Knowledge is power, especially for entrepreneurs or aspiring entrepreneurs. Entrepreneurs are, naturally, enthusiastic about their ideas. With accurate information at your fingertips, you can better judge whether your ideas will likely bear fruit—and whether the opportunity you’ve identified is a viable one.

The only way to get this information is through research. The word “research” doesn’t have to be frightening. Research can be as simple as interviewing people who are potential customers or talking with other entrepreneurs who’ve already done what you hope to do. Perhaps it involves looking up facts about your particular industry online. It’s a good idea to find out what’s going on in your chosen field or industry. What are the trends? What’s hot and what’s not?

Think of research as a reality check that will align your vision with what’s actually happening in the world. Research helps you identify opportunities, set prices, adjust your marketing, and improve your product or service.

You don’t need to be exhaustive in your research efforts; it’s neither necessary nor possible. You’ll merely look for information that will answer key questions about the particular opportunity you have identified. At the same time, your research must be thorough enough to give you insight into whether you should proceed along the path you have chosen, or investigate other options.

Types of Business Research

How will you go about gathering the information you need? Will you conduct your own research, or will you rely on information that’s already out there? Will that research be based on cold, hard numbers and facts, or will it come from opinions and observations? Before you get started on your research efforts, it’s useful to understand the meanings of some key research terms.

Primary vs. secondary research

Two of the basic types of research available to any business information seeker are primary and secondary.

■ Primary research. Original research done by collecting data directly, typically from research subjects (such as target customers). For example, the U.S. Census Bureau conducts primary research when it sends out tens of thousands of census takers to count every person in the country. Industry associations often collect data from association members to compile information about industry trends, pricing, and other issues. Professional polling companies and research organizations often do original—or primary—research. You might do your own primary research by surveying prospective customers or interviewing others in your field.

Primary research is particularly useful for gathering information from prospective customers for a new product or service. However, since primary research entails gathering data directly from subjects, conducting it can require a great deal of time and money. Nevertheless, primary research is often necessary when no other data is available, and it can provide you with valuable insights into customer preferences.

en·tre·pre·neur·ship key terms

Beta testing

The testing of a product or service before its official release. Customers or clients who take part in beta testing provide feedback on how a company can improve its products or services and make them more appealing to consumers.

NAICS codes

Developed by the governments of the United States, Canada, and Mexico as a way to standardize industry categorization, numerical NAICS codes classify every type of business in North America. Providing this code when searching for business information makes locating that data much faster and easier and produces more accurate results.

Primary research

Original research done by collecting data directly, typically from research subjects.

Qualitative information

Generally, subjective information, frequently expressed in words, not numbers.

Quantitative information

Data that is expressed in numbers.

Secondary research

Research that compiles, analyzes, or compares data collected from others who conducted their own original research.

■ Secondary research. Research that relies on data collected from others who conducted their own original research. This type of research often compiles, analyzes, or compares existing data.

As an entrepreneur collecting information to help you make good business decisions, you’ll rely most on secondary research. Many sources of primary research data are government agencies (which often provide it for free), industry associations, or private research companies (typically specializing in certain industries) that may charge substantial sums of money for the data they gather, such as Gartner or Forrester for technology-related research, Gallup for consumer behavior, and so on.

An important business skill is the ability to find and use information that has been collected by others and is already available in thousands of libraries, websites, and online databases.

PRIMARY VS. SECONDARY RESEARCH

PRIMARY RESEARCH	SECONDARY RESEARCH
Data collected by government agencies or research companies (for instance, U.S. Census Bureau or IRS data)	Reports based on analyzing and evaluating data collected by others
Data collected through consumer surveys, polling, focus groups, beta tests, and taste tests	Graphs and charts created based on data collected by others
Financial data included in corporate annual reports	Compilations of data from a number of sources
Original reports, created by the collectors of data gathered using any of the methods above, perhaps including tables, graphs, or charts	Articles based on interviewing those who conducted primary research
	Books that evaluate or analyze data collected by others

Quantitative vs. qualitative research

When conducting business research, you’ll look for cold, hard facts: the size of your market, the historic growth rate of your industry, and the annual revenues of companies in your industry. You’ll also dig for insight and analysis: why customers behave a certain way, or which trends will likely affect your industry in the future. In other words, you need both quantitative and qualitative information.

