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Industry Analysis:  Business Plan Basics
Every business operates within the larger classification of an industry.
Your business plan must address the forces at work in your industry, the basic trends and growth over time, and where your company fits in.
Demonstrating to outsiders that you understand and have anticipated the important factors of your industry builds a case for your company's success.

Think of your industry as those companies providing products and services similar to yours.
This includes those companies selling similar products and services, as well as complementary or supplementary products or services.
Any business that falls between the supplier of raw materials to the end of the distribution channel for your type of product or service are part of your industry.

In the industry section of your business plan, provide answers to the following types of questions:

  • What is the size of your industry by both revenue and number of firms?
  • Discuss the characteristics of this industry such as growth trends, units sold, or employment.
  • What factors are influencing growth or decline in your industry?
  • What have been the trends in previous years?
  • What trends are expected in the coming years? (include supporting research)
  • What are the barriers of entry for your industry?
  • How many companies are expected to enter your industry in the future?
  • What government regulations effect your industry and your business?
  • Is your industry highly regulated or does it fall below the government's radar?
  • Provide a general explanation of the distribution system for products and services in your industry.
  • Is it difficult to gain distribution access to your industry? Explain.
Industry Analysis:  Mistakes to Avoid
These are some of the most common mistakes found in the industry analysis section of a business plan:
  • Not demonstrating a solid understanding of how your industry functions.
  • Appearing unaware about the companies that form your industry.
  • Lacking understanding as to where your business fits into the distribution channel of your industry.
  • Omitting growth trends, revenue size, and significant statistics for your industry.


Target Market:  Business Plan Basics
The target market section of your business plan must clearly identify the current and prospective buyers of your Company's products and/or services.
Your goal in preparing the target market section is to demonstrate to readers that you clearly understand who your customers are and how your products/services directly meet the needs of the marketplace.
Properly identifying your potential customer base also helps to drive overall marketing and sales strategies that you will include within other sections of your business plan.

Although your product or service may meet the needs of a large constituency of potential customers, the goal is to define your customer base as specifically as possible both quantitatively and qualitatively.
Consider the follow types of characteristics for inclusion in the target market section of your business plan:

How large is your target market?

Are there 1,000 business buyers?

10 million potential consumers ready to purchase your product?

Or a small handful of very large target customers?

The demographic traits of your customers often vary based on whether you are focused on serving the consumer or business markets:

  • Consumer - Income, Occupation, Gender, Single/Married, Ethnic Group, Education
  • Business - Industry, Product/Service, Years in Business, Revenue, Employee Size, Private/Public

Where are your customers located?

While technology has made location less of an issue for many companies, it doesn't mean you should overlook the importance of defining the geographic location of your customers.
 Clarifying these issues also helps to ensure that your marketing and sales strategies/budgets properly match your goals to capture market share.

Other Characteristics
What are some of the more subjective traits that define your customers?

This might include things such as current buying motivations, perceived shortcomings of other solutions in the market, and trends/purchasing shifts likely to occur within your target market.

Naturally, the more you understand your customers, the better your chances of success.
Many times the best approach to answer the target market question: - Who is our customer? is to invest time and resources in primary market research.

Conduct simple surveys or focus groups.
And if feasible, work with a reputable market research firm to guide you through the process.

At the very least, use the Internet and industry groups to locate market research studies and statistics for your business plan.
These resources can range from free information available on websites to expensive professional market research studies prepared by experts in the field.

Performing primary research enables you to gather and document the quantitative and qualitative information needed to prepare a solid target market section for your business plan.


Target Market:  Mistakes to Avoid
Here are some of the "don't " to avoid when writing the Target Market section of your business plan:
  • Don't assume that everyone is a buyer of your product/service.
  • Don't be unclear about the characteristics that define who your target customers are.
  • Don't assume you must have a "huge" target market - a well-defined target market that your company can serve is far better.
  • Don't jump to conclusions about why your target market needs you - instead explain how you meet their needs.
  • Don't underestimate the value of focus - sell a specific product/service to a specific group.
  • Don't try to attack too many markets at once - particularly if you are a startup or early-stage company.


Target Market:  Newsletter
A popular and critical question posed to business owners and entrepreneurs by lenders and investors is "Who is your customer?"

It's such a simple question, yet the inability to answer it has possibly caused more 'going out of business' sales than any other.

Why can failing to answer such a simple question have such a devastating impact on your business?

Unfortunately, because many business owners place too much emphasis on their products and services, and too little on what the customer truly wants and needs.
You may have a great product, with more neat gadgets, features, and benefits that your competition offers, but does your customer care?

And how do you know they care?

The first place to start is by defining exactly who would be interested in buying your product or service.
This is your target market, defined as the group of the population sharing a common set of traits, which distinguish them from everyone else.

