( H R

INDUSTRY ANALYSIS

INTRODUCTlON
An industr)' is a group of firm s producin g a simi\<1]" produet o r se rvice. soch as
a irp];:l11 es. mus ie. e lectro nic gam es. a r fitn ess club me mbe rshi ps. Industri es vmy
,dong mon y dimensiolls. illc\uding size. growt h r<ll e. slructure. fin a ncial ch"Hl cte r-
istics. a nd ove rall attrClctiveness. The trends affecting <I n induslry " Iso ma tte r. Fo r
exmnple. as th e U.S. popu lnti oll (lges. th e growlh of th e fitn ess cent e r induslry is
lik ely to c1epelld increasingly 011 it s Cl bilit y to attract (Ind re t<l in peaple 50 yea rs
o ld <I nd olcler. Fitll ess ce nt e rs Iba! me o n top of this tre nd <me! Clcljust flccordin gly
"re likely to outpe rfol"m those tlwl men"t.
1l1is cJHlpter introduces Cl nd describes th e industr)' <ltHll ysis panion ot th e
busin ess pla n. It 's impo rt<lnt th<lt thi s sectio n focus slricl/y on <l firm 's in dustry
rath e r th <l n it s Lndustry <lnd it s t<lrget mm"ke t simult<ln eously. A firm 's targct
liwr ket is th e limit ed portion of an industry that it goes after o r tries to <lppea l to
at <l cert <l in po int in tim e, Most finns do no t try to se rvice the ir e ntire indusli")'_
lnstea d, th ey foeus o n sen ring (l specialized portion o f the ma rke t we lL Prim e
Adu lt Fitn ess's target mark e t within th e fitn ess industry is peop le 50 years old
and o lder.
Sepa rating t h e mwl ysis of <l firm 's industry <l nd it s targe t ma rke t is impo rt <l nt
bec<luse it's premature fo r <l new firm to se1eel. ar even t<llk <lbo ut. <I speeifie
t<lrget mark e t until an unde rst<l ndin g of th e bro<lder in dustry is obt<line d. Fo r
exmnp1e, if you we re inte rested in starting <l compml y to produee (l new type of
pesti cide for onmge trees. your t<l rget mark e t would be o]"[l nge g rowers. But
before yo u ll1<1ke th e deeisio n to pursll e th<lt I11m"ke t. you sho uld unde rst<lnd th e
pcsticide indusII"Y in gene m \. ls Ih e indusIl")' lmge o r smali ? [s il growin g o r
shrinking? ls it d Ol11in<lt ed by large finn s o r smali firm s? Are finn s in Ih e in dustry

• 101 •
• 102 PART III Preparing a Bu siness Pl an

making o r lo sing mo ney? What impact is o rgan ie fa rm ing having o n pes li cide
s<l!es? llte <l nswers lo Ihese a nd s imilar queslio ns will delerm in e whelh e r Ihe pes-
ticid e induslry in ge nera l is an allractive induslry lo en le r. a nd whic h segme nts
within Ih e in dustry o ffe r Ih e mosl promise. You r a nalysis wi ll also give you a read
on whethe r slarting a firm to target o range growers is a good idea o r wh e th er
ot he r segme nls wilhin t he pesticide industl) ' Iw ve greatel' potentia l.
llt e industl)' ana lys is s ho uld appea l' e<1 l'ly in a busin ess pl<1 n bec<1use il logi-
ca lly precedes t he a na lysis of a firm 's targe t l11arke l a nd mmk eling str,1tegy.
II a lso helps set up and support Ih e re nwinder of th e pl an. llt e mw lysis no rmally
includ es. for exa mpl e. a n indi ca tion ot the <lve rage growt h in sales for the firm s in
<lit industry. This info rmatio n he lps a firm co nstruct ilS OW II tinancial fo recasts
an d justify its numbe rs. Simil a rl y, th e o lh e r maj o r portions of a firm 's pia li , sllc h
as product selection. ta rget l11 <1 rke t. and opera ti o ns plan. me guided by t he in dus-
tl-y"S characle ristics a nd tTe nds. Fo r exa mpl e. th e inc re nse ill th e Ilumbe r of up-
sca le wome n 's clo thin g boutiques. fil' st m ent ioned in C hapt er 2. is lied direc ll y to
facto rs a nd trends in the bronde r wome n's clot hin g in dustry. lltese fa cto rs and
tre nd s include th e fo ll owin g: l

• 1lIe indusli'Y is g rowi ng.

