Entrepreneurship concepts and applications

Brian has not done the proper market research for the online CD rental opportunity. There are a couple of major errors that he has made. The first is that he has assumed that because other forms of electronic media are delivered to the public through the online hard copy rental format, that this translates to compact discs. Music files are much smaller than files for other forms of media, and this represents a key difference that affects the viability of the distribution method that Brian is proposing. The second key error that Brian has made is assuming that the music usage patterns for him and his friends would translate to the general population as a whole. The sample size is small and is not demographically representative of the broad market. Moreover, Brian's poll was not structured, but rather based on casual observation. Thus, the information upon which he is basing his decision regarding usage patterns is essentially useless. Lastly, Brian has no basis for which he is projecting his potential market. He is basing his projections for sales more on the basis of what he needs to make money than on the basis of what the market has told him. In short, Brian has not done any serious market research and therefore there is little base to any of his market assumptions.

2. Brian made several key mistakes. The first is that he has not gathered any serious market information. His estimation of the value of his idea in the marketplace is based on a small and narrow sample and not on proper market research. Brian has also made an error in assuming his cost structure. He has not contacted the CD companies to confirm the pricing he believes he is going to receive. Yet this pricing information is critical to his proposed cost structure and breakeven point. A third mistake that Brian has made is to be driven by his friends' enthusiasm. As an entrepreneur, he needs to keep a level head and let the market tell him what it wants. His friends are likely to be supportive of his idea, no matter how good or bad it is. Brian needs a less biased set of individuals to act as a feedback wall. Bounding ideas off of just his friends is a significant error that is filling Brian with enthusiasm that he probably should not have.

3. If Brian is serious about investigating this opportunity, I would recommend that he take the following steps. The first is that he needs to do some proper market research. He needs to know the real demand in the marketplace for this product. He is correct that the market will easily understand his concept, and this means that when he begins his research he will receive accurate feedback with respect to the viability of the idea. He should come out of his research phase with an understanding of the potential market and some demographic data that can help him to pinpoint his target market(s).

The second step for Brian is to receive proper costing information from his suppliers. He will need this when he creates a prospective budget. Brian needs to understand how much CDs will cost, what sort of attrition rate he can expect, and what shipping costs will be. With this costing information and the market information gathered in the first step, Brian will be able to produce a prospective budget.