Before you spend a dollar on your business, spend time learning about the people you want to serve. This step walks you through finding out who your customers are, what they need, and how you’ll stand out from everyone else trying to win their business.
Start by picking a business idea you genuinely care about — you’ll work on it for a long time, so it should be something you enjoy. Once you have an idea, do some research to understand the world you’re stepping into.
Begin with secondary research — information that already exists and is easy to find, like magazine articles, trade publications, and online searches. This gives you a general feel for your field without leaving your house.
Then move on to primary research — information you gather yourself. Drive around your area, see what businesses already exist, and talk directly to potential customers. A customer is simply someone who will pay you for your product or service. This kind of firsthand research gives you the freshest, most useful insight, and it’s often what gives you an edge over the competition.
Every successful business solves a problem or fulfills a desire. In this section, you’ll describe the pain your customers feel, or the dream they’re chasing.
Sometimes the problem is a real source of frustration — think of a toothache, a car that won’t start, or a leaky pipe. People will gladly pay to make that pain go away. Other times, it’s a strong desire rather than a problem: maybe someone dreams of visiting Machu Picchu, earning a pilot’s license, or owning a rare antique. When a desire is strong enough, people will pay to make it happen.
The best way to understand this is to talk with potential customers directly. Ask them about their frustrations and their wishes. Successful businesses are the ones that turn those wishes into reality. For example, Jack’s Sandwich Shop succeeds because his customers want a tasty, nutritious meal — and he delivers exactly that.
Quick tip: Write down the exact words customers use to describe their problem. Their own language often makes the best marketing copy later on.
Now describe what you’ll actually offer your customer. Once your idea is clear, check whether something similar already exists. Start with a quick online search (secondary research), then talk to potential customers (primary research) to learn more.
If you can show a sample product or demonstrate your service, do it — and ask for honest feedback. Find out exactly what would make your offer more appealing than what’s already out there. Even without a demo, simply asking customers what they prefer is valuable. Whatever you’re selling, it needs to be better than the alternatives, not just a copy of them. Offering the exact same thing as everyone else — a “me too” approach — usually forces you to compete on price alone, which shrinks your profit.
Running a business is really about earning customer preference. Have you ever noticed a restaurant with a line out the door while the place next to it sits empty? Something is making people choose one over the other — maybe the food, the service, the atmosphere, or something else entirely. Your job is to figure out what drives that choice for your customers.
Some customers care most about price, and there are three common ways to set yours:
• Cost-driven: your costs plus a profit margin.
• Value-driven: based on what customers believe it’s worth and are willing to pay.
• Market-driven: priced in line with your competitors.
Setting the right price isn’t simple. Make sure it covers all your costs — fixed, variable, and overhead — and leaves room for the market to shift. If you run a retail store, you’ll typically need to mark up goods two times or more to cover inventory, labor, and other expenses. Watch for outside factors like inflation or changes in demand, since these affect what customers are willing to pay. Competing purely on the lowest price will eat into your profits; it’s usually smarter to price near the market average and compete instead on service, quality, and unique features.
The good news is that most customers choose a business for reasons beyond price: strong value, great service, convenience, and uniqueness. Here’s what each of those can look like:
• Value: extra benefits like training, a generous guarantee, or noticeably fresher, higher-quality products.
• Service: being helpful, reliable, and quick to respond.
• Convenience: an easy-to-reach location, longer hours, or a wider range of products and services.
• Uniqueness: something genuinely hard for others to copy.
A few examples of what make a business unique: an innovative product, the freshest information in a fast-moving field, a distinctive style, better technology, being first to market, faster delivery, specialized know-how, or simply a different way of doing things.
If you make a product, think about training, warranties, refund policies, ongoing support, and on-time delivery. If you run a retail store, think about location, parking, nearby shops, and access to public transportation. Jack, for example, knew that most of his customers were young people who liked ordering from their phones — so he built his shop’s menu and ordering system to work seamlessly on mobile devices.
As you think this through, identify your offering’s key features (what your product or service does) and the benefits (what the customer actually gains from it). Once you can describe both clearly for a specific group of customers, you can put it all into one simple value proposition statement, such as:
“For [target customer], who wants [desire], unlike [main alternative], we provide [key benefit] through our [product or service].”
