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Small Enterprise Education and Development in Peru

2/27/2012

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Me, back row 3rd from left, with friends in Peru and our team mates.
What is a major flaw in the creation of business plans?  When Kristen Winterton visited Peru during the summer of 2010 to evaluate business plans for small start-up businesses and determine feasibility of these businesses, the biggest problem she saw was the lack of time spent on basic market research when developing a business plan.  A business idea may have great potential, but there is much more to the implementation of a successful business than just a great idea.

A thorough look at competitors, including indirect competitors, and the potential for growth for the company are critical to the successful implementation of a business plan.  For example, Kristen and her colleagues evaluated the business plan for a small copy center which was to be located near one of the several universities in the area.  In theory, this was an excellent idea, since college students spend a lot of money on copies; however, in actuality, a walk around the perimeter of one college campus yielded over fifty copy centers.  Additionally, when they spoke with the owners of the copy centers, they found that there were major concerns about how saturated the market was.  The copy centers had a hard time making a profit because of the steep competition they faced which forced them to cut their profit margin.  Many could not even afford to hire employees, and had to work seven days a week on their own to break even, or even take a second job to make ends meet.

Had the companies looked at the market before entering, they would have known many of the possible threats to their business.  An additional benefit of market research is the increased visibility that it gives in demand predictions, which aids in the development of more accurate pro forma income statements.  With greater information, companies can respond more effectively and become more profitable.

Market research can be as simple as going to the location to see what products or services are already offered, doing a preliminary search on the Internet to see what competitors already exist and how they run their companies, talking with current business owners to hear about the challenges they face, or as difficult as in-depth market surveys, focus groups, and statistical analysis.  With the ever-increasing and widespread availability of information there is little excuse to not do market research.

The information gathered in this research process can be gained while drafting the business plan, before the start of the company, and can drastically reduce the probability of failed business ventures and the associated costs of failure.  All of these benefits ultimately translate to better understanding about the competitive environment of the businesses, and how the business can be better positioned in its market.

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