A well-crafted industry analysis is a cornerstone of a successful business plan. It provides a deep dive into the market landscape, identifying opportunities, threats, and competitive forces. By understanding the market dynamics, you can position your business strategically, anticipate challenges, and make informed decisions that drive growth.
What is the Industry Analysis in a Business Plan?
In a comprehensive business plan, the industry analysis, also referred to as a market analysis, is an evaluation of the market in which your business operates. This analysis includes your industry’s size, projected growth rate and trends affecting the market. These trends include economic, political, social and/or technological shifts that will impact the industry in the future.
Why the Industry Analysis is Important
An effective industry analysis section tells the reader about your industry/marketplace. It helps you and readers understand if your market is big enough to support your business’ growth, and whether future market conditions will help or hurt your business. For example, stating that your market size is $56 billion, has been growing by 10% for the last 10 years, and that trends are expected to further increase the market size bodes well for your company’s success.
Key Components of an Industry Analysis in a Business Plan
A comprehensive industry analysis section has two sub-sections:
Industry Overview
In the industry overview section, you will:
1. Define the industry in which you are competing.
To provide a more specific industry definition, consider using industry classification systems like NAICS (North American Industry Classification System) or SIC (Standard Industrial Classification). This can help you identify relevant industry associations, publications, and data sources.
For example, if you’re starting a tech startup developing AI-powered chatbots, you could define the industry as “artificial intelligence and machine learning.”
2. Detail the sub-segment or niche of that industry, if applicable.
By specializing in a niche market, you can target a specific customer segment with unique needs. This can help you differentiate your business and charge premium prices. However, it’s important to ensure that the niche market is large enough to sustain your business.
For example, within the AI and machine learning industry, you could focus on a specific niche like “enterprise-level AI chatbots for customer service.”
3. Describe the key characteristics of your industry.
For example, discuss how big the market is in terms of units and revenues. Let the reader know if the market is growing or declining (and at what rate), and what key industry trends are facing your market.
Here are additional items you may want to analyze:
- Analyze the macro-economic factors impacting your industry. This includes items such as economic growth opportunities, inflation, exchange rates, interest rates, labor market trends, and technological improvements. You want to make sure that all of these are trending in a positive direction for you while also being realistic about them. For example, if the economy is in shambles you might want to wait before entering the particular market.
- Analyze the political factors impacting your industry. This is often overlooked, but can be important depending on what type of company you are starting. If you’re in an industry limited by government regulations such as medical devices, this is something that you’ll want to include.
- Analyze the social factors impacting your industry. This includes analyzing society’s interest in your product or service, historical trends in buying patterns in your industry, and any effects on the industry due to changes in culture. For example, if there is a growing counter-culture trend against big oil companies you might want to position yourself differently than a company in this industry.
- Analyze the technological factors impacting your industry. This includes analyzing new technologies being developed in software, hardware, or applications that can be used to improve your product or service. It also includes emerging consumer trends and will be highly dependent on your business type. In a technology-related venture, you would analyze how these changes are impacting consumers. For an educational-related venture, you would analyze how these changes are impacting students, teachers, and/or administrators.
For each of these items, you want to provide some detail about them including their current state as well as what external factors have played a role in the recent past. You can also include many other important factors if they apply to your business including demographic trends, legal issues, environmental concerns, and sustainability issues.
When you are done analyzing all of these factors, wrap it up by summing them up in a statement that includes your view on the future of the industry. This should be positive to attract investors, potential customers, and partners.
If you’re having trouble thinking about all of these factors then it might be helpful to first develop a SWOT analysis for your business.
Once you have an understanding of the market, you’ll need to think about how you will position yourself within the industry.
Relevant Market Size & Competition
In the second stage of your industry analysis, you must determine the size of your target market and identify the major competitors in your market.
Target Market
Your company’s relevant market size is the amount of money it could make each year if it owned a complete market share.
It’s simple.
To begin, estimate how many consumers you expect to be interested in purchasing your products or services each year.
To generate a more precise estimate, enter the monetary amount these potential customers may be ready to spend on your goods or services each year.
The size of your market is the product of these two figures. Calculate this market value here so that your readers can see how big your market opportunity is (particularly if you are seeking debt or equity funding).
Competition Analysis
Next, you’ll need to create a comprehensive list of the competitors in your market. This competitive analysis includes:
- Direct Competitors – Companies that offer a similar product or service
- Indirect Competitors – Companies that sell products or services that are complementary to yours but not directly related
To show how large each competitor is, you can use metrics such as revenue, employees, number of locations, etc. If you have limited information about the company on hand then you may want to do some additional research or contact them directly for more information. You should also include their website so readers can learn more if they desire (along with social media profiles).
Once you complete this list, take a step back and determine the market share distribution for each competitor. You can use different methods to do this such as market research, surveys, or conduct focus groups or interviews with target customers.
You should also take into account the barriers to entry that exist in your market. What would it take for a new company to enter the market and start competing with you? This could be anything from capital requirements to licensing and permits.
