It isn’t enough to just work hard. If you're in the wrong industry at the wrong time, making your business grow is going to be difficult. The investment community tends to believe that any business can be buoyed by an industry on the rise and that the opposite is true in an industry whose tide is ebbing. This means it’s important for you to include an industry analysis in your business plan.
Readers of your business plan may want to see an industry on a fast-growth track with few established competitors and great potential. Or they may be more interested in a big, if somewhat slower-growing, market with competitors who have lost touch with the market, leaving the door open for rivals.
Whatever the facts are, you’ll need to support them with a snapshot analysis of the state of your industry and any trends taking place. This can’t be mere off-the-cuff thinking. You need to support your opinions with market research that identifies specific competitors and outlines their weaknesses and strengths and any barriers to entry into the market. You need to describe why your industry is valuable and how it will continue to be important. Finally, and perhaps most important, you’ll have to convincingly describe what makes you better and destined to succeed.
When preparing the state of the industry section, instead of looking at your business as a self-contained system, you’ll describe the whole industry in which you operate and point to your position in that universe. You then zero in on your country, your state and your local community, deepening on how far your business stretches.
This part of your plan may take a little more legwork than other sections because you’ll be drawing together information from a number of outside sources. You may also be reporting on or even conducting your own original research into industry affairs.
To start preparing your industry analysis and outlook, dig up the following facts about your field:
1. What is your total industry-wide sales volume? In dollars? In units?
2. What are the trends in sales volumes within your industry?
3. Who are the major players and your key competitors? What are they like?
4. What does it take to compete? What are the barriers to entry?
5. What technological trends affect your industry?
6. What are the main modes of marketing?
7. How does government regulation affect the industry?
8. In what ways are changing consumer tastes affecting your industry?
9. Identify recent demographic trends affecting the industry.
10. How sensitive is the industry to seasons and economic cycles?
11. What are key financial measures in your industry (average profit margins, sales commissions, etc.)?
If your business addresses a trend before it's been widely recognized, you need to include this information in your business plan. Providing some statistics in the trends section of your plan can make it more convincing.
Barriers to Entry
If you want to become a semiconductor manufacturer, you’ll need a billion-dollar factory or two. If you want to have a TV network, you’ll need programming and cable carriage in the major markets. These problems are called barriers to entry, and they exist to some extent in all industries. The barriers may be monetary, technological, distribution or market-related, or they may simply be a matter of ownership of prime real estate.
An important part of analyzing your market is determining what the barriers to entry are and how high they stretch. If the barriers are high, as is the case with automobile manufacturing, you can be assured new competitors are likely to be slow in springing up. If the barriers are low, such as opening a nail salon, which doesn't have a huge overhead, you have more opportunity to get into the game.
Be alert for innovative competitors when writing the section of your plan in which you analyze barriers to entry. Clearly some markets are also more saturated than others, and today some are dominated by the McDonald’s of their industry. For example, it’s hard to open a bookstore today with Amazon changing the way people buy books. In that industry, you need to be creative and explore entry into specialty books, mystery books or another niche within the larger market. Exploring entry points in the marketplace carefully will save you from a disastrous error and will certainly demonstrate to investors that you’ve thought your plan through and aren't jumping to conclusions.
You’re not alone, even if you have a one-person business. You also have your competition to worry about, and your backers will worry about competition, too. Even if you're truly in the rare position of addressing a brand-new market where no competition exists, most experienced people reading your plan will have questions about companies they suspect may be competitors. For these reasons, you should devote a special section of your plan to identifying competitors.
If you had to name two competitors in the athletic shoe market, you’d quickly come up with Nike and Reebok. But these by far aren’t the only competitors in the sneaker business. They’re just two of the main ones, and depending on the business you’re in, the other ones may be more important. If you sell soccer shoes, for instance, Adidas is a bigger player than either of the two American firms. And smaller firms such as Etonic, New Balance and Saucony also have niches where they are comparatively powerful.
You can develop a list of competitors by talking to customers and suppliers, checking with industry groups, and reading trade journals. But it’s not enough to simply name your competitors. You need to know their manner of operation, how they compete.
Does a competitor stress a selective, low-volume, high-margin business, or does she emphasize sales growth at any cost, taking every job that comes along, whether or not it fits any coherent scheme or offers an attractive profit? Knowing this kind of information about competitors can help you identify their weaknesses as well as their names.