People start businesses for different reasons. Many simply want to be their own bosses and a lot of these people start businesses in sectors that they've previously worked in. Others have an idea or spot a gap in the market and try to exploit it. A small number look to join growing sectors in a bid to get rich quick. Whatever your reason for starting a business and whatever sector it's in, you'll need to do some market research before taking the plunge.
Even if you've 100 per cent confidence in your business idea and capabilities, a downturn in the market could mean there's simply not enough demand for you to succeed. Alternatively, a struggling market might help you realise you'd be better off targeting a niche rather than mainstream audience.
Anyone investing in your business will also expect you to have considered the market you're about to enter and your business plan will look stronger for having considered these aspects.
The last official startup statistics, published by the Department for Business Innovation and Skills, offer the best insight into the types of businesses that are on the increase or decline (see Table 1 below).
Source: Small Business Service Statistics Team, BIS.
When looking at the sector you intend to enter, consider not only how many businesses were started in 2007 but how it compares with 2006. Is it a growing market? If so, has that now been fully exploited and will it drop in 2008/09? If it's less than in 2006 why is that?
Also consider the changes to the total number of businesses that occurred during 2007.
For instance, business services is an area which shows the largest net gain and percentage change, with the stock of VAT-registered businesses rising by 38,800 -- a 6% increase since the start of 2007. In fact, this industry sector has grown by nearly 240,000 businesses in the last ten years to 644,600. That’s 32% of all VAT-registered businesses in the UK at the start of 2008. However, in 2007, the largest increase in de-registrations was also in the Business Services sector, where de-registrations rose by 3,400.
If you're looking to enter a market that's losing a lot of businesses, you'll need to consider why this is and research which particular firms are suffering and why.
Additionally, you should try and consider the outside influences that are likely to have affected startup and stock business figures. For instance, how much have the hotel and restaurant trades been affected by the smoking ban?
Local businesses for local people
National startup statistics are important to consider, but are by no means relevant to every situation. For instance, trends may vary in different parts of the country and at different times. The local economy will also affect your chances of success.
Unless you're about to launch on a national scale, probably the most valuable research you can do is to research what need exists for your business locally. Look how many other similar businesses are in the area and target places with little competition or where there's room for competition, either in terms of better quality service or on price.
Making trends not following them
There's also the argument that trends should be made and not followed, and there's some truth to this. The telecommunications industry is full of very young bold, and now wealthy, individuals who proved a lot of sceptics wrong, and it can pay to be at the forefront of the latest movement.
However, over-confidence can also be perceived as arrogance or naivety, and it's always worth checking the state of the markets even if you then choose to ignore them. Anyone walking into a bank confident about launching in business services but oblivious to the current difficult market in the sector won't be taken seriously - bear this in mind.
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