For example, a children's clothing store located in the mall might have a customer profile like this: Children between the ages of 3 to 8 years old, 65% female and 35% male, located within 10 miles of the mall, and whose parents earn over $40,000 a year.
These characteristics define a target market - and a central set of characteristics for potential customers for children's clothing.
If you're in the start-up phase, your target market may be less tangible than the target market for a company with years of operational history and customer files.
But as you gain experience running your business, and you maintain accurate records of who actually purchases your product or service, your understanding of your ideal customer will improve.

So why focus on your target customer?

First, if you don't understand who they are, how can you tailor your product or service to best meet their needs?

One key to business success is the ability to provide products and services that meet the needs and wants of your customers.
If your customers want to purchase red shoes, and all you sell are blue shoes, how many do you suspect you will sell?

If your customer believes that the speed of your service is more important than its quality, isn't that information you need to know?

Second, when you understand who your customers is, you can determine with more accuracy which marketing mediums and channels will be most effective in reaching them.
If your potential customer only listens to FM stations, and you advertise on an AM station, your marketing efforts will be unsuccessful.
The more narrowly you can define your customer, the more focused your marketing efforts become, and the more your marketing dollars will work for you.

For example, if you want to sell print shop owners a product, then advertising in a print industry magazine is a far more effective use of marketing dollars than placing an ad in USA Today or Time.
This doesn't mean that your customer won't read USA Today or TIME, just that you won't be advertising to all the millions of people who clearly have no interest in your product.

Here are suggestions on how to breakdown your customer profile, on both the business and consumer level.

Demographic characteristics are specific, objective, and observable characteristics that your target customers share.
Most marketing mediums, such as newspapers, magazines, radio stations and television stations can provide excellent demographic characteristics on their audience.
General demographic characteristics include:

  • Age or age range
  • Gender
  • Income Level
  • Family Life Cycle
  • Occupation
  • Education
  • Race/Ethnic Group
  • Social Class
  • Industry
  • Product/Service Sold
  • SIC Code
  • Years in Business
  • Revenues
  • Number of Employees

Geographic characteristics are based on the location(s) where your target customer can be reached.
Are they in the urban areas or do they reside in the rural areas?

Are they in Montana or New York?

Correctly deciding whether to run an advertisement in the New York Times or the Los Angeles Times, will save you money, and help you generate more effective marketing results.
Try to identify your customer based on the following geographic characteristics:

  • Country / Region
  • State
  • City / Town
  • Size of Population
  • Climate
  • Population Density

Psychographic characteristics, though less tangible, are still important to identify and understand.
These traits have more to do with a person's psychological characteristics such as attitudes, beliefs, hopes, fears, prejudices, needs or desires, and are highly dependent on your customers' self-image and their perceptions of your industry or product.
Psychographic traits include such things as:

  • Social Class
  • Lifestyle
  • Leader / Follower
  • Extrovert / Introvert
  • Independent / Dependent
  • Conservative / Liberal
  • Traditional / Experimental
  • Socially conscious / Self-centered

Consumer / Behavioral characteristics are those relating to the purchasing and usage traits of your customers.
Do they use similar products such as yours, and how often do they use them?

What are the benefits people desire in your service, and how does this translate into sales?

Consider these consumer / behavioral traits for your target customer:

  • Usage Ratio
  • Benefits Sought
  • Method of Usage
  • Frequency of Usage
  • Frequency of Purchase

Market Size
Once you determine who your customer is, it's important to identify the size of your customer base.

Is it large or is it small?

If it's too large, consider narrowing it down and focusing on a particular niche.
Trying to reach and sell a large target market is difficult and costly, especially if it's populated by well-financed competitors who will force you to incur significant costs to achieve a sizable market share.
If too small, will you be able to capture enough customers to make a sufficient profit?

Market Trends
Once you define your customer, and determine their total numbers in the population, it's a good idea to research the trends of your market.
Over the next few years, what growth rate can be expected for your target market?

What changes are taking place in the makeup of your market, and how will they change in the future?

How are, and how will, customers change their use of your product or service?

So you ask, "How do I find all this information?" BizPlanIt has a few suggestions.
First, talk to as many of the people in your target market as possible.
Seriously - just talk to them and ask questions. Conduct surveys.
Discover what they like and dislike, and what they want and need.
What is the most important factor in their purchase decision?

Facilitate a focus group, or if you have the money, consider working with a market research firm.

Second, don't forget the local library.
It's rich with books, magazines, research journals, reference guides, and computer databases to help you find the information you need.
Ask the librarian for help, we always find them extremely helpful in locating specific sources quickly.

Lastly, use your own eyes and ears to discover valuable details about your target market and their buying habits.
Visit your competitors disguised as a consumer.
Hang out in a store related to the product or service you sell and take it all in.
Request annual reports and marketing information to find out about the financial, operational, and marketing factors that are important in your industry.
Essentially, look around, collect information, get organized, and figure out who your target customer is, and how you will reach them effectively.

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