■ Quantitative research. Data that is expressed by numbers. Examples of quantitative information include the total amount consumers spent on a product in a year, past growth rates of an industry, the market share distribution of major competitors, and numerical results of consumer surveys. You’ll find this kind of data in reports from government agencies and research companies, library databases, industry associations, and consumer surveys.

■ Qualitative research. Generally, subjective information, frequently expressed in words, not numbers. Examples of qualitative information include experts’ observations about what motivates consumers, forecasts of future industry trends, customer views of major competitors, and comments consumers make about a product. You’ll find this kind of information in news reports and articles from industry and general-interest publications, as well as by conducting your own research.

Numbers add believability to a business plan, marketing plan, or other business report because they reflect how the market or industry actually works and has behaved in the past. Numbers show you’ve done your homework. But there is no reliable quantitative data about the future. So you’ll need qualitative information to give insight into what might happen in the years to come.

Don’t underestimate the value of qualitative data when conducting business research. Whether you’re trying to convince investors to finance your business, figuring out whether to launch a business or product, or planning a marketing campaign, you’ll have more success and can present a stronger, more compelling case by combining both types of information.

REAL-WORLD RECAP

Types of business research

■ Primary

■ Secondary

■ Qualitative

■ Quantitative

Critical Areas to Research

When thinking about launching an entrepreneurial venture—or any business—the three basic areas of research you’ll want to look at are:

■ Industry

■ Market

■ Competition and company

Certainly, you’ll want to research other issues that are important for your particular business. For instance, if you manufacture a product, you’ll want to research suppliers and distribution channels. If you develop a technology product, you may need to research technical standards. In many businesses, you’ll need to research governmental regulations.

Start your research process by figuring out exactly what you need to look for. Begin by answering two questions:

1. What primary question do I want my research to answer?

2. How will I use the information I find?

A good way to begin your research is by asking a fundamental question that challenges the basis—or underlying assumption—of your business (or a portion of it). For example, if you plan on opening a chain of environmentally friendly, low-cost dry cleaning establishments in a large city, you might ask, “Is there likely to be substantial demand for a new, environmentally friendly dry cleaners throughout the city of Laurelwood?” Or, if you plan on developing online applications for the management of medical records nationwide, you might ask, “Is the U.S. market for medical records management applications large enough for me to succeed?”

Research resources

To research your company and complete the worksheets and exercise in this chapter, be sure to refer to Chapter 20 on pages 483–500 for a comprehensive list of research resources. You’ll find resources for researching your industry, your target market, your competition, and more.

In the case of the dry cleaners, your question would lead to other questions, such as the number of dry cleaners in Laurelwood now, the nature and strength of competitors, the number of potential customers in Laurelwood based on information about the demographics of people who use dry cleaners, and so on.

Industry

No matter how good your idea, you never build a business in a vacuum. Trends affecting your industry affect your business, too. If your industry is booming, your business has a better chance of succeeding than if your industry is shrinking or in trouble. Knowing what’s happening in your industry enables you to better compete and to anticipate structural issues that will likely confront you.

In addition to educating yourself about your specific industry, it’s a good idea to look at the health of the broad economic sector to which your industry belongs (for example, manufacturing, retail, transportation, information, or services). Information about past performance in this broad economic sector, and growth projections for it, gives you a sense of the economic environment in which your industry operates. If you want to open a bookstore, for example, find out what’s happening in the entire retail sector in your area.

Still, the most important data you can collect concerns your specific industry. After all, even if the retail sector as a whole is thriving, bookstores may face unique pressures.

FINDING INDUSTRY DATA HELPS YOU

Understand

Understand conditions and trends your business may encounter, so you’ll be better prepared to deal with them.

Gather

Gather solid facts and figures to help you prepare a more realistic business plan and build a stronger company.

Demonstrate

Demonstrate to potential investors and lenders that you have a good grasp of external business conditions as well as a realistic plan for your business.

TIPS FOR FINDING INDUSTRY INFORMATION

1. Begin with an industry overview by reading a few articles that give you a sense of an industry’s history and trends. Good sources for overviews like this include general business media websites and publications, industry-specific publications, and industry analyst reports. Remember to refer to Chapter 20 on pages 483–500 for research resources.

