You've just turned your business idea into a reality. You've spent a ton of money on materials and put in countless hours developing the finished product. After months of developing the product, you've finally finished it. At last, your dream is a reality.
You just know that you're going to sell a whack of this wonderful product so you start looking around to see who might be interested. As you start looking, you start to realize that there are other similar products out there that already exist.
Not only that, these products are made from more durable and innovative material. Sadly, you start to realize that the market is full of this kind of product and to top it off, your product is out of date!
The market is saturated and the industry is declining. A very bad combination for business. This person didn't do the upfront work to determine whether or not there was a market for her product.
Ensuring you have a viable market will be the most important aspect of your business. Why go into business if there is no one to buy your product or service? This is a very important point and one that I have to elaborate because it is critical that you understand it's importance. Here it is...
Before You Go Into Any Business, Make Sure You Have a Market
That is, find a market and then build your product or service into that market. A lot of people do this backward. They find a product then they try and find a market.
What if the market is already saturated? What if there is no market? What if the industry is declining? There's no sense in going through the expense and time of coming up with a product if you don't know if there is a market for the product.
The trick is to look for a market in your particular field interest and find out what parts of it are not being met. Look for weaknesses in the market. Once you find the weakness, come up with a solution that will fill the needs of the target customer.
Let me provide you with an example. I once had this client who worked with heating and cooling systems in boiler rooms.
He worked at this profession for about 20 years. One day, he was sitting in the lunchroom and he heard some of his fellow employees and bosses complaining.
They were complaining about the manual pressure measuring process involved with the boilers. They wished there was some way they could measure the pressure without having to do it manually.
A light bulb went off in his head. He did a bit of research and found that these systems didn't have automatic pressure reading systems. He found a market with a common problem.
All he had to do was give this market a solution. He did a preliminary assessment that included a market analysis and break even and found out that his idea could be very profitable.
Inside a couple of months, he came up with a little gadget that you could attach to these heating systems and it would automatically monitor the pressure.
After some testing, he patented the product, finished up his business plan and entered into some big-time contracts with other companies. Once the funding agencies were convinced that this product was a winner, they got aboard.
He implemented his business plan one step at a time, measured his results and before he knew it...
He Had Hit The Big Time
A great example of someone who knew his industry and market, found a solution to a common problem, planned around the idea and implemented the process for end results.
Last I heard, his little gadget was being used worldwide. With a little bit of effort at the start and keeping your ears open, you can identify weaknesses in the market for just about any industry.
This section is one of the most important parts of a business plan because it communicates most directly the nature of the intended business and the manner in which that business will be able to succeed. The market analysis will describe the industry and marketplace in which the business will compete.
What is industry analysis in a business plan?
An industry is a group of competitors that produce substitute or similar services or products to a specifically defined target market. Segments of an industry are defined by services or products that are targeted to subsets of the market.
The industry and market analysis will look something like this:
Industry Data: Describe your products industry
- Is it growing?
- Is it declining?
- Explain the industry
- Trends in the industry
- Industry participants
- Distribution Patterns
Market Analysis and Research: Who's buying your product? Where are they? Who's competing?
- Market segmentation: Where and who is the market and what part of it do you wish to capture?
- Market needs
- Market trends
- Market growth
A comprehensive business plan will always discuss the market and industry patterns because the success of your business will depend on the market and industry.
Yes, it's that important!
Once you know what the market is doing, who your customers are and where they are located, you can come up with an effective marketing strategy that will get your sales message across to them using various marketing mediums.
This is how successful businesses do it. Always find a weakness in the market (sometimes called a market niche) and come up with a solution.
When you hear people say...I wish there was something that could... or How come there isn't a ...you know they are looking for something that they are having a hard time finding. These are just some of the many market indicators out there.
Investors, lenders, and funding institutions will not touch a business unless they know there is a market for the product. As an investor, why would I put up $10,000, $20,000 or $100,000 if I wasn't sure there was a market for your product.
