As discussed in the post on the contents that your business plan should cover, the purpose of the industry analysis is to give the reader (and yourself of course) a clear picture of the environment your company is going to be operating in. You need to understand the environmental issues as it relates to general industrial trends from the international to the local level, the government regulations, the competitive environment, and of course the customer.
The key to understanding the environment requires identifying who the key players in your market are, and what the key drivers of success in your industry. The key drivers of success vary from business to business, but the questions below will start to help you to understand what you need to do as a business owner to ensure that you will be successful in the long run.
So let’s start with the key players in the market. Regardless of what business you are in you would have to relate with:
- Customers who buy your products
- And Government Regulators
The industry analysis requires a look into all of these people/aspects to find out how they impact your business.
Customers are obviously the most important part for any business’ operations. Without the customers there really isn’t any reason for your company’s existence. With respect to customer research you need to understand who the customer for your offering is and how your offering solves the particular problem that it is targeting. The key customer questions are:
- How many potential customers exist for your offering?
- How many of these people are willing to pay for this offering?
Suppliers are required to get your product manufactured. The term suppliers in the context of this article refers to all those that supply raw material or are involved in the production of the finished products. So this will include material suppliers and subcontractors who make products that go into yours. Some key supplier questions are:
- What parts of your offering will be produced by your suppliers?
- How many suppliers are available to you within your immediate area?
- Do they service your competition?
- What roles do subcontractors play in your production process?
- How many subcontractors are available within your immediate area?
- Do these subcontractors service your competition?
- If there are no suppliers or subcontractors in your immediate area where can you get access to these people?
- What kind of shipping logistics would you require to get your supplies and your components/finished offering to you?
A lot of the detail here will help with your production plan and operations plan.
If you have been reading the articles on business models, you would know your distributors are part of the channels on your business model. The key questions that you need to ask with respect to your distributors are:
- What distribution channels are better suited to get your offering to your customers?
- Are these channels owned or not?
- If they are not owned do they work exclusively for you or do they service your competition?
- Do you have more than one distributor working for you or would you have to work exclusively with only one distributor?
Your competitors are a very important part of your company’s environment. While as a company it is advisable to focus primarily on your customer, when you are in the process of customer acquisition you need to understand the other products that they have available to them. This is necessary because regardless of what your marketing message is, you will be positioning your products against the competition’s in the market place. Here are some key questions that need to be answered when you are looking into the competition:
- What market offerings will be directly competing with yours?
- What market offerings will be competing indirectly with your offerings? These are substitute products that are not necessarily in the same industrial space; think pen and paper as a substitute for a computer as a writing instrument.
- Who makes these offerings?
- What are the strengths and weaknesses of the companies that make these competing offerings?
- Where are these companies located?
- What are the advantages and disadvantages of the offerings being put forward by the competition in the context of the problem that the offering is trying to solve? A SWOT Analysis might help with this.
- How will your offering compare when the customer considers it against the competing offerings?
- Are there any possible alliances that can be forged with competing companies?
With regulators it is critical to keep an eye on what regulations can keep you from opening your doors, or what regulations can make it prohibitively expensive for you to produce your offering at rates that will allow it to sell to willing consumers at a reasonable profit. You should also be on the lookout for regulations that could benefit your business. Examples of pertinent regulations are the imposition of price ceilings/price floors which can have an impact on the demand for products or even your ability/willingness to supply them. Regulations can also be implemented in other ways that can help or hurt business; for instance a country like America that is looking to be energy independent has regulations that will positively impact the business of a company that is in renewable energy. An example of a downside of government regulations are the banning of the importation of foreign goods; this could have devastating effects on the business of a company that requires foreign goods as an input (raw material or component) for its offering.
- What government regulations have implications for how you and your competition do business?
- What government regulations have implications for how your suppliers and distributors do business?
Where can you find this information?
Every country has a census bureau, some better than others, but there are published figures about populations of most countries that could be used as a starting point for information on how many of your potential customers you have. The key to find out the information on your particular customer is to ensure that you have a detailed customer profile developed to begin with; this means demographic information, geographic information, and psychographic information that answers the question of who your customer is. If you do business in a developing country like I do you might think that you can’t get this information online, but look online for census information, a lot of countries have census details online and they might also have demographic research surveys. Other sources for places that don’t have as much detail as places like the U.S. include the United Nations, World Bank or similar organizations. These organizations usually conduct research in developing countries to help them further their development efforts in this areas. One example of such a report is the Doing Business report that is put out annually by the International Finance Corporation and the World Bank.