2. Find the NAICS code for your industry. Knowing the numerical code that identifies your specific industry makes it much easier to find information, especially statistical data. To find the NAICS code for your industry, go to www.census.gov/eos/www/naics.

3. Make a list of terms that describe your industry or its key aspects. Most industries can be identified in more than one way. A dairy, for instance, can also be called a “milk producer” or be referred to as “cattle farming.” Having a variety of relevant terms at your fingertips to describe your industry will help when you conduct keyword searches.

4. Check out your industry’s trade association. Trade associations are good places to find statistical data, projections of industry trends, and links to other sources of information. A list of many trade association websites is available at www.planningshop.com/associations.

When exploring a trade association website, look for tabs or topics such as:

— Press/media, or news

— Research

— About the industry

— Industry publications

Searching by NAICS codes

Every type of business in North America has been assigned a numerical code, called a NAICS code. NAICS (pronounced nakes) stands for the North American Industry Classification System. NAICS was developed by the governments of the United States, Canada, and Mexico as a way to standardize industry categorization.

You’ll often be asked to provide a NAICS code as part of a search for business information. Knowing the NAICS code for the industry you’re interested in makes searching for, and finding, data about it much faster and easier—and produces more accurate results.

See pages 60 and 68

Market

Understanding your customers is essential to business success. You need to know who they are, where they are, what they want, how they behave, and what they can afford. Most important, you have to know that they exist—and in numbers big enough to support your business.

If you seek financing for your company, anticipate that your investors will grill you about the size of your potential target market. They’ll want to know that this market is large enough to sustain your business, even in the face of existing competition.

Your target market may consist of either consumers (in which case yours is a B2C, or business-to-consumer, business) or other businesses (a B2B, or business-to-business, business). In either case, before you begin to research your target market, you must narrow the market definition even more by identifying the particular market segment you want to reach.

ENTREPRENEUR’S WORKSHEET

Types of Industry Information to Research

From this list of suggested industry topics, select which issues you will focus on.

☐ General industry overview and analysis

☐ Key technological, sociological, distribution, or other factors dramatically affecting your industry

☐ Current and historical financial performance of the industry, including:

— Total revenues, overall and by product lines, if possible

— Total number of units sold, by product lines, if possible

— Total profits and average profit margins

— Growth rates over the past few years

☐ Companies in the industry, including:

— Total number of companies

— Leading companies in the industry

— Total employment in the industry

— Market share distribution of each company

☐ Industry’s performance in relation to your target market (geographic and demographic), including:

— Total revenues and profits from that target market

— Number of companies serving that target market and market leaders

— Trends relating to that target market

☐ Impact of seasonal changes and economic cycles on the industry

☐ Trends and forecasts, especially the projected future growth rate of the industry

☐ Industry resources, including major suppliers and vendors, trade publications, associations, and research companies

FINDING MARKET DATA HELPS YOU

Determine the size of a market and whether it’s large enough to sustain your business.

Understand the characteristics of your potential customers, what motivates them, what they buy, and where and how they buy.

Gain insight into the trends affecting your target market so you’ll be better prepared to respond to future changes in the market.

Become more aware of your customers’ preferences, actions, and tastes, especially in response to your specific product or service.

Market research

“Will the dog eat the dog food?” This well-known quote comes from famed entrepreneur and venture capitalist Eugene Kleiner, one of the founders of Silicon Valley. In short, Kleiner’s question asks: Will customers actually buy what you sell? You must find out what dogs like, meaning put the bowl in front of Fido. You must do some market research.

While the term “market research” most often applies to original research about potential or current customers, you engage in market research any time you seek data about your target market. For example, you conduct market research when you look for census data about the geographic area in which you plan to run a business or launch a product.

From a business perspective, conducting primary market research—by interacting with prospective customers directly—often provides critical insight into whether customers truly want your product or service. If you plan to introduce an organic dog food, for instance, you could do a great deal of secondary research and still not find crucial information. You could determine the number of dogs in the market, the sales figures for all dog food, the sales figures and trends for organic pet food, and so on. But you’d still want to know, “Will the dog eat my dog food?”

Know thy customers

Early in your entrepreneurial venture, you need to clearly define your customers, as many of the decisions you make about your business will follow from knowing who they are. Chapter 5, which focuses entirely on the topic of customers and target markets, provides further, in-depth guidance to help you identify your customers.

