It doesn’t hurt to repeat yourself on this one–what Need are you fulfilling? Investors regard this as one of the keys to business success.
If your market is already saturated, you’ll need to convince investors on how you will capture a piece of someone else’s pie or increase market demand.
You have a number of sources you can tap into for market information: your competitors’ product brochures, interviewing marketing people, trade publications, analysts’ reports (you can get these from securities brokers such as Merrill, Lynch), and users of products already on the market. All your information must be based on fact and well-founded, otherwise don’t put it in.
Be careful in your analysis of market segmentation. Many unwary entrepreneurs have succumbed to error in this section. Here are some potential pitfalls:
a) don’t assume the size of your customers is normally distributed, or that the median equals the mean. If your distribution is skewed, maybe only ten rather than fifty percent of your customers are above average and can afford to buy your product.
b) remember that customer numbers do not always correlate with demand–maybe only ten percent of your customers represent seventy-five percent of your demand. Be sure you direct most of your sales energy to the ten percent buying.
c) keep you company’s market share assumptions realistic. Even successful companies have surprisingly low market shares. Remember that a market share assumption of ten percent could really mean fifty percent if careful market definition and segmentation showed that only twenty percent of the assumed market qualified as potential customers.
d) spell out the products or services you plan on selling, and give accurate estimates of their profitability.
Many books on writing business plans emphasize doing market research. Once again this does not have to take on astronomical proportions. The purpose of including market research is to enhance your own as well as your investor’s understanding of your market, and to improve your plan’s credibility. How about just asking people on the street, visiting stores and counting customers or products, or doing library research?
Keep your eyes and ears open while you’re reading the newspaper or watching the news on T.V. If you can catch a prominent expert’s quotation which reflects favorably on your company or industry, by all means, put it in.
Your estimates of company sales and market share should stem from statistics on growth in your industry and customers, as well as the strengths and weaknesses of your competitors. This data can be effectively presented in tabular form.
This section should also be inside of two pages.
You may want to put a sales analysis in your marketing section to explain and justify anticipated sales volume. Typically a sales analysis includes the following four points:
1) sales by period analysis–demonstrates seasonality and growth patterns, as well as ramifications for cash flow and capital requirements. It also doesn’t hurt to include a most likely, pessimistic, and optimistic forecast.
2) sales by products if you have more than one product. This shows the relative importance of each product to your total product line, and explains your company’s priorities in terms of resource allocation.
3) sales by customer group–a good idea if your marketing strategy leans towards segmentation.
4) the percentage of total market sales you expect to take. In describing your market try to be as thorough as you can without adding too much fat. Over-simplification and generalizations look like you haven’t done your homework and you’re just winging it; however, nit-picking shows you can’t separate the cream from the puff.
If you get a reputation for being honest, you have ninety-five percent of the competition already beat. John Galbreath, owner of the Pittsburgh Pirates.