Know Your Industry Before You Start Your Business 22

Take a second to get into context here. If your plan is a plan to be presented to outsiders, then you need to explain the type of business you’re in. You’ll be expected to explain the general state of your industry and the nature of the business, especially if your plan is going outside your company to banks or investors. And if your plan is for your own management purposes, you should still be very surewhether you have to prove it to others or notthat you know your market.

Whether you’re a service business, manufacturer, retailer, or some other type of business, you want to know your industry inside and out. Read on for the kind of information you have to know very well, even if you don’t go to the trouble of writing it all out. And if you’re writing for outsiders with a formal business plan document, then you should do an Industry Analysis, describing:

  • Industry Participants
  • Distribution Patterns
  • Competition and Buying Patterns

Industry Analysis

Everything in your industry that happens outside of your business will affect your company. The more you know about your industry, the more advantage and protection you will have.

A complete business plan discusses general industry economics, participants, distribution patterns, factors in the competition, and whatever else describes the nature of this business to outsiders.

The internet has had an enormous impact on the state of business information. Finding information isn’t really the problem anymore, after the information explosion and the huge growth in the internet beginning in the 1990s and continuing in the 21st century. Even 10 or 15 years ago, dealing with information was more a problem of sorting through it all than of finding raw data. That generality is more true every day. There are websites for business analysis, financial statistics, demographics, trade associations, and just about everything you’ll need for a complete business plan.

Industry Participants

You should know who else sells in your market. You can’t easily describe a type of business without describing the nature of the participants. There is a huge difference, for example, between an industry like broadband television services, in which there are only a few huge companies in any one country, and one like dry cleaning, in which there are tens of thousands of smaller participants.

This can make a big difference to a business and a business plan. The restaurant industry, for example, is what we call “pulverized,” meaning that it, like the dry cleaning industry, is made up of many small participants. The fast food business, on the other hand, is composed of a few national brands participating in thousands of branded outlets, many of them franchised.

Economists talk of consolidation in an industry as a time when many small participants tend to disappear and a few large players emerge. In accounting, for example, there are a few large international firms whose names are well known and tens of thousands of smaller firms. The automobile business is composed of a few national brands participating in thousands of branded dealerships. In computer manufacturing, for example, there are a few large international firms whose names are well known, and thousands of smaller firms.

Distribution Patterns

Products and services can follow many paths between suppliers and users. Explain how distribution works in your industryis this an industry in which retailers are supported by regional distributors, as is the case for computer products, magazines, or auto parts? Does your industry depend on direct sales to large industrial customers? Do manufacturers support their own direct sales forces, or do they work with product representatives?

Some products are almost always sold through retail stores to consumers, and sometimes these are distributed by distribution companies that buy from manufacturers. In other cases, the products are sold directly from manufacturers to stores. Some products are sold directly from the manufacturer to the final consumer through mail campaigns, national advertising, or other promotional means.

In many product categories there are several alternatives, and distribution choices are strategic. Encyclopedias and vacuum cleaners are traditionally sold door-to-door, but are also sold in stores and direct from manufacturer to consumer through radio and television ads.

Many products are distributed through direct business-to-business sales, and in long-term contracts such as the ones between car manufacturers and their suppliers of parts, materials, and components. In some industries, companies use representatives, agents, or commissioned salespeople.

Technology can change the patterns of distribution in an industry or product category. The internet, for example, changed options for software distribution, books, music, and other products. Cable communication is changing the options for distributing video products and video games.

Distribution patterns may not be as critical to most service companies, because distribution is normally about physical distribution of specific physical products such as a restaurant, graphic artist, professional services practice, or architect.

For a few services, distribution may still be relevant. A phone service or cable provider, or an Internet provider, might describe distribution related to physical infrastructure. Some publishers may prefer to treat their business as a service rather than a manufacturing company, and in that case distribution may also be relevant.

Competition and Buying Patterns

It is essential to understand the nature of competition in your market. This is still in the general area of describing the industry or type of business. Explain the general nature of competition in this business, and how the customers seem to choose one provider over another. What are the keys to success? What buying factors make the most differenceis it price? Product features? Service? Support? Training? Software? Delivery dates? Are brand names important?

In the computer business, for example, competition might depend on reputation and trends in one part of the market, and on channels of distribution and advertising in another. In many business-to-business industries, the nature of competition depends on direct selling, because channels are impractical. Price is vital in products competing with each other on retail shelves, but delivery and reliability might be much more important for materials used by manufacturers in volume, for which a shortage can affect an entire production line.

In the restaurant business, for example, competition might depend on reputation and trends in one part of the market, and on location and parking in another.

In many professional service practices the nature of competition depends on word of mouth, because advertising is not completely accepted. Is there price competition between accountants, doctors, and lawyers? How do people choose travel agencies or florists for weddings? Why does someone hire one landscape architect over another? Why choose Starbucks, a national brand, over the local coffee house? All of this is the nature of competition.