HOW TO CONDUCT YOUR OWN MARKET RESEARCH

Some of the most important information you need will not be available from any published source, particularly information that’s quite specific to your market or new product. To obtain this data, you will have to undertake your own primary research. You have several means to choose from.

■ Personal observation. One fundamental way to gather information—and also one of the easiest—is through personal observation. Watching what goes on in other businesses or the way people shop gives you insight into factors affecting your own business. You can observe automobile-traffic and foot-traffic patterns near a selected location, how customers behave when shopping in businesses similar to yours or for similar products, and how competitors market or merchandise their products or services. You can also observe research subjects interacting with your product by inviting individuals to try your product before launch. Technology companies typically have user labs to find out how customers actually use their products. Personal observation is a vital tool in your planning process and is applicable for almost every business, large or small.

REAL-WORLD RECAP

Primary market research methods

■ Personal observation

■ Informational interviews

■ Surveys

■ Focus groups

■ Beta testing, samplings, and taste tests

■ Informational interviews. The second principal method of market research is informational interviewing. Since your own perceptions limit the amount of information you can garner from personal observation, you should talk with as many people as possible who can provide you with information relating to your business.

Some of these interviews may be highly structured. For instance, you might make personal appointments with those you want to interview and prepare a list of questions. In other cases, such as when you go into a competitor’s store and chat with a salesperson, your questions will appear to be more casual.

■ Surveys. If you decide you need information from a large number of people, you may want to conduct a survey, whether by phone, mail, online, or in person. Surveys help you both to spot trends and to assess customer needs and desires. You can conduct in-person surveys by going to an appropriate location and interviewing subjects on the spot. Develop a questionnaire of the most important concerns to ascertain from interview sources. Don’t make your survey too long, or people will refuse to participate. Many online tools and apps make conducting online or mobile surveys easy and inexpensive.

■ Focus groups. A popular form of market research, the focus group brings a small gathering of people together to discuss a product, business concern, or service in great detail. For example, a few joggers might be brought in to examine and evaluate a new pair of running shoes. Focus group participants are often paid a small fee.

Focus groups typically evoke candid opinions. Market research firms conduct focus groups for businesses, bringing together the participants and leading the group discussion in a room with a one-way mirror, so that the participants can be observed. However, if you lack the funds to hire a market research firm, you still might consider assembling a focus group of your own, perhaps a group of potential consumers. Try, though, to find focus group participants you don’t know personally, to get objective results.

■ Beta testing, samplings, and taste tests. One fast and easy way to get real-world feedback on your new product is to ask prospective customers or clients to try out your product or service and give you feedback before you release the product or service or offer it for sale to others. In the technology world, this is typically referred to as beta testing. (Originally, “alpha testing” was internal testing of a software product, and “beta,” or second, testing was done by those outside the company. The term “beta testing” has become more broadly used for most outside testing of prerelease technology products or services and has even crept into nontechnology products and services.) Giving samples of your product to potential customers, or conducting taste tests or other kinds of trials while your product or service is still in development, can give you valuable information about what you need to do to improve it or to make it more attractive and useful to customers.

ENTREPRENEUR’S WORKSHEET

Types of Target Market Information to Research

From this list of suggested market topics, select which issues you will focus on.

☐ General size of market

— What is the approximate size of the target market?

— What is the historic rate of growth of the target market?

— What changes are occurring that could affect the size of the market (including income levels, need for product/service, social values)?

— What are forecasts for market growth?

☐ Demographic characteristics of consumer customers

— Age range

— Income level

— Educational level

— Home ownership

— Marital status/household size

— Ethnic/religious group

— Occupation

☐ Demographic characteristics of business customers

— Industries

— Revenue level

— Number of employees

— Business stage/age

New data is often better data

All other factors being equal, the best data is the newest. A great deal can happen in even a few years, so it’s generally better to present data from the last year or two, if you can find it. Some exceptions exist, though. U.S. Census data is considered to be useful and authoritative, yet it often lags a few years because such a large amount of data is collected and analyzed.

TIPS FOR FINDING MARKET INFORMATION

1. A great place to start looking for target market data is one of the U.S. Census Bureau’s websites. Start at www.census.gov. Refer to Chapter 20 on pages 483–500 for other research resources.

