Do You Know Your Market?

4 min read • Aug 27, 2014 • Adam Michaelson

After about 5 years in business, about 50% of businesses fail. Why do so many fail? Some fall victim to changes in local economies. Others get edged out by competition or struggle with poor management. But I have another idea: I think some business owners don’t know their market. And maybe they don’t even care. Let me tell you a true story that I think illustrates this point.

The Cafe On The Corner

In the small, yet fast-growing town where I live, there is a little cafe on the corner. This is the eighth business in as many years that has been working that space. Centrally located across from the town’s first gas station and on the crossroads of our two main streets, it’s location is as good as it can get in our budding suburb.

My wife and I usually head into the larger neighboring cities for our date nights, but a few weeks ago, we decided to try out the local scene, so we headed for the little cafe on the corner.

I’m usually pretty talkative with waiters and cashiers, asking them about what I should get, how business is going, etc. (as my wife usually rolls her eyes and hurries me along). This time I happened to be talking to the owner. He spoke with a little more animation than the typical hourly, and made some recommendations, which I went with.

As we sat and enjoyed our sandwiches, the owner checked in on us from time to time, and the conversation drifted into his plans. He indicated that business wasn’t going as well as he’d hoped, but that he was excited to try some gourmet salad recipes that he really liked. I asked him why he thought that they would be a good move, and he started to geek out about fresh fixings, exotic combinations, specialty dressings and presentation. I tried to get him to talk about why that would work in this environment, and it was all speculation based on his optimism biased by what he thought was a great idea. To me, it all sounded out of touch with the market.

Out Of Touch

You see, the demographic in our town is overwhelmingly young families with children — lots of children. In fact, according to the census, the average age of the population of my town just a few years ago was 12 (no joke). No kid is going to want a gourmet salad. Although I’m sure that there are lots of adults in our town who would love the salads the owner talked about, all of the working adults commute to neighboring cities and usually get their eating-out-fix on their lunch break. And night life always takes couples away to the larger surrounding cities.

I’ve always thought that someone could make a killing in our town by putting in a take-and-bake pizza shop where mom’s and dads could pick up an easy dinner for the kids, or even a McDonald’s with a play place. I asked him about competing with Hot-N-Ready pizza’s from Little Caesars, and he was almost insulted at the idea. I made a few other comments and recommendations relating to the demographic, but he didn’t bite.

By-the-way if you are trying to understand the demographics of the people you are trying to serve I found this geo-based research tool from Nielson very helpful (and free): Free Demographic Tool

Tuned In Or Tuned Out

Since I came on at Lendio a couple of years ago, I’ve paid a lot more attention to small business owners, and I’ve found that there are a lot of different kinds. One differentiator is those who understand their market and those who don’t. The latter typically have a dream that is contrived of their own preferences and seem to think that “I’m like most people” and therefore “most people will want what I want.” This is what I would call “tuned out”.

The Pragmatic Marketing Group wrote a great book called Tuned In ( that talks about the importance of gaining a deep understanding of your target market. Though this kind of empathy, you can discover resonating solutions that people are willing to pay for.

So if you’re running a small business, I challenge you to ask yourself a few basic questions: Do you know your market? Are you doing what you love? Great. Is what you’re doing delivering something that other people will love? Are you addressing some unmet need that is inherent in your market? Or are you imposing your preferred solution? What are the attributes of the demographic you serve? How did you discover their needs? And how are you going to adapt to changes in the demographic/market over time?

I have a feeling that if you know your market and demographic well enough to identify their needs and fulfill them through a resonating solution, you’ll a have much better chance of being in the 50% of businesses that succeed.

Interestingly enough, I drove by the cafe on the corner tonight and saw that they had closed their doors for good. Let’s hope that the next business is able to break the curse of the cafe on the corner.



Adam Michaelson

Adam heads up product strategy at Lendio. He's been leading software product/design teams since 2001. See Adam's Profile on LinkedIn