Understanding the Market

Posted by on Feb 11, 2016 in Business | Comments Off on Understanding the Market

Being an entrepreneur has moments of ultimate thrill and excitement.  When launching a new product or marketing a startup business, there is nothing but hopes of the big win.  Many small business owners think that all it takes is to present their ideas or product, and people will be lining up at the doors to buy.  That is because entrepreneurs are visionaries, and they sometimes lack the ability to take a step back and see the picture as a whole.

Questions that need answers when launching a new business:

  1. Is there a demand for my product or service?
  2. How much money should I invest and what is my estimated return?
  3. Do I have a marketing strategy?

Each of these questions plays a critical role in the success or failure of a new business or product.  However, there is something that can throw a wrench into the vision of success, and that is the economy or market stability.

The economy is an ever-shifting beast that dictates the when and how we do things in business.  When the economy is up, and the markets are booming, people spend more money and, therefore, create more demand.  More demand equals more revenue for business owners during a thriving market.  However, after a period in a booming economy the consumers begin feeling the stretch.  This is because the shortage of supply due to high demand results in higher prices.  These higher prices are not always associated with higher paychecks for the consumers.  When this happens, one of two things happens – income increases or customers stop buying.

When consumers stop buying, there is an oversupply due to less demand.  To level back out, the market then takes a downturn and is what can be referred to as a Down-Market.  This term is not only for real estate but can also be used for businesses in general.  During a down market, demand slacks off and production halts.  Companies that purchased capital to keep up with the previous high demand market can find it difficult to meet the financial commitments for that capital.  For this reason, it can be tricky to be a successful business during a downturn.

Understanding the current market position before launching a business is crucial.  Let’s take a look at a air conditioner repair as an example of a startup business.  Not only is HVAC repair a competitive industry with seasonality, unless something unforeseen occurs, it is not something consumers will be replacing unless necessary.  With these factors in mind, the previous three questions might have an entirely different answer depending on the market at the time of launching the company.

Performing market research is imperative to having a successful company, not only during the initial launching phase but also throughout the life the business.  Competitive market analysis and understanding the economics behind what drives your business is what will separate the long term business from short-term activities.