Perhaps the most difficult and lengthy section of a start-up business plan is conducting a market analysis. You can describe your products and services all day long. I’m sure you can even forecast the future financial success of your business. Yet, when it comes to completing a statistical overview of your industry norms and the customers you intend to target, you get hung-up. By understanding your industry, though, you will gain a better understanding of who your target market is and how you can make an impact on your industry’s current marketplace.
As you write down answers to the 10 essential questions for a start-up business owner, you begin to develop a basic business plan. However, there’s more to a good start-up business plan than the answers to the questions. In our article about what’s in a Good Business Plan, I offer you detailed outlines and suggestions for writing a successful business plan. Furthermore, I expound upon the relevance and importance of a writing a business plan in A Business Plan: Its Purpose in Building a Sellable Business. You’ll definitely want to read those articles and listen to the attached Podcast to learn how to write a business plan. In this article, though, I want to concentrate on one particular section of the business plan – the market analysis and its components.
To begin, you will give a brief description and outlook of your industry: its history, its expansion, its contraction, and its trends. For instance, if you want to open an architectural firm, you would give a brief history of architecture, renowned architects, famous architectural designs, and preferred architectural styles throughout the centuries. Depending on your business’s location and on how many locations you want to have, you can make your historic account specific to your geographical region or inclusive of worldwide industrial accounts.
After describing your industry, you want to talk about your target market. Who is your ideal customer? Does your product reach all customers in your particular industry, or does it only reach a certain niche? Does your current location allow your ideal customer to reach you easily?
If you are opening an architectural firm, you would identify the type of people who need your services in this section. Will families who want to build dream homes seek out your services, or will commercial building contractors need you more? How will you find those families or contractors? Do you need to make connections with real estate agents or commercial investment bankers?
Do you want to specialize in log cabin designs that would limit your customer base to mountaintop or vacation destination regions? If most of your customers are on mountaintops and you want to expand your company’s reach, do you need to move to those areas or open up additional locations there?
Once you know who your customers are, you should identify their needs. Why do these families want to build log cabins? Are they investing in a vacation getaway home that other people will enjoy, or will the cabin be their primary residence? Your customers’ needs will help you determine where and how to advertise and market. Therefore, do not skip over this subsection because you think it’s not as important as others.
As you identify your industry, your customer, and your customers’ needs, you will encounter competitors within your market. In this part of your Market Analysis, you want to name your direct and indirect competitors. List their strengths and weaknesses as you see them or as their current customers see them. This is NOT “cheating.” Friends, if you are going to compete for market share within this group, you want to know how big your competitors’ reach is and how hard it will be to tap into their customer bases.
If you are opening an architectural design company, go ahead and identify other architectural firms in your community. Do they specialize in log cabin designs? Are they designing homes and churches instead of log cabins? Are the firms well-known enough to have earned regional, national, or global contracts? Do community members recognize their name and refer others to them? Do they excel at design but fail at communication with customers? Ultimately, the answers to these questions can help you determine or redefine your niche within this industry.
Now that you’ve assessed your competition, you should decide what share of the market within your industry you want to capture. What obstacles must you overcome to compete against the “bigwigs” within your industry’s market? Is there a void within your marketplace that your current competitors are not filling? Can you fill that void? Do you think your product or service is superior enough to surpass a large competitor’s production, service, and sales? Do you want to become the only provider of a particular service in your area? Can you become and remain competitive within your area?
Another section you need to address within your Market Analysis is your price point and its relationship to your product cost. What will be your pricing strategy? Have you built in enough of a profit margin to pay your overhead expenses and take home a salary? Will you be selling products at wholesale prices to sell more products than competitors, or will you keep prices high to make more profit on the products you sell?
What do your market competitors charge for similar products or services? Can you charge the same? What do they pay for the products, and can you figure out how to pay less? Will you pay extra for your product to be manufactured in the United States and pass that extra cost on to your customers? Will you pay the extra cost but keep customer prices low? Can you sell enough product with a “Made in the USA” sticker to offset the decrease in your gross margin?
Do you need to import your products from China or Mexico in order to keep your costs down and your prices within the market range? If you make prices higher than industry standards, does the quality of your product or service keep people coming back to you and paying the higher prices?
Finally, you will address any industry, product, or service regulations by which you must abide. Does your product have to be food-grade quality? Must you abide by HIPAA or OSHA standards? Are you held to Fiduciary Standards? Did you sign a Hippocratic Oath? In this section, it’s a good idea to list any type of regulations on your company’s services or products that could affect your business.
Can you see why business owners have a tendency to gloss over this section of a business plan? Whew! It’s a lot of work researching all the areas of your market’s analysis. However, the more details you have about your competition’s strengths and weaknesses, the easier it will be for you to find your niche in your marketplace. Understanding your industry will take time. It will take research. Yet, if you take the time to analyze your competition, the geographic location, and other key elements of a market analysis before you open your own business doors, you just might have a better chance of meeting customer needs than those competitors do. Additionally, if you know the specific needs of your customers, you can develop systematic and strategic marketing campaigns to get your product or service in front of them.
Understanding your industry can be hard. Getting all the answers in all areas when conducting a market analysis for your business plan is even harder. But writing down an actual plan could make the difference in your business’s success or failure. Life is hard, friends. I know it. Business is harder. Writing a business plan can be downright daunting. However, it’s essential for your startup. It will help make the later years of your business a little more, financially simple.