Main Competitors

Do a very complete analysis of your main competitors. Make a list, determining who your main competitors are. What are the strengths and weaknesses of each? Consider their products, pricing, reputation, management, financial position, channels of distribution, brand awareness, business development, technology, or other factors that you feel are important. In what segments of the market do they operate? What seems to be their strategy? How much do they impact your products, and what threats and opportunities do they represent?

  • eranga wijenayake

    actually ur articles help us very much for our studies.as university students we appriciate ur effort.
    thnks & best regards
    eranga

  • sapecho

    What is the best way to go about determining your main competitors strengths/weaknesses, reputation, management, financial position, channels of distribution, etc……??
    Thanks in advance!

  • http://www.paloalto.com Casi Deatherage

    Hello Sapecho,

    There are several resources to your questions, some even on our website.

    You can locate our expert advice tab at the top of the page. You can also go to Google and search for forums designed to be of assistance to people who are searching for more complex help.

    Goodluck!

    Casi Deatherage
    Palo Alto Software
    Customer Care

  • Jegede Oluwafemi

    i do i go about bring my ideas to reality, and how do i raise cpital for my new idea. please i need your response.thanks

  • Jegede Oluwafemi

    how do i go about bring my ideas to reality, and how do i raise cpital for my new idea. please i need your response.thanks

  • http://n/a kato7

    very informative and to the point, reading your article really made me believe that “if you can dream it, you can do it….from walt disney”. email: larry.miller@ymail.com

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  • Lillian

    If you are looking around to start a small business, whynot consider a home based franchise business, would like to recommend this website which I came across http://www.franchisesformoms.com great website specially for moms with the latest Franchise Opportunities and Ideas, work at home franchise opportunities as well.

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  • Seh

    This article is important for business newbies and vets. Knowing your business and seperating yourself from competitors are imperial. I’ve tried to differentiate myself from other companies with online video. I post to multiple sites, but http://www.Adwido.com does a great job at boosting my traffic with my videos. Plus the account is Free.

  • Kecia Ramsey

    Hi I want to start my business how do I search and see how the type of business I want to start is doing my my City and how I bring it to reality and be a sucees please help me

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  • Kevin Siplin

    I feel as though I’m caught in a vortex. I need a business plan to get funding; My business plan needs to include information about competitors; to have competitors I need a location; To get a location I need funding. Where do I start?

  • Cindi

    I would like to start a christian gift and retail business in my hometown. There is not one anywhere close we have to drive at least 50 miles to the nearest store. How do I get started and where do I go for resources?

  • Swoods

    I’m looking to provide an IT-based client services company in a market that already has some well-established companies within the industry. I believe that I can provide a more comprehensive service that will have a more profound impact on businesses, including government. My concern is that I am going to be competing against some strong competition and would like your advice on how to best establish myself in order to build a reputation that can take on these larger firms.

    Thanks.

    P.S. Great site, very useful.

  • Fawaz Ashraff

    Dear Sir,
    I am unlucky person to find your web side too late, because I did my own business (DIY Shop) unfortunately I lost the business because I did lot of mistaken this bad time for my life.
    Now I am planning to restart new business and I was searching some ideas from Google side I found you web side and I got good knowledge and I proposed to open Restaurants Business because I have Experience in hotel industry more then 10 years. I follow your word of Know Your Industry before You Start Your Business thanks for you web side and I am looking from you more ideas and surjection for my future plan.

  • http://www.archmailledesigns.com Copper Jewelry Store

    I read another article on this site that was saying that dry cleaners and computer stores are the most likely to go out of business… likely because of all of the competition, my business is very similar in the fact that there are lots of competitors (mostly small time crafts people doing it on the side for fun) so how does one compete in such an arena?

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  • http://www.newworldvacations.com Luchy

    I used to have a full flesh travel agency 10 years ago and now would like to open my own business again, but need assistance in how to find a way to sucess with y biggest competitor, the web…!

  • Hnet

    This is so explanatory to some of us who just did not know anything about writing out a business plan. I think a biz plan is much needed for one who wishes to thrive in this business competitive age.
    Thnx

  • Mahama Osman

    Your site is really interesting

  • http://stockofnepal.com Kathm

    What is the best way to go about determining your main competitors strengths/weaknesses, reputation, management, financial position, channels of distribution, etc……??
    Thanks in advance!

  • http://www.BusinessConsultingABC.com/ Frank Goley

    Completely agree Tim. Business Plans I develop with my clients always include an Industry section. Not only is the info good for the reader and provides credibility, but I find my clients pick up critical intelligence to better run their businesses.

  • Isola

    it is been interesting to read this website. I am interested in small scale amusement park for children of primary and secondary school age but do not know how to go about preparing a bankable business plan. please help.

  • Kapella,L.E.

    industry analysis is critical, I work on poultry industry, it is very difficult business if one doesnt analyse this section carefully.

    Dr.kapella

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  • TJ Mosia

    At last I know I don’t have to tell everyone my plan of initiating a new business based on my community lacks. Thanks to the website. It’s very nice. I’ll have to start in early ages like now. Thumbs Up.

About the Author Tim Berry is the founder and chairman of Palo Alto Software and Bplans.com. Follow him on Twitter @Timberry. Follow Tim on Google+ Read more »

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