Your job is to do your homework with regards to the market and industry and convince these people that there is in fact, a market for your product or service. You will need to effectively explain to them who your market is, where they're located, and how you plan on attracting them to your place of business. But...
How Do You Do An Industry Analysis?
The first thing you will need to do is an industry analysis. Once you complete the industry analysis, your analysis will provide a big picture overview of the size and scope of your industry. Industry analysis gives you some direction as to whether or not the industry is growing or declining.
For example, let's say you wanted to get into e-commerce. You have a great idea for a website and a product to sell, let's say a collection of electronic e-books about how to make money with online stock trading. Your industry research will be two-fold.
First, you need to find out what the internet industry is doing and secondly, what the trading community is doing. You know with a degree of certainty that the internet is growing and you know that more and more people are going to the internet for information.
You do a little more digging and find out from the latest government research that the internet industry is growing by leaps and bounds. You do a little more digging and find out that people are not flocking to the internet to buy products but are looking for information.
You determine that the internet information industry is growing at an exponential rate. You would then document your findings. That is when you will back up all of your findings with facts and figures.
If there's one thing that business reviewers dislike, it's reading statements based on nothing. Everything you state in a business plan needs to be backed up by hard facts and credible information sources.
Statements such as "The market for online stock information is growing by leaps and bounds" will only irritate the reader if it's not backed up with credible facts and reliable information sources.
Remember, a business plan reviewer is always asking "how did you come to that conclusion" in his or her mind. Your job is to provide a credible information source. Always state the source or refer to it in your business plan.
All right, getting back to our example, the next thing you need to do is find out what the trading industry is doing. You decide to check the online trading institutions and visit a few online stock exchanges. You find out from the New York Stock Exchange that more and more people are going online to trade.
Not only that, you find out that there is a huge demand online for information on trading. You visit online forums, ask certain questions and you find out that people want to know how to make money trading stocks online.
Using the above information, you have determined the overall industry activity. People are flocking to the internet to find out how to make money with stocks. You have researched the industry and made points and references to the information you have gathered.
Congratulations, you have an indication of what the industry is doing - it's growing! Believe me, investors, lending agencies and funding institutions want to know this.
How useful is this information? Very useful. First it gives you direction as to what the industry is doing and secondly, it soothes the nervous investor or funding officer.
This is a general outline for the industry analysis: Describe your products industry. Is it growing? Is it declining?
- Explain the industry
- Trends in the industry
- Industry participants
- Distribution patterns
Most of the research you do here will be at various statistics sites and trade organizations. You can usually find other great sources of information from suppliers who sell to industry participants and equipment and supplies manufacturers.
A great place to access insights, information and intelligence for U.S industries and economic activities is at the International Trade Administration.
For Canadian activities and insight, you can try this government site that provides access to industry and economic data.
When assessing your industry ask yourself these questions:
- What are the current trends? Have there been some important developments?
- Who are the industry participants? Is the industry made up of a few large players or scattered with small participants?
- Are there any problems in the industry? What are they?
- Is the industry expected to grow or decline? What are the growth forecasts?
- Are there any national or international activities that might affect the industry?
In this section, you want to provide your reader a big picture analysis of the market. You want to ensure your reader that the industry is positive. Your job is to paint a pretty picture of what the industry is doing.
Do not skip this section. It is very important to the reviewer since they want to know how your business fits into this particular industry activity.
Next, you want to find your target market. You want to know where they are and how do you get to them. Once you have finished with this section, you should understand the problems and opportunities driving your industry and marketplace.
Who's going to buy your product? You have determined the industry activity, now you want to find out who your target market is and where they're located.
Your business idea came about because you sensed that a product or service with certain types of features and benefits would appeal to the needs or wants of a certain type of customer. You've done some industry research and determined that the industry is growing. <strong>Now, who's going to buy?
Make no mistake about it, marketing research for your product or service is absolutely necessary for the business planning process. It is important to understand and evaluate the market for your product or service. Your success in business will depend on how you identify your market.
