bases? Can we use this information to determine what our current customers might want to buy in the future?
- Do we offer incentives for return visits? If not, why not – and what can we do about it?
Step #7 Analyze your research
- Do the demographics support a sustainable market?
- Does the information gathered from steps 1-5 fit into the demand needed to sustain sales?
- Do any changes need to be made to my idea or product?
- Will providing/producing the product require more capital (or time) than was originally thought?
Don’t ignore research results if they don’t reveal what is expected. Almost every business idea either needs a bit of tweaking or an outright alternative somewhere along the way. ‘Negative results should be seen as an opportunity, not a threat,’ says the owner of Arpi Holding in Oslo, Norway. For example, if the entrepreneur needs more money than was originally envisioned, perhaps he or she can sell the original idea to an existing company. Or maybe the business will have to start small and stay small for a longer period of time than previously thought (there’s nothing wrong with that). Perhaps an office or shop can be rented or leased instead of purchased – or maybe working from home is a better option (if licensing laws permit it). If research shows that customers don’t want to go out and buy a proposed product, might they consider having it delivered instead? For example, if a restaurant is envisioned but no one seems interested, would customers take to a specialized service (e.g.: meal deliveries, catering, wholesaling, take-aways, cooking lessons, etc)? The point is to investigate all the alternatives and stay open-minded. Determining whether an idea should be doggedly pursued, modified, or abandoned, is one of the most difficult decisions an entrepreneur has to make.
Conducting Internal Research
Assessing a business’s internal environment requires honesty and openness and should not rely solely on the judgment of one person. Whether a business is in the design stages or has been up and running for years, regular internal evaluations should address the following:
- Skills. How well can (or will) the business and its people do what is supposed to be done?
- Systems. How efficiently does the business serve its customers?
- Structure. Does the set-up of the business promote peak performance?
- Values. What are the priorities of the business?
- What are the strengths and weaknesses of the person or people behind the business?
- What are (or will be) the overhead costs?
Researching the Cost of Overheads
Expenses associated with the everyday running of a commercial enterprise are called overheads.
Generally speaking, overheads must be paid whether or not a product is made or sold. Overheads are therefore an important factor in determining long-term costs. Examples of overheads include:
- Raw material costs
- Equipment and supply costs (including raw materials and office supplies)
- Insurance premiums
- Telephone bills, printing costs, leasing or hiring fees, travel expenses, repairs, etc.
- Legal fees
- Rent and utility expenses
- Advertising and marketing costs
- Shipping and storage fees (the monthly costs of transporting and warehousing)
- Wages and salaries
- Accounting fees
Many of the successful business operators interviewed for this book said that they always eye their overheads with a desire to reduce them (e.g.: switching to lower-cost suppliers, finding cheaper premises, reducing packaging needs, etc.). Put another way, endlessly exploring new ways to conduct business operations helps ensure that expenses are kept low, less waste occurs, and greater efficiency becomes standard.
Much of the information from external and internal research can be graphically represented by what is called a SWOT analysis (SWOT is an acronym for Strengths, Weaknesses, Opportunities and Threats). The purpose of a SWOT analysis is to depict internal and external environments in an easy-to-read format. When a clear picture of the opportunities and challenges faced by a business are laid out, it becomes easier to identify, add to, and investigate areas that need to be addressed.
Note that the more honest and thorough an entrepreneur is with his or her SWOT assessment, the better the chances are of tackling the challenges involved with starting up a business. Note also that most businesses will have many more critical factors listed (i.e.: factors that are crucial to business success and can be measured against competitors) than the few depicted in the diagram.
Advice from the Pros
- When starting a business, don’t remain focused on the internal happenings of the little kingdom you plan on running. You must also stay on top of external trends (demographic changes, competitor, marketing schemes, and so on).
- Learn to handle negativity. The point of research is to locate problems and openly discuss them not shy away from them or deny they exist.
- Be open to advice and feedback. Listen and act upon what others say.
- In the never-ending battle to keep expenses down, focus on eliminating waste and improving efficiency rather than simply cutting costs. All too often, constantly cutting costs results in a reduction of quality that can turn off potential customers