Today, enable deals with what is probably the most difficult section of the business plan for entrepreneurs - The Market Analysis. While it is difficult, it is also crucial for several reasons. First, for internal use, entrepreneurs must determine their precise market, the status of the market, and how much of the market they can capture. In addition, entrepreneurs must demonstrate to investors that they do indeed know their market, and that the market is large enough to absorb the unavoidable mistakes they will make along the way. Finally, this section is also crucial because the business model, choice of strategies, tactics, and financial models are all derived - in whole or in part - from the market analysis.
Therefore, entrepreneurs must be prepared to devote substantial time and effort to this section and to prepare it as early in the development process as possible. Today's column will guide you through the market analysis and will refer you to previous columns of enable for market research and information gathering. We have also included a new source for Internet related market research.
Analyze the Market Top Down
The market analysis section must demonstrate to the reader your thorough understanding of the market, whether the market is large and growing, and if it can accommodate your expected growth.
In preparing this section, you must identify, describe and analyze your entire market - from the top down. Specify the size of the total market in both units and dollars. You should also segment the market and include the size of the particular niche that specifically applies to your particular product. The potential annual growth of the market must be covered and market projections for around 5 years should be included. The data should be conveyed to the reader both in text form and in easy to read, dynamic charts and graphs.
You need to make sure that the markets are clearly defined - who are the major purchasers, where are they, why do they buy? You must also address issues like the significance of price, quality, service, personal contacts, seasonality, and buying habits of potential customers.
This section must also include a discussion on the forces driving the market, current and future trends, and the major players.
You Always Have Competition
The market analysis should conclude with a detailed and realistic assessment of your competition. Analyze the market share, positioning, and strengths and weaknesses of the competing products, including the managerial and financial aspects of the competitor companies. Include a detailed comparative table.
Take great care to avoid the "no competition" statement. Serious investors are wary of companies who claim not to have any competitors. With today's information overload, it is very easy to "mine" the data and find your competition. Be sure you do it - and not the potential investor.
Market Research -Backbone of Your Market Analysis Section
The key to a sound market analysis is proper market research. Past columns of enable dealt with market research in great detail. These columns are archived under Information and are entitled:
These three columns will enable you to research your markets and then use the data in the market analysis section of your business plan.
To help you locate information on your competitors, you can use past columns of enable entitled:
In EDGAR, enable talked about finding and using information that publicly traded companies must provide to the US Securities and Exchange Commission. For example, the annual report (10K) contains information on the competitors of the particular company. Get the 10K of a company in your industry and you should find information on competitors.
Internet-Related Market Research
As mentioned in previous columns, if you are an Internet related company, there is no excuse for not having proper market research. There are numerous sites that provide excellent data on the Internet and related markets - and several were covered in the above referenced enable columns. In addition, there is a relatively new site called the Industry Standard (www.thestandard.com) that provides information on the Internet Economy.
The Industry Standard is an excellent source for critical, timely information about the Internet Economy. It is written primarily for executives who view the Internet as an opportunity to grow their business. The Industry Standard delivers sophisticated coverage of the people, the companies and the business models shaping the Internet Economy. It provides news analysis, business model reviews, personality profiles, and industry metrics.
The metrics are a very helpful and unique feature. Most of the data provided can be downloaded in PowerPoint versions. This saves a lot of time, as you can simply cut and paste charts and graphs into either your business plan, or presentation. The charts and graphs are very high in quality and contain citations to the original sources.
Published by Israel's Business Arena, July 6, 1999