2. The most detailed insights about target markets are often compiled by private research firms. Their data can be expensive to acquire, though some resources are available free through many college or university libraries.

3. If your target market consists of businesses in a specific industry, you can usually gather a good deal of information from the trade association serving that industry. For instance, if you sell commercial kitchen equipment, your target market may be restaurants, and you can find information about the number and growth rate of restaurants at the National Restaurant Association’s website.

4. If your target market consists of individuals with specific demographic characteristics, such as members of a particular ethnic group or religion, you can often find associations serving that group. If your market consists of consumers with specific interests or hobbies, such as gardening or travel, you can typically find associations serving those consumers, as well. These social organizations often have access to statistics about the size and growth rate of their constituents.

5. Many media outlets (including magazines, newspapers, and radio and television stations) that serve a specific market offer details about their target markets in their information for advertisers. Check their websites.

6. Try talking to people in the same industry or business as yours in a different city; they’re an excellent source of information. In addition, large banks and universities frequently maintain information about the health of the local economy and particular industries. They are a good and reasonably reliable source of future-growth forecasts. Don’t overlook real estate agents, as they often have more up-to-date information about neighborhood trends at their fingertips than any other source.

7. Sometimes you can even talk to your competitors. In many industries and professions, and in instances where there’s more work than the market can handle, your competitors may be willing to talk with you directly.

See pages 63 and 69

8. Suppliers, distributors, and independent sales representatives can give you a great deal of information about industry trends and what your competition is doing, without violating confidentiality. Because they’re in touch with the market, they know which products and services are in demand.

Forms of competition

Competition comes in the following forms:

■ DIRECT COMPETITION: Companies most like yours

■ LARGE COMPETITION: The Walmarts and the Home Depots

■ ONLINE COMPETITION: Online sellers that may operate from anywhere in the world

■ INDIRECT COMPETITION: Other products and services your customers may buy instead of yours

■ FUTURE COMPETITION: Competitors that may enter the marketplace in the future.

When researching your competition, you’ll focus mostly on your direct competitors.

Competition and company

Conducting research about individual companies offers you many benefits, from identifying your biggest or toughest competitors to determining whether a potential customer is creditworthy. If you seek funding for a business, prospective investors will certainly want to know about the health and performance of your major competitors.

Finding information about specific companies can often be difficult; after all, they don’t necessarily want their competitors to know what they’re up to. Nevertheless, quite a bit of data is available on publicly traded companies (that is, businesses that sell their stock on a public stock exchange). In the United States, such companies are required by law to regularly disclose financial information to the Securities and Exchange Commission.

As well, investment analysts track publicly traded companies for their investor clients, and you can access many of their reports on some of the databases listed in this book. These companies are usually of interest to the financial press, too, and you can also find articles about their performance in media archives.

While locating information about private and smaller companies is more difficult, it’s not impossible. Often you can collect information from industry publications and associations, local media in a company’s home community, research firms such as Dun & Bradstreet, and even a company’s own websites or customers. Be sure to refer to Chapter 20 on pages 483–500 for other research resources.

FINDING COMPANY DATA HELPS YOU

Learn which products and services a company offers and, often, how much they charge.

Estimate the revenues and profits of a company, sometimes including revenues for specific product lines.

Gather background information about prospective customers and suppliers.

Investigate potential strategic alliances by finding companies whose services or products complement yours.

ENTREPRENEUR’S WORKSHEET

Types of Company Information to Research

From this list of suggested company topics, select which issues you will focus on.

☐ Names of the company:

— Official corporate name

— Parent/subsidiary companies

— Product names

— Trademarks

☐ Company information:

— Headquarters and locations

— Names of officers, executives, and staff

— Press releases

— Product announcements

☐ Products/services of a company:

— Leading product lines

— Pricing

— Features

— Distribution methods

— Patents/copyrights and other intellectual property

☐ Financial condition of the company, including:

— Current revenues and profit figures

— Historical sales, financial performance, and growth rate

— Stock performance/market value

— Sales by product lines

☐ Other key issues:

— Is the company publicly traded?

— Customers/client list/testimonials

— Legal/regulatory compliance issues

TIPS FOR FINDING COMPANY INFORMATION

1. Determine the correct name or names of the company, including:

Its official corporate name. A company’s corporate name may differ from the one you’re familiar with. For instance, the corporate name for United Airlines is UAL Corporation.

