The document provides an overview of market research and competitive analysis for entrepreneurs. It discusses the importance of understanding customers and competitors through independent, factual research. Key points include: 1) Market research should focus on understanding customer needs rather than personal preferences. It should be independent, factual, quantitative and timely. 2) Primary and secondary research methods can provide customer insights. Primary includes surveys and focus groups while secondary uses existing data. 3) Market research is used to validate business ideas, improve products, refine marketing messages and identify target customers. It is an ongoing process. 4) Competitors should be analyzed to learn from their approaches and identify competitive advantages. Direct competitors offer similar products while indirect satisfy similar

1. Startup Boot Camp
Kick Starting Success for
California’s Retail, Restaurant and
Service Entrepreneurs!
Day 1 — Session 2

2. MARKET RESEARCH

3. Market Research
 It’s not what: ―The aim of marketing is to know and
– You like understand the customer so well the
– I like product or service fits him and sells itself.‖
— Peter Drucker
– Your neighbor likes
– Your spouse or partner likes
– Your dog likes
 It must be:
– Independent
– Factual
– Quantitative
– Timely
3

4. Types Of Market Research
 Primary Research – talk to the customer:
– Focus groups
– Mall intercept studies – ―exit‖ interviews
– Zoomerang & Survey Monkey for the web
– Telephone surveys
– Customer interviews
 Secondary Research – data collected by someone else
– Internet
– Libraries/research librarians
 Observe what the competition is doing
– Tradeshows
– Trade publications
4

5. Uses Of Market Research
 Validate business concept or marketable idea
– Determine the size, current state, growth potential and trends in
your industry
– Identify other products/services that potential customers buy
instead of yours for the same purpose
 Information to modify/improve the product
– Product line extensions
– New categories
 Refine your message to your customer
 Identify your consumer
5

6. Consider . . .
Assessing, adjusting, adapting to the market are a constant
in a successful business!
When do you stop doing Market Research: Never!
6

7. Example
 Assume you want to start a retail store that sells pellet
stoves as described below. Take out a blank piece of
paper and write down 5 potential sources of information
on the market and customer for this product:
What is a pellet stove?
It produces relatively clean heat by burning
small cylinders of compressed saw dust. It
is self-igniting, controlled by a thermostat
and can be equipped with a battery
backup. It is useful as a home heating
source and particularly useful where power
may be subject to disruptions.
7

8. Example (cont’d)
 Trade Association - Yes
– Hearth, Patio & Barbeque Association
 Trade Show – Yes
– Hearth, Patio & Barbeque Expo
 Trade Publications? Yes
– Biomass Magazine
– Backwoods Home Magazine
 Newsletters? Yes
– off-grid.net
 Company SEC filings, Industry Reports, Articles, Retail
Store visits, etc., etc., etc.
8

9. Learn More About Your Customer
 Take out a sheet of paper and write ―customer‖ on it.
 Take 3 minutes and identify sources or ways in which
you can use primary or secondary research to validate
your ideas or find out more about your customer and
market.
 Now, do the same for your product/service
9

10. Examples of Market Information
 SBDCnet — Speak with your SBDC Business Advisor
 Examples of Market Research Sources:
– Business Stats: http://www.bizstats.com
– General Demographics:
http://factfinder2.census.gov/faces/nav/jsf/pages/index.xhtml
– City Information: www.city-data.com
– Segmentation overview:
http://www.netmba.com/marketing/market/segmentation/
 Reference Librarians
 Tradeshows/Trade Publications
 Your Competitors
10

11. ―I have been up against tough
competition all my life. I wouldn't
know how to get along without it.‖
– Walt Disney
COMPETITION

12. Types Of Competition
 How do you define your competition:
– Direct (e.g., McDonald’s vs. Burger King)
– Indirect (e.g., McDonald’s vs. Subway)
 Online vs. Offline
 New or well entrenched
 Always consider current and future competition
 Be vigilant for new market entrants
12

13. Competition As An Advantage
 Don’t view your competition as a threat
 They’ve already done some work for you. Learn from
them/from their mistakes
 How do they market? Why?
 Who is their target customer (remember the bike shop)?
 Is information available on their cost structure?
 Learn from industry consultants — industry events
 Network
13

14. Competitive Advantage
 Competitive advantage occurs when an organization
acquires or develops an attribute or combination of
attributes that allows it to outperform its competitors.
 To achieve a sustainable competitive advantage you
must:
– Operate at a consistently lower cost, or
– Command a premium price
 Cost/price advantages can be achieved in two ways:
– Do what your competition does better/cheaper
– Do things differently from your competitors – in a way that delivers a
unique type of value to your target customer
14

