KNOW YOUR MARKET, INDUSTRY AND COMPETITION
While you are talking to customers and trying to identify a compelling problem or need to solve, it is important to find out as much as you can about the market, industry, and competition your business would be operating in. How big is the overall market? What is your niche? Is the market big enough to support your business? What’s happening in the industry–is it growing, stagnant or shrinking? Are there huge barriers to overcome to enter the market? Who is your direct and indirect competition? What exactly do they do and how do they do it? What will you do differently? Will that matter to clients and if so, how will you position yourself? These are just a few of the questions you should be able to answer in order to determine whether or not you should proceed with the business. This module will give you direction on what you need to know and how you can go about finding those answers.
After this module, participants should be able to:
1. Identify and describe the direct and indirect competition.
2. Complete a SWOT analysis on the direct and indirect competitors.
3. Research the market share of main competitors.
4. Identify and describe the industry and industry trends the business is operating in.
5. Determine how you will position the business in the market and how it compares to existing businesses.
STEP 1: MARKET
Read the following article then answer the questions below: Market Analysis
A market for a particular item is made up of existing and potential clients who need or want the product and have the ability to pay for it. It is important to know who the other key players are in your market, as well as to identify who your target market is with a high degree of specificity. Compile information to answer the following:
1. What are the demographics, buying habits, behaviors, etc. of the people who make up the market?
2. Who specifically is your target market withing the total market and how many of them are there?
3. What is the total market size? Who are the current market leaders and what market share do they own?
4. How much of the market can you realistically capture?
STEP 2: INDUSTRY
Read the following article and then answer the questions below: Industry Analysis
An industry is the business your business is in – a grouping of like businesses. An example is Amazon–it is an e-commerce business, a retailer, publishing, music, toys, videos, etc. Your business may be part of several industries and it is important you to identify all of them, so that you can understand the barriers to entry in that industry. Some examples of barriers to entry are:
Economies of Scale – larger more experienced companies that can produce the product at a lower cost than newbies.
Brand Loyalty/Market Power – Some companies have spent huge budgets on advertising and many consumers may believe it is a slightly different product that can’t be replaced by others.
High Capital Requirements – manufacturing, biotech
Buyer Switching Costs – The expense associated with switching from one product to another. For example, if they have a contract or subscription that has already been paid.
Access to Distribution Channels -Do existing companies have exclusive agreements with key distributors or retailers?
Proprietary Factors -Are there patents or copyrights inhibiting your ability to produce a product?
Government Regulations -Do you need a license? FDA approval?
Understanding the barriers to entry can help you identify your entry strategy and determine how you design and develop it. You may enter the market differentiating yourself on quality or new technology (which usually leads to a difference in price), focusing on the needs of a specific niche, or have some cost superiority. Complete the following questions about your industry:
1. Identify and describe the industries your business is in.
2. Identify and describe any barriers to entry that exist for you in these industries.
3. Describe your entry strategy as it stands today.
STEP 3: COMPETITION
Any business is going to have some competition and that isn’t a bad thing. So don’t freak out yet. In fact, unless you are coming up with something incredibly revolutionary, a lack of competition could mean a lack of a need for the product/service. There are two kinds of competition – direct and indirect. Direct competitors are essentially doing the same thing you are. Indirect competitors have a product/service in a different category, but it is an alternative to your solution. The easiest example is that a sandwich shop competes directly with another sandwich shop, and indirectly with a pizza place. To fully understand how to position your product and enter the market, you need to understand all of your direct and indirect competitors, what they do, how they do it, what they charge, what customers think about them, etc. Click on the link below to read about and complete a SWOT analysis on your competition.
*NOTE: You MUST consider the workarounds people come up with themselves as competition and you should evaluate them as you would any actual business competitor.
RESOURCES FOR MARKET/INDUSTRY RESEARCH
There are many great databases you can tap into for industry, market and company research. Its best to head to your local library, because they are likely to have subscriptions to some of the databases that are too expensive for an individual to pay for. Speak with a Information Specialist at the library about what you are trying to find and they will be able to show you how to find it. If you are pretty research savvy, check out the tools below and good luck!
Business Research Launch Pad – Click on either the Companies or Industries section on the left for a detailed links to various research databases
Steve Blanks Startup Tools – Click on the link and then scroll to the Market Research section