What do you think of when you hear the term “data analysis” or “analytics”? Do you think of Meta, Amazon, Apple, Netflix, and Google? Do you think of some crazy data scientists developing the next big AI to automate brain surgery? If you think of these things, you’re only partly correct. So, what is data analysis and why should entrepreneurs care?
What is Data Analysis?
Data analysis is the process of using data to develop a better understanding of your world. It covers a range of activities from data collection to analysis to interpreting and presenting your results.
But what is the “analysis” part? That depends on the type of data you are working with.
Your analysis will be quantitative if you have numeric data, such as revenue, expenses, inventory, or social media metrics. This is where math and statistics describe what is happening and relate different measures to each other.
Examples of quantitative analysis include things like calculating you:
- Average customer sales revenue
- Email open and click-through rates
- New customer acquisition trends
Your analysis will be qualitative if you have text, video, images, or audio data. You review the content to understand the characteristics and themes represented. Then, you look for similarities and differences across different pieces of data.
Examples of qualitative analysis include things like reviewing:
- Online customer reviews
- Interview and focus-group responses
- Video of consumer product reactions
Whether you use quantitative or qualitative techniques, every analysis follows the same process.
- Collect data
- Prepare data for analysis
- Analyze data
- Interpret results
In the typical application, you’ll begin with a strategic question you need the answer to. If you have the data needed to answer the question, you can turn the unknown into knowns. In a competitive environment, you want all the information you can get.
How Data Analysis Drives Business Growth
Businesses generate a lot of data, and those who use their data effectively enjoy performance advantages over their less data-savvy peers.
According to an Amazon survey[1] of Small and Medium-sized Businesses (SMBs) find that highly data-driven SMBs outperform their less data-driven competition across many areas:
- Customer Satisfaction: 1.86x better
- Revenue: 1.91x better
- Process Efficiency: 2.03x better
- Marketing: 2.26x better
- Cost Reduction: 2.20x better
- Risk Reduction: 2.50x better
Beyond outpacing the competition, businesses that use their data for effective email marketing strategies enjoy astounding ROI from the effort.
A Statista survey indicates that for every $1 spent on email marketing, businesses earn an eye-popping $36 return![2] That’s a 3,600% ROI; far larger than you’ll find for any other form of marketing.
How are these businesses so successful using their data?
They use their business data strategically. They study their customers, their operations, their competition, and the marketplace.
Data-driven businesses look at their processes and constantly ask, how can this be better? They think of ways to improve and use their business data to test whether they are correct.
Rather than make strategic decisions using gut feelings and guesswork, data-driven businesses look to their data to close knowledge gaps. Investing in the infrastructure to use data effectively allows businesses to gain clarity, make better decisions, and drive business growth.
The Importance of Data Analysis for Entrepreneurs
Nowhere is the power of business data more important than for entrepreneurs. While it’s tempting to think that only large corporations can use data for growth, the truth is exactly the opposite.
The 33.2 million small businesses in the United States make up 99.9% of all businesses and employ over 46% of the workforce. Yet, 22% of small businesses will fail in their first two years, and 48% within five years.[3],[4]
The truth is that entrepreneurs and small businesses need every advantage they can get to be successful. The top reasons for business failure across many sources include:
- Poor Finances
- Poor Management
- Poor Planning
- Poor Marketing
Ironically, these are the very areas where data analysis can help entrepreneurs improve:
- Keeping a close eye on your finances with proper forecasting helps you avoid overspending.
- Using demographic data helps locate your ideal customers for physical store locations.
- Social media listening helps identify customer interests, values, pains, and desires.
- Assessment of your customer purchase histories and website analytics helps you identify factors driving purchase behavior.
- These types of analyses also help you craft more effective marketing messages.
- Using sales forecasts to project inventory needs helps prevent out-of-stock items.
- Tracking prospects through your sales process to evaluate conversion rates at each stage helps you refine and improve sales.
The data doesn’t lie. Taking advantage of your business data could be the difference between success and failure.
Don’t overlook the opportunities you have to stack the cards in your favor.
Conclusion: Embrace the Power of Data for Entrepreneurial Success
What is data analysis? It is a set of tools you can use to understand all aspects of your business. By continually asking questions to improve your business, you can systematically identify and address shortfalls. Data analysis isn’t a tool reserved for mega-corporations. Data analysis tools impact your ability to compete and succeed in today’s marketplace.
If you have ever thought that data analysis isn’t necessary or your business, consider the primary reasons why businesses fail. Then ask yourself if you are doing everything you can to improve those elements of your business. If you said, “No,” to any of those reasons, then using data analysis could be the most important decision you make.
[1] AWS Editorial Team. Data-Driven SMBs Financially Outperform Their Competitors – and the Gap Is Widening. June 5, 2024. Available online at https://aws.amazon.com/blogs/smb/data-driven-smbs-financially-outperform-their-competitors-and-the-gap-is-widening/. Accessed November 14, 2024.
[2] Statista. Email marketing return on investment (ROI) in selected industries according to marketers worldwide as of June 2020. March 15, 2023. Available online at https://www.statista.com/statistics/804656/email-roi-perception/. Accessed November 14, 2024.
[3] U.S. Small Business Administration, Office of Advocacy. Frequently Asked Questions About Small Businesses, 2023. March 7, 2023. Available online at https://advocacy.sba.gov/2023/03/07/frequently-asked-questions-about-small-business-2023/. Accessed on November 19, 2024.
[4] U.S. Bureau of Labor Statistics. Table 7. Survival of Private Sector Establishments by Opening Year. October 30, 2024. Available online at https://www.bls.gov/bdm/us_age_naics_00_table7.txt. Accessed on November 19, 2024.