15. What Will Make You Special?
 Location
Note: This is a list of features.
 Free delivery Remember the discussion of features
vs. benefits.
 Quick turnaround
 Customization
―Number one, cash is king... number two,
 Convenient hours communicate... number three, buy or bury
the competition.‖
 Unique product/skills – Jack Welch
 Customer support
15

16. Competitive Analysis
 Use many of the same techniques and resources as
Market Analysis
– For locally based businesses visit/observe your competition
• How many are there?
• How do they market/sell? To who?
• What products do they carry or services do they offer?
• What do they charge?
• How busy are they?
 Use tools like SBDCnet
―You can observe a lot
 Create a competitive matrix just by watching.‖
— Yogi Berra
16

17. Competitive Matrix
17

18. Example
 Take 5 minutes and on a blank sheet of paper, identify
competition for:
A hardware store
 Is it direct? Indirect? Online?
 List 5 things this business can do to create a competitive
advantage?
18

19. Example (cont’d)
 Direct
– Other local hardware stores
– Big box stores like Home Depot/Lowes
– Internet retailers of hardware products
 Indirect
– Contractors
 Potential items of competitive advantage
– Location, contractor specials/discounts, specific products, inventory
levels, parking, hours, helpful staff, etc., etc., etc.,
19

20. IP As A Competitive Advantage
 Intellectual Property (IP) can be a very valuable asset
 Trademark: any word, name, symbol, or device, (or any
combination thereof) used to identify and distinguish
goods or services and to indicate their source
Word Marks: KODAK
Design Marks:
Composite Marks containing
both words and design:
Slogans: WE BRING GOOD THINGS TO LIFE
20

21. IP As A Competitive Advantage
 Types of Trademark registration
– Common Law – unregistered; derived from use ―TM‖ in marketing materials
– State Registration – the ―truly local.‖ Registered with one or more U.S.
states
– Federal Registration® - interstate commerce or between the U.S. and
another country
 Federal registration is not required, because trademark
rights (in the U.S.) arise from use on or in connection with
goods or services, but there may be advantages to federal
registration
21

22. Who’s Your Competition?
 On a sheet of paper, identify your direct and indirect
competitors
 Identify 3 ways you can find out information about them
 What’s your competitive advantage? Why will people buy
from you?
22

23. ―You can have anything in this world you
want, if you want it badly enough and
you're willing to pay the price.‖
– Mary Kay Ash
PRICING

24. Only Ways To Make More Money
 Sell more
 Cut costs
 Raise your price
24

25. Pricing Strategies
 Must make sense given the:
– Markets served/target customer
– Products/services offered
– Operational costs/method of distribution
– Competition/perceived competitive advantage
 Only 3 strategic choices:
– Premium
– Market
– Value
 Many pricing options:
– Suggested retail
– Volume discounting
– Wholesale pricing
– Cash and early payment discounts
– Seasonal pricing
– Price flexibility
25

26. Determining Prices
 No magic bullet
 Based on the interplay of a number of factors
– Who’s your target market
– Your positioning (premium, market, value)
– What competition charges for similar product/services
– Your perceived ―value‖ to your customer (your ―value proposition‖)
– Your objective
• Obtain market share
• Maximize profits
• Maximize revenue
– Your cost structure
• Fixed overhead
• Cost of goods sold
• Profitability/target gross margin
26

27. Pricing Is Key
 An ineffective pricing strategy is one of they key failures
of small business
 Businesses must price to cover the direct costs of
production, variable overhead, fixed overhead, owner
wages, and profit — more on this tomorrow
 After businesses know what they want/need to charge,
how does it ―fit‖ their market?
27

28. Basic Pricing Strategies
 Cost-plus pricing
– Adding a standard markup to the cost of the product.
– Popular because:
• Sellers more certain about cost than demand
• Simplifies pricing
• When all sellers use, prices are similar and competition is minimized
 Value-based pricing
– Uses buyers’ perceptions of value, not the seller’s cost, as the key to
pricing
 Going-rate/Competition-based pricing
– Firm bases its price largely on competitors’ prices, with less attention
paid to its own costs or to demand.
28

29. New Product/Service Pricing
 Market-Skimming When to use
– Set a high price for a new – Product’s quality and image
product to ―skim‖ revenues must support its higher price
layer-by-layer from the – Costs of smaller sales
market volume cannot be so high
– Company makes fewer, but they cancel the advantage
more profitable sales of charging more
– Competitors should not be
able to enter market easily
and undercut the high price
29

30. Promotional Pricing
 Low-Interest Financing
 Longer Warranties
 Free Maintenance
 Discounts
 Cash Rebates
 Special-Event Pricing
 Loss Leaders
30

