Welcome to the Industry Analysis section of your MGMT600 course. In this section of your Business Plan, you need to convince a potential investor that you understand critical details regarding the industry in which your business will compete. Understanding the characteristics of your industry allow you to make intelligent decisions regarding all future sections of the Business Plan, including marketing, operations, and finance. Examples of vital industry analysis details include the
size of the industry in units and dollars;
grow rate of the industry;
future prospects for the industry;
average gross and net margins on sales in the industry;
major companies in the industry; and
government regulations that apply to the industry.
This is the “heavy lifting” of the Business Plan with regards to research. For this part of the plan, conduct secondary research to identify the metrics that give your concept credibility. Most likely, you will use secondary information from such business publications as Standard & Poor’s, U.S. Industry Trade Outlook, or Hoover’s Online to gain an understanding of the marketplace. Your goal in this section is finding information that gives you and your investors the picture of the size and scope of the industry.
IMPORTANT: Remember that most critical industry information is not available on the public Internet. To find this information, you can take advantage of the DeVry Ask a Librarian feature in the Student Resources section under Course Home of the course site. This feature allows you to speak live to an experienced librarian who has access to private subscription-based business databases. You can tell your librarian what kind of information you need, and the librarian can get you to the appropriate database. You can also conduct research like this in person at a public library. Check the Internet, but with the understanding that public online sources do not have all the information you need for a convincing Industry Analysis.
SIC and NAICS Codes
There are a few things you should understand when you are beginning your analysis. First, you should know your Standard Industrial Classification (SIC) Code and/or NAICS Code for your industry. This code was created by the government to classify business for accounting purposes. In order to find data about your industry, you will have to determine your industry code. Search for these terms on the Internet and you will find valuable information associated with specific industries.
Looking ahead: NAICS is a division of the United States Census Bureau. You can use the Census Bureau to identify valuable demographic information for the target audience in your Marketing Plan.
In this section, you will research and report on various aspects of the industry as identified in the introduction. You should start off with a brief history of the marketplace and identify any factors that affect growth. Are there any new entrants in the marketplace? Is this industry heavily regulated? What are the various leading companies in the industry? How long have they been in the market? What is the competition and how much of the market do they own?
In addition to the brief overview, you should give hard facts?the size of the industry in dollars, to be exact. You should list the total products or services sold in the past few years and look at the forecasts for the industry.
Be sure to start with the large picture and move into the specifics for your company. For example, let’s say you are developing a pizza restaurant in New York. You start with the overall restaurant industry data, which is $1.3 billion dollars. Of that, $430 million dollars is in the pizza industry, and of that $430 million, $46 million is located in New York City. In other words, you start out very large and move into the specific area (as low as you can go). In some cases, you could get into the local neighborhood industry by drawing a three- or five-mile circle around your store location and defining the market in that area.
You might consider summarizing the development stage of your Industry Analysis finding in a table similar to this one from our textbook.
Exposure and credibility
Differentiate from competition
Market Share Strategy
Build market share
Cannibalize weakened competitors
All businesses are subject to various regulations at the local, state, or national level. These regulations would include what is required to register your business. The type of business your create?proprietorship, partnership, LLC, or corporation (and there are others)?will impact your business taxes and liabilities for various claims against the company. Depending on your type of business, you might need specific licenses to offer products or services for sale. It is important to note that these licensing requirements can differ from state to state; for example, barbers need a license in most states, but not all. For any kind of storefront location, you must ensure that the location is properly zoned to offer the products or services you provide from that location. In addition to meeting the basic requirements of business registration and licenses, you should consider regulations unique to local ordinances. These might include the limit to the number of patrons per square foot, or the amount of parking space required per square foot for retail locations. To make sure you meet these requirements for your Business Plan, research laws and regulations that are specific to the industry in which your business will compete. Briefly describe laws and regulations that apply and explain how your business will meet those conditions.
Demonstrate that you have completed your research. Do not say, “We will obtain all of the appropriate permits.” Instead, you must list the regulations by name and how they apply to your business.
This section is a look at the competitors in the marketplace. You need to list the major businesses in the industry. Who are these companies? Are they growing or declining? How long have they been in business? You also need to discuss where these industries are located and discuss their market share.
This is a pretty straightforward section where you profile your competition to understand how you will compete; in your marketing section, you will use this information to craft a marketing plan. Note that you might want to repeat some of your Competitive Analysis in the Marketing Plan portion of your Business Plan.
Once you have described the key characteristics of your industry, complete a SWOT analysis to briefly describe how your company will compete with regards to strengths, weaknesses, opportunities, and threats. Here is a quick review of SWOT elements.
As you can see from the information above, you have a lot of work to do ahead! Understanding the industry you are going into is critical in order to succeed. Imagine going on a vacation without looking at a map before you left your house. Simply put, you would get lost. If you don’t look at the “map” of the industry you are working in, you will minimize your chance for success.