CHAPTER NINE: Part A – How do you conduct industry analysis for a business plan? Do you need help conducting market research and industry analysis for your business plan? Then I advice you read on.
So you have a great business idea, you have refined and fine-tuned it, and you are ready to launch. You are going to offer a product or service with a clearly defined customer base, and you are confident that you will be successful in the long term. Well, if the above applies perfectly to you, then you have not completed your assignment.
What happens when you enter an examination hall without having studied for the exam at all? You’d spend all your time in the hall blaming yourself for being silly, right? Now, starting a business is even much more important because there’s a lot more at stake than passing or failing a grade. So, you must not leave out any aspect of research undone.
In this section of your business plan, you will demonstrate that the industry’s market size is worth going after, who your main competitors will be if you decide to take a plunge, and how you will be able to carve out a niche for yourself and give your competitors a run for their money. Planning a business goes beyond analyzing the potential of your offer. You must analyze the following three factors as well:
- The strengths and weaknesses of your business
- The competition
- Who your customers are, what they want, and how they want it
These are the major components of a business plan’s market or industrial analysis and it is also known as a SWOT (Strength, Weaknesses, Opportunities and Threats) analysis. This section of your business plan reveals the chances of your business to achieve success with its offers. And that’s why the industry analysis is a very important section of your business plan, which must be carefully conducted and documented.
So in this article, we will be looking at how to conduct industry analysis for a business plan. If you are a budding entrepreneur, or you are planning to start a new business; then below are the exact steps to follow when conducting an industry analysis for a new business:
How to Conduct Industry Analysis for a Business Plan
1. Analyze the competition
Of the three factors listed above, the competition may prove the most difficult to analyze, especially if you are new to the industry. But there are ways to simplify the task. You can start by looking at your direct competitors. If you are planning to start a new restaurant in an area, your direct competitors are other restaurants within that locality, while your indirect competitors are those that are slightly remote but still around.
Now, you are not just counting the number of rivals you have. You are trying to see how you can push ahead of them by filling a loophole they never noticed all these while. Some people find it hard to leave their workplace for the restaurant at lunchtime, but it’s either they do it or go hungry. You can disrupt the market’s status quo by offering to deliver lunch to people right in their workplaces. Filling loopholes like this one should be your goal.
If you don’t device strategies for pushing ahead of the competition, you will just enter the industry and join the survival race that you may never win. So, you need to introduce an innovation that will threaten your rivals. Remember, it’s either you differentiate or you fizzle out fast!
2. Assess the industry / market size
After analyzing your direct and indirect competitors, you will need to analyze your chances of standing firm even in the face of stiffer competition. Your first step in market research is to get an idea of how big the opportunity is and why it’s worth going after.
This means finding out how many customers you are catering to and much revenue you are likely to make. This is a convincing first step to lure in whoever is reading your business plan to become intrigued and dig further into your findings. Here are some factors you should consider:
- The individual strengths and weaknesses of your competitors.
- The rate at which new competitors enter the market or the rate at which old competitors are leaving the market.
- The products or services that fetch most revenue for your competitors.
- How you will overcome the threat of substitute goods.
You can get lots of helpful information about your market from government sources, trade associations, financial services firms, online data providers, and free resources on the web.
3. Analyze industry forces and trends
You will need to outline what’s happening in the industry from many perspectives that would help the reader get the full gist on whether the market is lucrative or not. A great general-purpose tool for doing just that is the PEST Analysis. Here’s what it stands for and what you should consider:
- P – Political factors (the role government plays in your industry)
- E – Economic factors (the state of the economy on both local and national level)
- S – Social factors (relevant changes in matters like lifestyle trends, demographics, consumer attitudes, buying patterns and opinions)
- T – Technological factors (the impact of changing technological trends on your industry)
4. Develop your marketing plan
Developing your marketing plan entails answering the following questions:
- What products or services are you offering?
- How much will you charge for your offers?
- Where will you sell your product, and who are your target customers?
- What special incentives would you use to encourage customers to buy your product?
In short, this section of your industry analysis outlines how you will deliver your product to the customers and how you will win customers to your side.
5. Craft your growth plan
While some entrepreneurs are of the opinion that this step should come only after you have established your business, crafting your market development plan helps you envision your company growing in a few years. Your growth plan should address the following questions:
- According to recent data, is the market for your product growing or dwindling?
- Do you plan to introduce new products or line extensions in the next few years?
- If you plan to introduce new offers, would they be closely related to your current offers or within another niche entirely?
- Are there strategies for giving your business the competitive advantage in the industry?
- Are there plans to handle increasing demand?
6. Fine-tune your analysis
After the steps discussed above, cross check your analyses to ensure that your findings are factual and your figures are accurate. Another handy tool to have in your arsenal when conducting industry research is the almighty Porter’s 5 Forces Analysis. (Don’t worry if you’ve never attended a business strategy class in your life, it’s actually quite straightforward). Here’s the breakdown:
- Threat of new entrants: How difficult (or easy) is it for someone to enter your specific vertical? If it’s very easy then most likely the space will be crowded with competitors fighting for margins. Conversely, if it’s very difficult, that that in itself can become a competitive advantage.
- Threat of substitute products or services: How likely is it that another product or service could decrease demand or displace you and potentially the entire industry all together?
- Bargaining power of customers: When it comes to pricing and terms, how much power does your customer have? Are they organized enough to exercise their purchase power, or is there so much competition that they have their pick resulting in pricing wars amongst providers?
- Bargaining power of suppliers: This refers to how dependent you are on a given supplier to operate your business. If it’s difficult or near impossible for you to switch, that means they have the upper hand, whereas, if the switching costs are low, you can negotiate better terms for yourself.
- Competitive rivalry of the market: Factoring in the first four forces, you can arrive at a good understanding of the playing field and whether it’s in your favor if you enter it, how long you’ll be able to last, through what means you’ll carve a space for yourself, and what you’re up against.
As a final note, you must never forget that the industry analysis is a vital part of your business plan and it will probably be the most extensive portion of it. So, take your time to conduct extensive research on your competitors and market trends over the recent years.