31. Key Points
 Compare the pricing needs with the market needs/values
 You can have higher prices for items if you bundle them
together (e.g., entrees with sides)
 Remember, companies sometimes do what they THINK is
correct when they are going into business or things are
slow — they lower prices to build volume. Once lowered, it
is hard to bring them back to normal
31

32. What Is Your Price Strategy
 Based on your work so far (your target consumer;
understanding of the competition; product/service
description), take out another sheet of paper labeled
―Pricing‖ and take 3 minutes to write your initial thoughts
on factors you will consider when establishing prices and
how you can potentially find out more information to help
32

33. ―The company accountant is shy and
retiring. He’s shy a quarter of a million
dollars. That’s why he’s retiring.‖
– Milton Berle
ADMINISTRATION/FINANCE

34. Basics
 Open a business banking account
– Helps maintain accounting/tax records
 Hire a qualified bookkeeper and accountant as soon as
possible
 Establish a good record keeping system
– Electronic and manual
 Importance of good records
– Monitor your progress
– Prepare financial records
– Track deductible expenses
– Prepare and support tax reporting
– Historical sales data improves inventory management efficiency
34

35. Requirements Of A Good System
 Simple to use
 Accurate
 Timely
 Consistent
 Understandable
 Reliable and comprehensive
35

36. Records Retention
IF you... THEN the period is...
1. Owe additional tax and situations (2), (3), and 3 Years
(4), below, do not apply to you
2. Do not report income that you should report 6 Years
and it is more than 25% of the gross income
shown on the return
3. File a fraudulent return Not limited
4. Do not file a return Not limited
5. File a claim for credit or refund after you filed Later of: 3 years or 2
your return years after tax was paid
36

37. Taxes
 Become familiar with basic responsibilities even if you have
a qualified outside professional
– http://www.irsvideos.gov/virtualworkshop/ — a very good resource!
• The Virtual Small Business Tax Workshop is composed of nine interactive
lessons designed to help new small business owners learn their tax rights and
responsibilities.
– Lesson 1 - What you need to know about Federal Taxes and your new business
– Lesson 2 - How to set up and run your business so paying taxes isn't a hassle
– Lesson 3 - How to file and pay your taxes using a computer
– Lesson 4 - What you need to know when you run your business out of your home
– Lesson 5 - How to set up a retirement plan for yourself and your employees
– Lesson 6 - What you need to know about federal taxes when hiring employees/contractors
– Lesson 7 - How to manage payroll so you withhold the right amount from employees
– Lesson 8 - How to make tax deposits and file your payroll taxes
– Lesson 9 - What you need to know about Federal Unemployment Taxes (FUTA)
– IRS Publication 583 – Starting a Business and Keeping Records
37

38. Financial Statements
 Having a solid up-to-date accounting system that
provides good management information by which you
can measure performance is critical to your success!
 We will briefly discuss, but strongly urge that you take
additional classes to become comfortable with this
information and how it can help you.
 Why?
– Information will help establish future goals
– Allows you to measure performance/profitability/cash needs
– Can help you detect problems early
– Can help determine future cash needs/funding requirements
38

39. Two Types Of Accounting
 Accrual
– Recognize income at the time of sale which is not necessarily
when income is received (think selling on credit)
– Recognize expense at the time expense is incurred which is not
necessarily when it is paid (think buying on credit)
 Cash
– Recognize income when received and expenses when paid
39

40. Benefits
 Accrual accounting allows you to match expenses and
income allowing you to understand the true profit picture
of your business. Balance Sheet and Income
Statement
 Cash accounting allows you to accurately monitor the
cash position of your business and your ability to meet
financial obligations. Cash Flow Statement
40

41. Types Of Financial Statements
 Types
– Balance Sheet — a snapshot of the business’ financial health at a
particular point in time — tells you whether your losing or making money
– Income (Profit and Loss) statement — how your doing over a period of
time
– Cash Flow statement — the life blood of the business — measures your
ability to pay bills
41

42. Balance Sheet
Balance Sheet Year 1 Year 2
Assets:
Current Assets:
Cash $ 38,689 $70,522  A snapshot of finances at
Inventory $60,000 $60,000
Receivables
Total Current Assets: $98,689
0
$130,522
0 a particular point in time
Prepaid Assets
Accumlated Amortization
$20,000
($2,857)
$20,000
($5,714)  Shows how
Net Prepaid Assets $17,143 $14,286
Fixed Assets
assets/liabilities are
Furniture & Fixtures
Computer Equipment
40,000
14,000
40,000
14,000 allocated
Accum Deprec. (12,000) (24,000)
Total Fixed Assets: 42,000 30,000
Total Assets: $157,832 $174,808
 Generates an Owner’s
Liabilities:
Equity figure
Current Liabilities
Accounts Payable - -
Accrued Payroll - -
Total Current Liabilities: - -
Total Long-term Liabilities:
SBA Loan 96,885 63,519
Other Liabilities - -
Total Liabilities: 96,885 63,519
Equity:
Retained Earnings $ 28,081 $ 78,423
Stock $32,866 $32,866
Total Equity $60,947 $111,289
Total Liabilities & Equity $157,832 $174,808 42

