After an entrepreneur has a good idea of the philosophy and purpose behind a company or venture, they can begin to research the factors that will be important. These really distill down into two main areas, forces related to the market and forces related to the environment. A full investigation of these areas will help the entrepreneur to be prepared for whatever may come their way.
When researching the market, a few of the things that must be acknowledged and comprehended are the following:
The Industry
A full analysis of the industry being entered will be immensely useful when constructing the rest of the business plan. There are a number of statistics and issues that will help the author of the plan to accurately predict growth, revenue and risk within their chosen sector.
- Industry Size- How much money is generated per year from this particular industry? How many firms or businesses contribute to that figure? How many people spend money? Is this a country-wide market, or is located in a specific area?
- Industry Growth- Is this an expanding or shrinking industry? Has its popularity risen recently? Is it likely to be affected by recessions? How severe would a recession be on this particular industry?
- Focal Points- Where is the business going to be run from? What is the industry's presence like in that area? Is there heavy competition?
After this more general questions have been answered, a narrow analysis of the venture's target market can take place.
Target Market Statistics
Now, one has to do research on the exact kind of consumer that will be purchasing the product or service in question. The more specific a profile can be made, the more accurate that predictions will be regarding their likelihood to purchase. Having a full understanding of potential revenue sources will help later on with advertising and marketing.
- Target Market Size- How many people are there in total that might purchase the product?
- Income and Activity Rates - How much money do those people make? How much money do they spend on products that relate to the chosen market?
- Education - How much education does your target market have? Is it mostly High School, College, University or higher?
There are any number of factors that could be analysed. From ethnic groups to age, to dislikes and likes, it's all important. As much detail as can be found must be used in this section.
Competitive Factors
Unless the market is a completely new one, there will be other companies pursuing them as a potential source of revenue. Because of this, some thought must be given to how opposing businesses make their money and what they offer.
- Direct Competition- These are companies that provide a very similar or exactly the same product as the one planned. Great care must be taken to understand their appeal and market share. This will help in planning how much of their business can be taken by a new business.
- Porter's 5 Forces- There are four forces that make up the competitive environment (which is the fifth force affecting a business.) The other forces that must be looked at are the threat of substitutes, the power of suppliers, the power of buyers and the threat of new entries.
- Indirect Competition- These are other areas in which a consumer may spend their money. An example of indirect competition might be a movie theatre or a restaurant. Although they are not in the same industry, they compete for a consumer's entertainment.
With these sections of the market researched, the entrepreneur will have a complete picture of the environment they will be entering. They will be able to picture their potential consumers, understand their wants and their needs as well as comprehending the level of competition they will be facing and overcoming.
This section of the plan relates to market research, but there are many other areas to concentrate upon as well. Please visit the Business Plan Template to preview the other sections, including the Sample Company Description.