• A s mo re wome n hnve e nt e red th e wo rkfo rce. the demand for bu sin ess attire
has inc reased .
• Opportunities me increasing for wo men 's clothi ng retailers to cOlllpe te in
niche ma rkets such as petit es. plus -s ized clot hing.evenil1g wea r. ca sua l we ar.
sportswea r. a nd upsca le clol hing.
• The industry is Illade up of a la rge nUlll ber o f slllall compn nies.
• Th e ca pit al cosls associa led wi liI ope ning a single stare a re relali vely low.
• Th e onl y barriers to e nt!'y assoc ialed wit h ope ning a single sta re a re brand
awareness a nd Ihe leve l of co mpe lilion in a loca l a rea.
• Mass me rchandisers lend to focus Ih e ir offe rings on youlIger women.
whe reas boutiques te nd to focus o n Illidd le-aged and o lde r women who
le nd to have mo re discre tio nary incolll e. ln addition. o lde r wome n ha ve
Ih e most troubl e findin g t he right clo th es. m aking Ih e perso nalized se rvice
o ffered by bo uliqu es a ttracti ve.

Togelh er. Ih ese factors a nd tre nds poi nt directly toward oppo rtunilies to o pen
specialty clo thing sto res Ol' boutiques a nd suggest the Iypes o f sto res Ihat a re th e
most preva le nt.llti s type ot in formatio n provide s a so lid foundat io n for t he busi-
ness plan fo r a com pany such as O li vine (http://www.o livine.ne t). thesingle-store
wome n's clot hing bo utique in Sea ttle int rod uced in C hapte r 2. 11 takes an under-
sta lldin g of a n industry's c haracte ri stics and Ire nds. howeve Ll o prope rly ide nt ify
m1Cljustify Ih ese types o f OPPOl'llllliti es.
Now le t"s look nI Ihe first major seclioll in nn indusI l')' a nnlys is a nd why it"s
impo rt ant.
 CHAPTER 5 In du st ry Ana l ysis 103 .