When you have all of this information, you’ll want to create a table like the one below:
| Competitor Analysis | Competitor A | Competitor B | Competitor C |
|---|---|---|---|
| Direct Competitors | |||
| Indirect Competitors | |||
| Barriers To Entry | |||
| Market Share |
Once you have this data, you can start developing strategies to compete with the other companies which will be used again later to help you develop your marketing strategy and plan.
What is Your Competitive Edge?
Many companies are able to stand out – whether by offering a product that is unique or by marketing their products in a way that consumers notice. For example, Steve Jobs was able to take a business idea like the iPhone and make it into something that people talked about (while competitors struggled to play catch up).
You want your venture to stand out – whether with an innovative product or service or through marketing strategies. This might include a unique brand, name, or logo. It might also include packaging that stands out from established companies.
Write down how you will achieve this goal of standing out in your particular industry. If it’s a product, then what features do you have that other products don’t? If it’s a service, then what is it about this service that will make people want to use your company rather than your competition? What are their pricing strategies?
You also need to think about marketing. How are you going to promote yourself or sell your product or service? You’ll need a marketing plan for this – which might include writing copy, creating an advertisement, setting up a website, and several other activities. This should include a description of each of these marketing efforts.
If you’re struggling with the details of any of these sections, it might be helpful to research competitor strategies and how they’ve been successful. You can use this information for informed strategic decisions.
Industry Analysis for a Business Plan Example
Industry Analysis Example #1 – Hosmer Sunglasses, a sunglasses manufacturer based in California
The Sunglass Association of America has projected that the dollar volume for retail sales of Plano Sunwear will grow 1.7% next year. Plano sunglass vendors are also bullish about sales in this year and beyond as a result of the growth of technology, particularly the growth of laser surgery and e-commerce.
Business Plan Market Analysis Example #2 – Nailed It!, a family-owned restaurant in Omaha, NE
This fast growth has also encouraged the opening of new restaurants, with 3,035 operating statewide as of this year. The restaurant industry employs more than 41,000 workers in Nebraska and contributes nearly $3 billion to the state economy every year.
Nebraska’s population continues to increase – reaching 1.9 million in 2012, a 1.5% growth rate. In addition to population, the state has experienced record low unemployment every year since 2009 – with an average of 4.7% in 2013 and 2014.
Business Plan Market Analysis Example #3 – American Insurance Company (AIC), a chain of insurance agencies in Maine
AIC is entering a market that will more than double in size over the next 50 years according to some industry forecasts. The insurance industry is enjoying low inflation rates, steady income growth, and improving standards of living for most Americans during what has been a difficult period for much of American business. This makes this a good time to enter the insurance industry as it enjoys higher margins because customers are purchasing more coverage due to increased costs from medical care and higher liability claims.
American Insurance Company provides affordable homeowners, auto, and business insurance through high-quality fulfillment centers across America that have earned a reputation for top-notch customer service.
AIC will face significant competition from both direct and indirect competitors. The indirect competition will come from a variety of businesses, including banks, other insurance companies, and online retailers. The direct competition will come from other well-funded start-ups as well as incumbents in the industry. AIC’s competitive advantages include its low prices, high quality, and excellent customer service.
AIC plans to grow at a rate that is above average for the industry as a whole. The company has identified a market that is expected to grow by more than 100% in the next decade. This growth is due to several factors: the increase in the number of two-income households, the aging population, and the impending retirement of many baby boomers will lead to an increase in the number of people who are purchasing insurance.
AIC projects revenues of $20M in year one, which is equivalent to 100% growth over the previous year. AIC forecasts revenue growth of 40%-60% each year on average for 10 years. After that, revenue growth is expected to slow down significantly due to market saturation.
The following table illustrates these projections:
| Industry Analysis | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 |
| Target Market Size (Revenue) | $14B | $15B | $16B | $17B | $18B | $19B | $20B |
| Industry’s Growth Rate | 6% | 6% | 6% | 6% | 5% | 5% | 5% |
Competitive Landscape
Direct Competition: P&C Insurance Market Leaders
Indirect Competition: Banks, Other Insurance Companies, Retailers
| Strengths | Weaknesses |
|
|
| Projected Revenue | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | Year 6 | Year 7 | Year 8 | Year 9 | Year 10 |
|---|---|---|---|---|---|---|---|---|---|---|
| Projected Revenue ($M) | $20.0 | $40.0 | $60.0 | $80.0 | $100.0 | $120.0 | $140.0 | $160.0 | $180.1 | $200.3 |
| Growth Rate | 100% | 40% | 60% | 40% | 20% | 25% | 15% | 10% | 7.5% | 5% |
Conclusion
When writing the industry analysis section, it is important to provide specific data and forecasts about the industry that your company operates in. This information can help make your own business plan more convincing to potential investors.
If it’s helpful, you should also discuss how your company stacks up against its competitors based on what makes it unique. In addition, you can identify the strengths and weaknesses that your company has compared to its competitors.
Based on this historical data, provide projections for how much revenue your company expects to generate over the next few years. Providing this information early on in the business plan will help convince investors that you know what you are talking about and your company is well-positioned to succeed.
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