WordPress.com
Chapter 5
Industry Analysis
Chapter Notes
I. Introduction
• An industry is a group of firms producing a similar product or service
• Industries vary along many dimensions, including size, growth rate, structure, financial characteristics, and overall attractiveness
• The trends affecting an industry also matter
• It is important that the industry analysis section of your business plan focus strictly on the firm’s industry rather than the industry and the target market simultaneously
o A target market is the limited portion of an industry that a firm goes after or tries to appeal to at a certain point in time
• It’s premature for a new firm to discuss a specific target market until an understanding of the broader industry is obtained
• The industry analysis should appear early in the business plan because it logically precedes the analysis of a firm’s target market and marketing strategy
II. Industry Definition
• Briefly (no more than several sentences) describe the firm’s industry:
o The industry’s SIC code and NAICS code should be provided
• A firm’s industry can be defined narrowly or broadly (e.g., JetBlue can be defined as in the airline industry or in the transportation industry)
• The definition determines the scope of the firm’s overall sphere of concern
• If your firm operates in two or more industries, you should identify all the industries that it participates in
• It may be difficult to identify an industry that matches an innovative new product or service
o In the case of an innovative product or service, improvise by selecting industries that represent the closest fit, and then include additional pertinent information
o The advantage of this approach is that your analysis is anchored in established NAICS categories, which provide you with plentiful information
o If you create a new definition that is more precise, it may be more difficult to accumulate good-quality information for your industry analysis
III. Industry Size, Growth Rate, and Sales Projections
• This section discusses the size (in dollars), the growth rate (in percent), and the future sales projections for the industry or industries our firm will be entering
• The key is to make sense of the numbers and present them in a way that builds the credibility of your business plan
• There are four general rules of thumb for completing this section:
o Always display financial information, such as industry sales and growth rate, in a multiyear format, making it easy to spot trends
o Display your information graphically if possible
o Provide information about your industry on a regional or local basis if appropriate
o Avoid the temptation to report only positive or flattering information about your industry
a Industry Size
o Industry size is normally displayed in dollars over a three- to five-year period
o The ideal size for a start-up is large enough to allow different competitors to serve different segments profitably but small enough that it isn’t attracting the immediate attention of larger potential competitors
o If your industry is broken down into easily identifiable segments, it may be appropriate to report the share (in percentage) of each segment
o Some plans also report the contribution that a specific industry makes to its larger industry sector
b. Industry Growth Rate
o An industry’s growth rate should be reported on a percentage basis along with an interpretation of what the numbers mean
o Some plans comment on how the industry growth rate compares to similar industries
o If you are defining an industry that isn’t being actively tracked by a reliable source, finding good sales data will require creativity and persistence
c. Industry Sales Projections
o This section should report sales projections for your industry
o You can quote from established sources, but do so sparingly; readers will want to know how you have interpreted the data
o Include concrete numbers for what you think your industry’s sales and sales growth rate will be for the next one to three years
IV. Industry Characteristics
• This section talks about the structure of your industry and lays out its competitive landscape
• The four key issues to deal with are: industry structure, the nature of the participants in an industry, key ratios, and the industry’s key success factors
a. Industry Structure
o Industry structure refers to how concentrated or fragmented the industry is and whether the industry’s competitive landscape is generally attractive or unattractive
o Report on how concentrated or fragmented your industry is
• Concentrated industries are dominated by a few large firms
• Fragmented industries include a large number of smaller companies
• Normally, an industry is concentrated if large capital investments are required to participate, or if it has matured and consolidation has taken place
• An industry is typically fragmented if it’s in the emergence stage of its life cycle and/or the cost of entry is relatively low
• Most firms launch into a fragmented industry; no explanation need be made about this approach
• If you plan to launch into a concentrated industry, you will need to explain how you plan to compete
• Some firms compete in concentrated industries by identifying a niche that is less expensive to compete in, or by using innovation to lower the cost to enter the industry
o You will also need to report on the general attractiveness of an industry’s competitive landscape
o Attractiveness can be evaluated using Michael Porter’s “five forces” model:
• Relatively high barriers of entry to keep out competition
• Not enough rivalry to create cutthroat competition
• No good substitutes for the basic product or service
• Limited power of suppliers to negotiate input prices up
• Limited power of buyers to force selling prices down
o Comment on the most salient of the “five forces” in your business plan
b. Nature of Participants
o In this brief section, you will provide your reader with a “feel” for the nature and mixture of firms in your industry
o You want your reader to visualize how your firm will fit in or see the gap that your firm will fill
o You should also discuss how the industry is segmented
o If you know which segment is growing the fastest and/or is the most profitable, that’s good information to convey
o Some industries have clearly bifurcated, with the most successful companies serving either the top end of the market or the bottom end
o The worst place to be, in bifurcated industries, is right in the middle
c. Ratios
o Report an industry’s key financial ratios and other ratios of interest
o This information provides a point of reference to compare a company’s financial and non-financial projections against
d. Key Success Factors
o Key success factors define what an organization in the industry has to be good at to be successful
o Most industries have 6 to 10 key factors
o Most successful firms are competent in all their industry’s key factors and differentiate themselves by excelling in two or three areas
V. Industry Trends
• This is arguably the most important section of an industry analysis because it often lays the foundation for a new business idea in an industry
• The two types of trends that are the most important to focus on are environmental trends and business trends
a. Environmental Trends
o The most important environmental trends are economic trends, social trends, technological advances, and political and regulatory changes
o Some industries experience slow or no growth for years, and then experience sudden upswings in growth as environmental change turns in favor of the industry
b. Business Trends
o Other trends impact industries that aren’t environmental trends per se, but are important to mention
o You can’t cover every possible fact affecting an industry, but you should mention the major trends
VI. Long-term Prospects
• The industry analysis should conclude with a brief statement of your beliefs regarding the long-term prospects for the industry
• No new information should be provided at this point; rather draw from the preceding sections of the industry analysis to support your conclusions
VII. How the Industry Analysis Affects and Is Affected by Other Sections of the Plan
• Industry analysis is a foundational aspect of evaluating the merits of a prospective business venture
• A careful analysis of a firm’s industry lays out what is realistically possible and what isn’t realistically possible for a start-up to achieve
• Most start-ups are constrained enough by their industries that their performance falls in line with what you would expect after reading their industry analysis
• The industry analysis affects other sections of the business plan because it is a point of reference to work from
• It helps temper the enthusiasm of business plan writers and provides a useful reference for a plan’s readers
................
................
In order to avoid copyright disputes, this page is only a partial summary.
To fulfill the demand for quickly locating and searching documents.
It is intelligent file search solution for home and business.
Related searches
- wordpress passing data between pages
- wordpress business templates
- wordpress rss feed not working
- wordpress jquery is not defined
- create wordpress blog
- wordpress roles editor
- wordpress full rss feed
- wordpress rss feed settings
- wordpress rss feed plugin
- wordpress display rss feed
- wordpress rss feed link
- wordpress rss feed to post