In this area of your plan you will be analyzing the industry you plan to enter. This segment will require a bit of research and it is really important that you make sure your resources come from a credible reference. You will want to have statistics; a lot of numbers that will illustrate you not only have a solid understanding of the industry you intend to enter, but that you are prepared to traverse the complex and competitive nature of business.As with just about every aspect of a business plan, this segment can be confusing as there isn't a clear cut outline for what goes into an industry analysis. Pending the person or reference, you will find there are different answers, with varying terms that are used, to describe each section. Some will say you must evaluate your industry using Porter's 5 Forces, but Porter's 5 Forces is actually an approach to conducting an industry analysis as a whole, which doesn't explain where it falls within the industry analysis. The following are recommended components/sections of an industry analysis:
This section should be brief (only a few lines) and give a general overview of the industry you are entering.
This area describes how well the industry is doing. One thing to consider when you are doing your research for establishing a business is that this is for you, as the business owner, as well as potential investors. While conducting your research, you may find that the industry you are about to enter is significantly declining; which should be a red flag to reconsider. There are a number of resources out there to get statistics on your industry, a search of OSHA will help you find your Standard Industry Code (which has been revised: North American Industry Classification System - NAICS). BLS.gov (Bureau of Labor Statistics) is another resource to gain key statistics regarding your industry.
As a result of your research from the previous section, you will be able provide an overview of how large the industry is and the potential for growth. State any benefits that exist for your industry, such as; governmental subsidies or tax credits, are you a first mover or will you offer a product or service that will compliment an existing product, how will your product or service fill a need?
Your profit potential is a result of a number of elements. Here you may use Porter's 5 Forces to evaluate your profit potential from an industry perspective. You will express any cost advantages, or pricing opportunities. This area analyzes your competition and those internal attributes you may have that will generate revenue.
This section describes who you are targeting; their demographics. Are you targeting people that are willing to pay a premium, or are they thrifty. Are your customers young, old, male, female, technologically savvy, located in a particular area (a specific city, state, or country?). Do your customers own their own home, or do they rent? Are they health conscious or do they prefer fast food? Conducting some marketing research for this area will be useful as you will be able to analyze and provide statistics that may help you get to know who your consumers are.
This area reviews where you stand within your market or industry. Discuss who you will be competing with, how well are they doing and how are you going to attract customers to come to you rather than them. Is there room for growth (scalability).
Industry Analysis Example
This industry analysis will aid in researching the industry in which SI Co will be located. This is the solar energy industry. We can also determine how the company will compete in the industry.
The solar energy industry is affected by many trends in the general environment. Some of these trends include: cultural trends, economic climate, legal and political conditions, environmental trends, and technological changes.
Legal and political conditions are especially a concern at the present time. Solar energy will also reduce our dependence on foreign sources of oil and natural gas. Many of the remaining resource reserves are located in unstable regions around the world; therefore the United States needs to ensure that alternative energy sources are developed. Politicians are becoming increasingly concerned with alternative forms of energy. President elect, Barack Obama, believes that alternative forms of energy are very important and will be pursued in the future. Solar energy could generate $230 billion of new investment by 2016 with the recent passage of the Federal Solar Tax Credit for an additional 8 years (News, Research, & Multimedia, http://seia.org, October 2008).
The current economic climate is desperate for alternative forms of energy. Solar energy installed in homes and businesses will provide savings on electrical expenses long-term. Solar energy will also create many jobs for Americans. It will create jobs in manufacturing and distribution, but will also include many solid building trade jobs for electricians, plumbers, roofers, designers, and engineers. A recent study concluded that the solar energy industry is going to create 440,000 permanent jobs (U.S. Solar Industry Year in Review 2007, http://www.seia.org, 9 October 2016).
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