It's important to remember that the industry research you've done so far outlined an overall picture of the entire market. What you want to do now is narrow that down to a specific part of the industry.
Using our internet online stocks company, he has determined that the internet community is growing at an exponential rate. He has also determined that more and more people are going online to do stock trading research.
He now has to determine his target audience. That is, defining your customers more specifically is known as identifying your target market.
The main questions is who.
Who is looking for the information? Middle class? Upper-class professionals? Retired couples? What are they looking for? Are they looking for stock options information? Futures information? Short and long call information?
Narrowing down or targeting your market into a more specific segment allows you to focus your resources and energies on meeting the needs of the target market rather than trying to meet the varying needs of different market segments or the whole market. In other words, try and find a niche market.
I'm sure you've heard of niche marketing and if you're not familiar with that term, it simply means a small, targeted group of people who share a specific interest.
The more specific your group is, the easier it will be to tailor your marketing message directly to them. It is critical that your target market is identified and located.
The important thing to remember is that not everybody wants your product or service. You want to concentrate on those people who are interested in your products and cater only to them.
Develop your product or service with these people in mind and you will be far more successful that you will trying to sell your product or service to a broad market.
If your target market is a business, family or other entity, a key element to consider is which individual is the main decision-maker in the buying decision.
If your target market is comprised of individual consumers, your definition of your target market should take into consideration issues such as age, income level, education level, purchasing patterns, attitudes, and likes and dislikes.
The information you gather during your research will form a critical part your marketing strategy and your overall business plan. Market research involves learning about and understanding your potential customers, the competition, and the industry.
What Is Marketing Research?
Market research is simply an orderly, objective way of learning about people -- the people who buy from you or might buy from you. You definitely want to know who is going to be buying from you and your investors. Funding agencies will all want to know who your market is.
The main purpose of including market research into the business plan is to enhance the entrepreneur's and reviewer's understanding of the market, as well as reassuring the reader that the plan is credible. <br>
Marketing research is an organized way of finding objective answers to questions every business must answer to succeed. Every small business owner-manager must ask:
- Who are my customers and potential customers?
- What kind of people are they?
- Where do they live?
- Can and will they buy?
- Am I offering the kinds of goods or services they want -- at the best place, at the best time and in the right amounts?
- Are my prices consistent with what buyers view as the product's value?
- Are my promotional programs working?
- What do customers think of my business?
- How does my business compare with my competitors?
Marketing research is not a perfect science; it deals with people and their constantly changing likes, dislikes, and behaviour , which can be affected by hundreds of influences, many of which cannot be identified.
Marketing research does, however, try to learn about markets scientifically: to gather facts and opinions in an orderly, objective way; to find out how things are, not how you think they are or would like them to be; to find out what people want to buy, not just what you want to sell them.
It's tough -- impossible -- to sell people what they don't want. (Cherry Coke?) That's pretty obvious. Just as obvious is the fact that nothing could be simpler than selling people what they do want. The big question, however is, finding out what your target audience wants?
Big business does marketing research to find out what consumers want. Small business needs market research too. Make no mistake about it, your success in business is built all around this question:
What Does My Market Want?
For once, small business holds an edge. The giants hire experts to define the mass market in which they sell. Owner-managers of a small business are close to their customers; they can learn much more quickly about customers' likes and dislikes and buying habits.
Small business owners often have a feel for their customers -- their markets -- that come from years of experience. But experience can be a two-edged sword, as it includes a tremendous mass of information acquired at random over a number of years, information that may no longer be timely or relevant to making selling decisions.
In addition, some facts may be vague, misleading impressions or folk tales of the everybody knows that variety.
A great practice to get into is to put your head inside your ideal customer's mindset. What are they thinking? What are they feeling? Are they distressed about something? Once you start putting your feet in someone else's shoes, you will start to get a better understanding of your customer's fears and wants.
Remember, it's a lot easier trying to talk to one person than thousands. When you think of your target market, try and think of one person's needs or wants instead of the whole market. This way, it doesn't seem so intimidating and it becomes much easier.