One more important distinction: customer satisfaction isn’t the same as customer preference. A satisfied customer might still buy from a competitor next time. A customer who truly prefers your business will keep coming back. That loyalty is what you’re really aiming for.
Now describe the ideal customer — the person most likely to buy from you. Look for traits these people share: where they live, their age, education, interests, life stage, spending power, lifestyle, and buying habits. The more clearly you can describe this group, the easier it becomes to estimate your market size and design a marketing plan that actually reaches them.
Finding your niche — a specific, well-defined slice of the market — is especially valuable for small retailers and manufacturers. It’s much easier to stand out in a focused niche than to compete broadly with everyone. A well-chosen niche lets your small business thrive right alongside much bigger companies, simply because you can dominate that smaller space.
Jack, for instance, focused on health-conscious working people who wanted a quick, nutritious lunch — not diners looking for a fine dining experience with wine. He estimated about 500 office workers and 3,000 nearby apartment residents fit that description, giving him a clear, sized target to market to.
If you plan to sell through a distributor rather than directly to the public, keep your target customer in mind when choosing that distribution channel, too.
Competitors are other businesses offering something similar to the same customers you’re after. For a small business, it’s usually not worth obsessing over them — your energy is better spent making your customers happy, and your small scale means you’re rarely anyone’s biggest threat. Still, many customers compare their options before buying, especially for services, where it’s hard to get a refund after the fact. So while you shouldn’t fixate on competitors, you do need to know who they are.
You can find competitors through local business directories, your Chamber of Commerce, and a simple online search. Once you know who they are, learn what you can: check their website, read their marketing materials, and — most usefully — ask your own customers what they think of these other businesses. This combination of research and customer feedback will show you each competitor’s strengths, weaknesses, and place in the market. You can also ask your suppliers what your potential competitors are buying, or get to know rivals at industry events; you may share challenges like new regulations, and you might even help each other someday.
Customers will choose whoever offers them the best value, so look for ways to tailor your product or service to outperform competitors — especially in the areas where they fall short. Understanding what they offer helps you plan your own marketing more effectively.
Keep in mind that small retailers and manufacturers face a real disadvantage against big-box stores and large factories, which buy in volume and operate at lower cost. As a retailer, you may need to mark up goods two times or more just to cover your costs — and if you’ve taken out a loan for inventory, you’ll need to sell enough to cover those payments on time. The smartest way to compete with larger players is to serve a niche they have no interest in chasing. A few simple tactics that give small businesses an edge:
• Return phone calls promptly.
• Offer hours that are convenient for your customers.
• Greet customers warmly, like a friend.
• Deliver your product or service more efficiently.
• Make your business easy to reach.
• Keep your space clean and welcoming.
• Offer a service that’s hard for others to copy.
• Build deep expertise in your specific line of work.
You can also raise the barrier to entry for future competitors — for example, by securing an exclusive license if no one else in the area is operating yet. Note that a business built around physical hardware is naturally harder to copy than one built purely on software, since software requires very little startup cost to recreate.
Even if you have no competitors today, new ones will appear if your market looks profitable enough — especially where it’s cheap and easy to get started. Where it’s expensive, specialized, or requires particular skills to enter, new competitors are less likely to show up. Beyond new businesses, watch for new technology that could replace what you offer altogether.
Technology shifts have reshaped entire industries, sometimes very quickly. Online tools now let customers do things themselves that used to require a travel agent or a trip to a physical store, and online learning is replacing some in-person education. Even giants like Kodak, Blockbuster, and Tower Records were caught off guard by changing customer habits driven by new technology. As devices and tools that once seemed expensive become affordable and more powerful, customers naturally drift toward whatever solution is newest, cheapest, and most convenient — so keep innovating to stay ahead of that shift.
• Revisit this often: Your customers’ needs and your competitors will change over time, so plan to repeat this research every so often, not just once at the start.
• Keep it simple at first: You don’t need a formal survey to start — a handful of honest conversations with real potential customers will teach you more than guesswork.
• Write it down: Keep a simple file or notebook of what you learn about customers and competitors. It will save you time when you revisit your plan later.