Evaluate an Industry For Your Startup

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Understanding your industry inside and out is critical to starting any business idea you may have. Probably it’s going to be much work, but it will be worth it.

In the 21st century, because of all the available sources on the Internet, it’s much easier than in the past to research industry and business opportunities. Of course, not everything posted on a website is necessarily accurate or from a creditable origin. Anyone can quickly build a website and shout that they are an expert in whatever, and if you don’t do any checking, you may end up relying on an untrustworthy source. So, how do you check on your sources?

Here are some steps you can take:

evaluate if the site or author is a recognized expert in the field. Analogize what that site or person has said with what other similar websites say. If you find several sources that seem to agree, you’re probably okay. But be careful, don’t assume that just because many people are saying something, it’s necessarily true that’s how rumors get started.

Ask people that are aware of the specific industry you’re researching whether they’ve ever heard of that site or that person.

When you prepare information for potential investors that the data is gathered from someone else’s research or business plan, you need to give credit to that person with a complete source of the title, author, date, and page.


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status of your industry

In your research phase, you will probably find yourself conquered with a large amount of data, and you can not decide which is essential and which is not. These questions might help you to distinguish the critical information about your industry:

Is the business or the selected industry growing? You can always find information about the number of employees, revenues, and new companies entering the industry.

Who are the main competitors? You want to understand which companies dominate the industry, their strategies, and how your business is differentiated from them.

Where are the possibilities and opportunities in the area? New products and services provide more prospects in some industries, while, in others, an innovative marketing and distribution strategy probably will win the game in the market.

What are the trends and ways of change in your industry? You want to check what has happened over time in your industry to predict what will happen in the future. You also want to see what the industry predictors communicate about the industry’s future.

Does the business embrace new technology fast? Look at how much the significant firms are spending on research and development of new technologies. You’ll get a relatively good idea of how important technology is to your industry. You’ll also find out how quick the product development process is, which tells you how fast you’ll have to be to compete.

Are there successful newcomers in the industry? If you see no new companies being built in your industry, it’s a pretty good bet that it’s a mature industry with predominant players. That doesn’t automatically block your entry into the industry, but it does make it much more expensive and complicated.

What are the standard gross profit margins in the business? The gross profit margin (or gross margin) means how much space you have to make mistakes. Gross margin is the gross profit (revenues minus cost of goods sold) as a percentage of sales. If your industry has margins of 4 percent like the grocery industry has (sometimes even less), you have little room for mistake because 96 percent of what you receive in revenues goes to pay your direct costs of production. You only have 4 percent left to pay overhead. In some industries, gross margins range at 60 to 70 percent or more, so in that case, you have more capital to spend on overhead and profit.

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