The name of its parent or its subsidiary company or companies. Some corporations own many subsidiary companies. Bloomingdale’s department store, for instance, is a subsidiary of Macy’s—its parent company.

Its brand/product names. Often you will know a product’s name but not the name of the company that makes it. For example, Proctor & Gamble makes Crest toothpaste, Tide detergent, and Iams pet food.

See pages 66 and 70

2. Make sure you spell any names correctly when entering them into keyword searches.

3. Check the company’s website. Look for an About Us section and a Press/Media section, which usually feature background information about the company and its officers, press releases, and recent news articles. Also look for product information and lists of clients and customers or testimonials.

4. Learn whether the company you research is public or private.

5. Identify the U.S. state in which the company is legally incorporated (if applicable). You can typically find the names of corporate officers and company contact information through the Secretary of State’s office in the state where the company you’re researching is incorporated.

5 tips for organizing your data

1. Use the most recent data you can find; printed information is often at least two years old, and a lot can change in that time.

2. Translate data into units rather than dollars or other currency whenever possible. Due to inflation, financial information may not give you consistent information from year to year.

3. Give the most reliable source the most credence. Generally, the larger the group sampled for information, or the more respected the organization that conducted the research, the more trustworthy the numbers you collect.

4. Integrate data from one source to another in order to draw conclusions. But make sure the information comes from the same time period and is consistent; small variations can lead to vastly inaccurate results.

5. Use the most conservative figures. Naturally, you’ll be tempted to paint the brightest picture possible, but such information often leads to bad business decisions.

Evaluate Your Data

You now have a lot of data—perhaps more than you can actually use. How do you select the information that’s most relevant and most accurate and that will best help you meet your goals?

For instance, you may find one source that says an industry is growing at 5 percent each year, another that says it’s growing at 2 percent, and another claiming the industry is actually shrinking. How do you know which piece of data to trust—and to use?

Don’t imagine that you can choose to present only the data that supports your conclusions. That’s not only a terrible way to make business decisions; it’s also likely that an investor will have access to the same data as you and will be quick to point out that things may not be as rosy as you make them seem. Prove that you’ve done your homework by showing the range of data available, even if it’s not always as favorable as you might like. Your thoroughness and honesty will add credibility to your plan.

You must apply some critical analytical skills when you evaluate the data you’ve collected. For every piece of information you collect, you must consider: 1) the source and 2) the time period.

ENTREPRENEUR’S WORKSHEET

Research Questions

Formulate a general research question about the type of business you plan to start. As guidelines, look at the two examples of the environmentally friendly dry cleaners and the medical records management applications (see pages 57–58). Now, make a list of questions for each of the following areas that logically follow or challenge that statement. Use the questions below as a guide.

Consider the source

Contrary to popular belief, sometimes numbers do lie. That’s why, when evaluating data, you must always consider its source. Remember, the source is not necessarily the website or database where you found your information but rather the entity that did the primary research and compiled the data you found.

One of the first things to look for when examining a data source is whether any potential bias or hidden agenda has influenced the data. Imagine that you search for data on cigarette sales to minors. You find several studies on the issue, drawing quite different conclusions. Which source do you believe offers the most reliable data?

■ A government agency

■ A tobacco industry association

■ An antismoking advocacy organization

■ A private, for-profit research company

■ A university research study

Any one of these sources might have an agenda other than simply reporting the facts. For instance, though both the tobacco industry association and the antismoking organization might have special expertise on the topic of cigarette sales, their particular points of view could lead to inherent bias in their research results. The private, for-profit research company may well be conducting the study for a client with a special interest in the issue (such as the tobacco industry), and this could also skew the results.

Check the time

It’s important to look not only at how recent the data is but also at the time period the data covers. For instance, here are two headlines adapted from real newspaper stories reporting on the same study:

■ “VC funding falls to 7-year low”

■ “VC funding increases by 7 percent”

Both headlines were completely accurate. Both reported on the same study. Yet the first focused on data for only one quarter of the year; the second article reported on the total amount of funding for the entire year compared to the year before. So look for data that covers reasonable time periods.

Remember, the types of questions a researcher asks, the size of the survey sample, the composition of those surveyed, and the methodology for compiling the data can all dramatically influence the results produced.

