Feasibility Analysis Step 2: The Industry and Competitive Analysis
Posted Sunday February 19, 2006 in Entrepreneurship
If you want to play with the big boys — and since you’re starting your company from scratch, everyone out there is a big boy right now — then you’d better know who those big boys are and what game they’re playing. That’s why the next step in your feasibility analysis is a thorough investigation of the industry in which you plan to operate.
In this investigation, there are at least four particular things you want to find out:
- Who are the players
- What are the current standards and practices
- What are emerging trends
- What is the influence of laws and regulation on the industry
Who Are the Players (That Is, Your Competition)
Who else is out there doing what you’re doing? The answer is probably not “nobody” — if you haven’t found them yet, you haven’t been looking hard enough. If you’re being really clever, then you probably have people doing something similar but not exactly identical — these companies are still your competition, especially if you’re planning to take customers away from them. Find out:
- What exactly is your competition doing?
- Who is their customer?
- What is your competition’s value proposition? And, especially, how do value propositions differ across the spectrum of competitors? Why do your competitors differ in that way?
- How do your competitors deliver that value proposition?
- What makes your competitors unique? Why do people chose one, rather than another?
Current Standards and Practices
You need to benchmark yourself against the current standards and practices. Being different isn’t enough to make your sale; as a salesman I know once said, you need to be equal before you can be different. What is the current industry minimum that you need to meet in all of the areas along which industry players are measured? If you can’t meet these minimums, then customers may not choose to go with your product or service (note that, if you have a truly disruptive product, you needn’t meet the minimum in all areas, just the ones that you believe count). How are things done? You may need to “play ball” with suppliers or channels to get the same parts and distribution as your components.
Make sure you know the full flow of raw materials to finished product, whether that be minerals from the ground to product on AutoZone shelves or Ivy League BAs to management consultants. Make sure you know how your competitors carry out every step. Make sure you know why. Then stack yourself up against them, and make sure you can blow them away where it counts and match them where you have to.
Emerging Trends
If you’re getting into the industry, you should be ready for what’s coming up over the hill (ideally, you should be what’s coming up over the hill). What are insiders expecting to happen next? What are they doing about it? What are the drivers of these changes? How will you ride these waves of change?
Laws and Regulations
Whatever your business, the government of the area in which you operate will regulate you and restrict your freedom to act. Government will also, one way or the other, take your money. Now — before you’ve invested time and money in beginning operations, and when you’re planning what your cash needs and operating methods will be — is the right time to learn what roles laws and regulations play in the industry, and how compliance is handled.
How to Get All Of This Information
This is a good place to start the real meat of your feasibility analysis not least because it’s comparatively easy. Other sections involve deep self-reflection, serious number-crunching, or, even worse, talking to actual strangers; the industry analysis, however, can be completed mostly on the Internet. Look at your competitors Web sites, Google them, and read articles you find online. If you’re lucky, one of your competitors will be a public company; then you can read their annual reports and, if you have a friend who works at an investment bank, regular bank, market research firm, university, or venture capital firm, you can have them get you analyst reports on your public competition. And, if all else fails, call up your competitors and pretend to be a customer.
Once you’ve completed this section, go back to your best-case Excel spreadsheet and plug in any changes. Where are you now? Can you match your competition and succeed in your industry and still make money?
Next: the market and the customer
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