You Start Your Business

Everything in your industry that happens outside of your business will affect your company. The more you know about your industry, the more advantage and protection you will have.

A complete business plan discusses general industry economics, participants, distribution patterns, factors in the competition, and whatever else describes the nature of this business to outsiders.

The internet has had an enormous impact on the state of business information. Finding information isn’t really the problem anymore, after the information explosion and the huge growth in the internet beginning in the 1990s and continuing in the 21st century. Even 10 or 15 years ago, dealing with information was more a problem of sorting through it all than of finding raw data. That generality is more true every day. There are websites for business analysis, financial statistics, demographics, trade associations, and just about everything you’ll need for a complete business plan.

You should know who else sells in your market. You can’t easily describe a type of business without describing the nature of the participants. There is a huge difference, for example, between an industry like broadband television services, in which there are only a few huge companies in any one country, and one like dry cleaning, in which there are tens of thousands of smaller participants.

This can make a big difference to a business and a business plan. The restaurant industry, for example, is what we call “pulverized,” meaning that it, like the dry cleaning industry, is made up of many small participants. The fast food business, on the other hand, is composed of a few national brands participating in thousands of branded outlets, many of them franchised.

Economists talk of consolidation in an industry as a time when many small participants tend to disappear and a few large players emerge. In accounting, for example, there are a few large international firms whose names are well known and tens of thousands of smaller firms. The automobile business is composed of a few national brands participating in thousands of branded dealerships. In computer manufacturing, for example, there are a few large international firms whose names are well known, and thousands of smaller firms.

Products and services can follow many paths between suppliers and users. Explain how distribution works in your industry—is this an industry in which retailers are supported by regional distributors, as is the case for computer products, magazines, or auto parts? Does your industry depend on direct sales to large industrial customers? Do manufacturers support their own direct sales forces, or do they work with product representatives?

Some products are almost always sold through retail stores to consumers, and sometimes these are distributed by distribution companies that buy from manufacturers. In other cases, the products are sold directly from manufacturers to stores. Some products are sold directly from the manufacturer to the final consumer through mail campaigns, national advertising, or other promotional means.

In the computer business, for example, competition might depend on reputation and trends in one part of the market, and on channels of distribution and advertising in another. In many business-to-business industries, the nature of competition depends on direct selling, because channels are impractical. Price is vital in products competing with each other on retail shelves, but delivery and reliability might be much more important for materials used by manufacturers in volume, for which a shortage can affect an entire production line.

In many professional service practices the nature of competition depends on word of mouth, because advertising is not completely accepted. Is there price competition between accountants, doctors, and lawyers? How do people choose travel agencies or florists for weddings? Why does someone hire one landscape architect over another? Why choose Starbucks, a national brand, over the local coffee house? All of this is the nature of competition.

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