Generally, the most accurate sources are:

■ Government data. Data from government sources, particularly from the U.S. Census Bureau, is generally regarded as fairly accurate, as it’s drawn from large samples. Also, it’s expected that such data is free from inherent bias.

■ Private research company data. Private research companies charge large sums of money to gather data relating to an industry. Since their primary income derives from the sale of such data, its accuracy directly relates to their ability to stay in business.

■ Studies conducted by universities. Generally, studies conducted by university faculty and researchers are highly regarded. Such studies typically undergo academic review and likely follow accepted research procedures. Ideally, such studies are relatively free of bias.

■ Studies using large samples. The greater the number of respondents, the more likely the information they supply reflects reality.

THE GOOD VS. THE BAD

GOOD SIGNS	BAD SIGNS
Data was collected by an independent research firm	Study was funded by a private company or association with a political or profit agenda
Large sample size	Small sample size
Large percentage of those polled responded	Small percentage responding
Objective, neutral questions were asked	Questions were skewed to elicit particular responses

In many situations, finding information about the methods used to collect data can help you evaluate its credibility. For instance, trade associations may be an excellent source of data, since many of them collect information about their own industries. Still, this data may be either highly reliable (when it comes from those associations that are careful and objective in their research) or highly unreliable (when, for example, an association uses data for political or marketing purposes).

Data with an agenda

Be particularly cautious when evaluating data from certain types of sources. This can include:

■ Statistics from individual companies, which may have manipulated data to increase sales

■ Data from politically or economically motivated organizations, which may have had a special agenda and used research techniques that support the message they want to send

■ Data from studies with very small samples, which may not represent reality

Organize Your Data and Avoid Plagiarism

As you comb through dozens of databases and various resources looking for the information you need, you’ll find you may lose track of where you spotted a particular statistic. So, when you’re ready to prepare your business plan, marketing strategy, or business proposal, you may discover you have no idea of the source of some of your data. This can create some very unfortunate results.

Readers of business plans and other business documents will want to know the sources of the information in your work. They may question you about your conclusions, therefore you need to be able to cite the sources of your data. Many entrepreneurs have had their business plans rejected by investors because they couldn’t support claims about the size of their market or their potential profit margins.

Appropriate citations are particularly important in academic papers. Plagiarism can result in your failing a class or facing disciplinary action. The business world, too, views plagiarism as a sign of untrustworthiness. Potential investors or partners will avoid doing business with you if they suspect you of such behavior. Even when no one suspects you of behaving unethically, failure to keep track of your sources is sloppy—and dangerous.

To avoid these types of problems, carefully organize your findings, and always note sources and resources while doing your research. As you collect data, be certain to note where you found it, the source of the data, the URL of the website and access date (if you found it on the Web), or the database, book, or research report it’s from.

See page 73

ENTREPRENEUR’S WORKSHEET

Organizing Data Sources

As you do your research, use this worksheet to organize your research sources.

challenge

Remain at the top of an industry in the face of fierce competition and a volatile global economy

solution

Carefully research every aspect of customers and industry

REAL-WORLD CASE

Luxury Doesn’t Just Happen: The Ritz-Carlton Hotel Company

The president of the United States gives only one award for quality in business—the prestigious Malcolm Baldrige Award. So it’s a big deal to win it. The Ritz-Carlton Hotel Company did so in 1999. How did they do it? Research! When the U.S. Department of Commerce selected Ritz-Carlton for the award, it cited the premium hotel chain’s extraordinarily detailed understanding of its customers and operations as a primary reason for giving the award.¹

“What we get from data is essential,” said John Timmerman, former vice president of operations for the luxury hotel chain.² But the Ritz isn’t interested in numbers for numbers’ sake. It wants to turn the numbers into actionable behaviors that improve the customer experience. “To be agile in any marketplace, especially one that changes as rapidly as ours, means being a learning organization,” said Timmerman. “If you can’t define it, you can’t control it, you can’t measure it, and you can’t improve it.”³

Ritz-Carlton is fanatically detail-oriented, so the data it collects is broad and deep. It identifies and documents procedures for quality improvement (QA) and problem solving, makes sure that experts review all its methods of data collection and analysis, and establishes high standards for success. It uses three types of comparative data: 1) comparisons to its industry and foremost competitors, 2) benchmarks established by the industry, and 3) benchmarks established within the company.⁴

One of its ongoing research tasks is to identify problems before they occur. According to its application for the Baldrige Award, by 1999, the Ritz had identified no fewer than 970 potential problems that could arise during interactions with overnight guests and 1,071 potential issues that might occur during interactions with meeting-event planners. Each potential issue is flagged, a solution is created, and all employees are trained how to handle the situation should the potential ever become actual.