Marketing research focuses and organizes marketing information. It ensures that such information is timely and reassures the nervous investor and funding officer that the plan is credible.
It provides what you need to:
- Reduce business risks.
- Spot problems and potential problems in your current market.
- Identify and profit from sales opportunities.
- Get basic facts about your market to help you make better decisions and set up plans of action.
- When assessing your industry ask yourself these questions:
- How do you define the marketplace?
- How large is it and how fast is it growing?
- What other companies are currently in this market?
- How is the market segmented? Where and who is the market and what part of it do you wish to capture?
- Are there any trends in the market place?
Here's my biggest piece of advice to you...it will take you a couple of days but simply pick up the phone and start calling around. Trust me, calling around and simply asking your market what it wants will save you time, money and a hell of a lot of headaches. Document your calls and make sure to add them to the market research portion of your business plan.
When a business plan reviewer looks at this section, they will look to see and provide reports back to others if the business has defined its target market and communicated a realistic description of their targets needs or wants.
The product or service must be able to satisfy the needs or wants of the target market. Remember that special attention is given to whether or not a business has defined it's target market too broadly or too narrowly.
That is, if the market is too broad, there are too many types of customers each with different needs and buying habits making them a difficult market to service.
A narrowly defined market is having too little customers. Remember, the more specific your target market is, the easier it will be to tailor your marketing message directly to them. Reviewers want to see this.
Market Area Analysis
Defining a physical market area may be a key factor in revealing the potential for your business idea. You want to know where your customers are. While the odd customer may be outside or this area, generally the market territory can be defined as a specific region or even global geography.
Usually, a business tries to serve an area of the market that contains enough target buyers. This only makes sense because if you don't have enough customers in your area, how are you going to survive? What's the use of selling hockey equipment in a retirement community with a population of 250?
Industry Competitor Analysis
Who are my competitors? A lot of times, business owners, and potential entrepreneurs don't want to know who their competitors are. This is a mistake!
You want to know exactly who you're up against and what their doing...At all times. If they are on top of their game, you can bet your competitors know everything about you. They might have already purchased your products and are already finding ways to improve upon them.
I know, sounds a little scary but trust me, if your competitors are good, their keeping very close tabs on you. If you are just starting out, you want to find out:
- Who your direct and indirect competitors are
- What they sell and at what price
- How long have they been in business for;
- What are the attributes and characteristics of these competitors and their products or services
- Are there any concerns or problems that customers have with the competitors
- In general, what are their weaknesses and strengths?
When you are writing your business plan, you need to find out:
Degree of Competition
You should start with some general statement as to the level of relevant competition. The objective in this instance is to discuss the real threats and to treat it in a meaningful way. It may be possible to identify specific businesses, products, or services that will offer competition.
In some instances, there may be so few competitors that each is easily identifiable. Under these circumstances, it is appropriate to offer a profile or each competitor, its strengths, and weaknesses, and the likely impact each will have on the startup.
I often find a lack of competitor analysis in a lot of the business plans I review. It is very important to realize the impact that your competitors have on your startup.
What is stopping your ideal customer from going to your competitors instead of your place of business? Why should they go to your place of business? What's different about your product as compared to your competitors.
Please, don't use general phrases such as "We have better customer service." While this may be true, you want to provide why you have better customer service. A few simple statements about your competitors is not enough.
You need to present:
- Who they are;
- Where they are;
- What do they offer;
- How are you different;
- Strengths and Weaknesses of your competitors. If they have a strong point, provide an action plan that will outline how you will overcome their strengths.
Remember to be thorough in your market and industry analysis. Business plan reviewers are very interested in this section because it outlines to them if there is an actual market for your product or service. Your job is to find the market and prove that your product or service is in demand. You will back up all of your findings to strengthen your argument.
All right, that section was a pretty big one but it was necessary. I can't stress the importance of a well thought out market analysis enough. Your business success hinges on your market so make sure you have one!
Sample Industry and Market Analysis For Business Plan
Let's check out an example using our fictional company: Terra Engineering