43. Income Statement
Income Statement Year 1 Year 2
Seasonality Factor
Net Sales 806,075 976,000
 Match income and
Cost of Goods Sold
Gross Profit
427,220
378,855
517,280
458,720 expenses for a
Gross Profit % 47.0% 47.0%
Expenses
specific period
Employee Wages/Salary 83,026 100,528
Payroll tax 12,897 15,616
Workman's Comp
Health Insurance
Liability Insurance
8,867
0
3,950
10,736
0
4,819
 Cash and non-cash
Utilities (Gas, Electric, etc.)
Telephone
27,500
6,000
33,550
7,320 items
Rent 73,531 73,531
Supplies 9,600 11,712
Advertising 11,950 14,579
Accounting Serv 2,100 2,562
Personnell Benfits 4,000 4,880
Repair/Maint/Copnst 8,000 9,760
Janitorial Service 2,000 2,440
Customer Discounts 10,680 12,932
Travel 2,000 2,440
Debit Card/Bank Charges 4,732 5,460
Freight 40,304 48,800
Miscellaneous 6,000 7,320
Total Operating Expenses 317,137 368,985
EBITDA 61,718 89,735
Depreciation 12,000 12,000
Interest 9,989 8,778
Profit (Loss) before Tax 39,729 68,957
Annual State Taxes 3,259 5,843
Annual Federal Taxes 5,531 9,915
Net Profit (after tax) $30,939 $53,199
43

44. Financial Analysis
 You can use your information to measure yourself
against similar businesses
– Create ratio to assess things like . . .
• How quickly inventory is moving
• How quickly people are paying you
• Your financial liquidity to pay obligations
– Paying attention to problem areas can help free up cash and
reduce cash needs
 RMA (Risk Management Association)
– Data useful in assessing your performance against business of
your type/size
44

45. Cash Flow
 Different from profit and loss — measures only cash
inflows and outflows
 Lack of cash is the leading causes of business failure
 Small business owners must monitor and optimize cash
flow constantly
 Steps to improve cash flow
– Bill customers ASAP
– Establish strict payment policies (e.g., 2%/10 Net 30)
– Be vigilant in contacting overdue customers
45

46. More On Cash Flow
 Cash is generated into a
business through:
– Receipt of cash generated as a Cash Flow Statement Year 1 Year 2
result of sales Beginning Cash $169,328 $38,689
– Loans or owner investment EBITDA 61,718 89,735
– Asset sales Less Start-up Costs
Store Investment 127,000 0
 Cash flows out of a business Lease Deposit 7,000 0
Landlord Improvement 5,000 0
through: Less Interest Exp 9,989 8,778
– Payment of business expenses Less Capital Exp. 0 0
– Loan payments or owner Less Loan Amort. 34,577 33,366
withdrawals Less Taxes 8,790 15,758
– Asset purchases Ending Cash $ 38,689 $ 70,522
 Next week, we will focus
explore an example of this
important tool!!!!!!!
46

47. Financial Summary
 Critical . . . not just important . . . critical to your success!
 Remember . . . garbage in/garbage out
 Get your books and records set up early and right
 Hire a professional whenever possible
 Not just for taxes
Keep information up to date, learn what it
means, understand how it can help you.!
47

48. Payment Processing Options
 Credit Card Processing/Processing Systems
– ―Acquirer‖ (a bank) collects credit card transaction from your
credit card terminal or POS system
– Transactions electronically transferred to two primary
associations of banks (Visa and MasterCard)
– Association collects funds from the credit card holders
issuing bank
• Typical merchant fee of 2-3%
• Typical processing time to transfer funds is 2 days
– Understand all fees, make sure system fits your needs
 Rapidly evolving hardware and technologies
(e.g., square reader; near-field communications
using smart phones)
– E-Payment Service fees higher 2.5 – 5.5%
48

49. For Next Week . . .
 Review and refine:
– Mission Statement
– Customer Profile
– Product/Service Definition
– Competition/Competitive Advantage
 Become familiar with the following resources
– www.sba.gov
– www.business.ca.gov
– http://www.irsvideos.gov/virtualworkshop/
– Add Local SBDC Website here!
49

50. PANEL DISCUSSION