Even the most subjective data is collected and used—data that other businesses would ignore as too subjective. For example, subtle reactions of guests to specific decor, services, or entertainment are noted and fed into the river of data that is used to establish business priorities. “As a result, the hotel can pick up on information that might have been easily missed,” said Timmerman.⁵

Sometimes, the results of its research contradict conventional wisdom. In a Forbes.com interview, former Ritz-Carlton President Simon F. Cooper said, “A breakthrough in our thinking was understanding that we are not a hotel brand but a lifestyle brand.”⁶ This was a hugely inspirational realization for Ritz-Carlton, because, for a hotel company, growth relies on developing new properties in new places. That puts limits on growth. But as a lifestyle brand, former Ritz-Carlton can offer any number of products and services. Suddenly the possibilities were endless—and as researching the lifestyles of its customers was something it had been doing for years, it had amassed a wealth of data to back up new strategies. So it launched vacation packages, spa “experiences,” and executive gifts and incentives.

Of course, many if not most companies make some attempt to research their markets, survey customer satisfaction, and measure employee engagement. But where Ritz-Carlton truly excels is not merely in the amount of data it acquires, but also in how it disseminates results throughout the organization in ways that actually drive the business forward. Data isn’t just kept in reports on some executive’s desk. Instead, Ritz-Carlton analyzes the ocean of data and incorporates its understanding of changing customer and market requirements into business decisions—and then involves the entire workforce to take action. This information is disseminated in a variety of ways: through formal classes, electronic communications, and printed materials, but most commonly through face-to-face interactions.

For example, at the Ritz, every employee in every location participates in a daily preshift meeting in which the top priorities and goals are presented and discussed. Result: Everyone is always informed, and on board, with the latest strategy. Most important, all employees understand the particular ways that they, personally, contribute to reaching the goals.

Through research, the Ritz-Carlton clearly leaves little to chance. By knowing its customers, its industry, and its markets, it ensures that it maintains a competitive edge. ■

1. “1999 Baldrige Award Recipient, Ritz-Carlton Hotel Company, L.L.C.,” Oct. 5, 2010. National Institute of Standards and Technology.

2. “How the Ritz-Carlton Manages the Mystique,” by Jennifer Robinson, Dec. 11, 2008. Gallup Management Journal.

3. Ibid.

4. http://patapsco.nist.gov/Award_Recipients/PDF_Files/RCHC_Application_Summary.pdf.

5. Ibid.

6. “How Ritz-Carlton Stays at the Top,” by Robert Reiss, Oct. 30, 2009, Forbes.com.

questions

1. What types of information do you think would be most useful to a luxury hotel company to improve its performance and profitability?

2. How does research for an existing company differ from the kind of research needed for a prelaunch venture?

3. Why is it important that the results of research be shared throughout a company?

4. Can you think of examples of other companies at which doing research on customers’ lifestyles might affect their choice of product offerings?

EXERCISE: critical thinking

WHAT DO YOU NEED TO KNOW?

Goal:

Think through the type of information you’ll need to help you plan your business.

What to do:

In this exercise, identify the types of questions you’ll need answered in order to help you plan a successful venture.

Here’s the situation: You have an idea for a new business. It’s a high-end travel service, specializing in luxury active adventures. Your trips will combine first-class accommodations and food with active pastimes, such as scuba diving on the Great Barrier Reef, bicycling in France, or hiking in Yellowstone National Park.

What do you need to know to gauge whether this will be successful? What information will help you better plan your new business? In this exercise, you will not conduct actual research, but just will list the kind of questions you need answered.

For each aspect of your potential new luxury adventure travel business, write two questions you should research and answer to help you plan a successful venture:

1. Your competition

2. Potential target market

3. The travel industry

4. The operations and human resources part of your business

5. Money

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