INDUSTRY DEFINITION
lll e firs l seclio n o f Ihe induslry a l1 f1 lys is sho uld bri e f1 y (no rno re 111fItl severfl l sen-
le nces lo ng) clesc ri be Ih e firrn 's induslry, lllC in d ustlS's SIC cod e fl nd NA ICS
code sho uld be p rovided , lll e o ld e r SIC syslem wa s repl fl ced by Ihe NA ICS in
1997, fl lth o ugh S IC codes M e st ill used , TIu." NA ICS sysle ms ex pflllded Ih e IlUIll -
ber o f induslry secli o ll s fro m 10 lo 20 lo reflecI Ih e broflde r Ilum be r o f induslri es
Ihnl hnve COllle inl o cx iste nce. A ni ce sid e-by-sidc di spl,,)' o f bo th syste ms is
ava il fl bl e nI Ihe U. S. Ce nsus Burefl u 's Web s ite fil hllp:/lwww.ce nsus,go v/epcd/
www/nnicstflb.hllll . YOlt ea n id cllti fy yO lll" indus try's S IC rocie a nd il s NA ICS
cocle allhis site.
A ltho ugh il Ilw y secm like icl cnlifyin g il co rn pil ny's induslry is n simpic lask o
it"s flctu a ll y il lough ca li in ma ny instances. A firm 's induslry can be defined
na rrowly Ol' b ro ad ly, Fo r in slil llcc, is Prim c Ad llll Filll CSS in Ih e filn ess ce nl e I'
indusIr)' or Ih e recrea ti o n indusIl) ' ? Is Je l Blue in Ihe <l irl in e indUSi ry o r th e trans-
po rt ill io n induslry? Is O li"in e in Ih e re l<lillrade induslry o r Ih e wo me n's clo lhin g
indusIr)'? 1l1e di slincli o n is impo rt ant because il defin es I he scope o f <l compnny"s
indusIr)' aJw lys is and helps ide nli l"y il s ove ra ll s ph e re o l" co nce rn . Th e mosl prac-
li cal npproach fo r a bu sin ess p lil n is 10 de fin e il co rn pa ny's ind us U'Y na n o wl)' and
inclllde a n ana l)'s is o f th e Ire nds Ih <lt influen ce b romle r ind uslry c,1tego ri es if
necessary. In th e illuslral io ns in Ihis chaple r, Prirne Ad ult Filn ess dc fi nes il se lf
na lTowly as parl of Ihe Fit !less a nd R ecrea l io nfl l SpO I'IS Cenl er Ind uslry ( NA les
7 1394). In a subseq ue nl pa rt o l" it s indusll'Y [I na lysis. il co uld have prov ided <Hl
<l nalysis o f tre nds o f Ihe brande r induslry- A rl.s, Entertainmenl tl nd Recrentio n
(NA ICS 7 1). bUl il Wil sn 'l necessary in Ihis ins tall ce.
If your firm ope rat es in two m mo re in d ustri es, )'Oll sho uld ide nlify a lI th e in -
duslries tlw l il pcarticipa les in , and recoglli ze Ihilt yOll will Heed lo cOll duct nil
industr)' antl lysis for e(lch o f Ihe indu slries. Fo r eX<lIll ple , if fi compa ny ma kes com-
pu le r so flwa re fo r d octo r's o ffi ces. it s ho u ld sHl te Ih at o pe rates in th e co mpul c !"
softwa re indu sII")' and Ih e hea lth ea re induslry a nd provide (In induslry a nalysis
fo r bo lh in d uSlri es. Som e d isc !"etio ll is a ll o wed regard in g Ih e weighl pl[lced o n Ih e
in di vidual anfllyses. In so me inslances. when a firm operates in more Ih an o ne
indus u'y, il !lw )' be approprialc to condu cl fl fuli C1 na lys is o n the primary indus u'y
Ih e firm opemtes in a nd a n [lbbrev iuled (l na lysis o n Ih e o lh e r.
Some lirn es it"s difficult to ide nt ify an indus try thut m<1 lchcs nn inn ovat ive
new prodUCI Ol' service. A n exa mpl e is H20A udi o (http ://www. h20aud io.co m). lh e
firm thal mak es wnt e rp ro o f hOllsin gs fo r Ih e App le iPo d. If )'o u had bee n as kc d
lo wrile t he co mpan y"s migin .. 1 b usin ess p l<1l1, il wo uldn 'l have el ear how lo
d cfin e indusu ) ' o r in d ustri es il parlicipa les in . C urrc llll y no NA ICS codes
exisl for Ih e App le iPod, MP3 p la)'e rs, m iPod accessories. In cases lik e Ihis, yo u
have to e ilher d efin e [I new induslry Ol' improvise by seleclin g Ih e induslries th fll
rep rese nl th e closesl fil a nd th e n include addi li o nnl pertin enl illfo nn atio ll.
(TIle re nre mo re th an 1.800 NA ICS cod ed induslri es to choose from.) In Ihe ca se
of H20Audio. th e induslri es Ihal rep resent Ih e closesl fi l a re Sporting and Alh lelic
• 104 PART III Prepa rin g a Bu sin ess Pl an

FIGURE 5-1 Industry Definition IPrime Adult Fitness Business Plan)

Prinle Adllll Filness will compele in lhe "Filn ess and Recrealional Sporl s Ccnl ers inlh e
US·· indllslry (NA J CS 71394 <Ind SIC 7991). Thc indusIry is compriscd llf es labli shmcn ts
cngagcd in filn css inslru cli on and managemCllt. Well-know eompanies in lhe
induslry indlldc Cllrves [nl ernaliollill. LiFe 11me Filncss. and Gold's Gym. The indusl ry
indlldcs ri lness cen lers and specializcd fa cilil ics slleh as lellllis du bs. wcighl -l raining cen-
lcrs. iec skaling rinks.. and dan ce TI1C largcsl segmenl of lhe indusl ry. riln ess
rcprcse nls -11.1 percenI of induslry reVenllCs.

Goods M mlUf<lcturin g (NA ICS 33992). Sport ing Goods Slores (NA ICS 45 1J I).
<I n d El eclro nie Shopp ing <I nd M <l il-O rde r H Ollses (N A les 45 111 ). E <le h o f Ih ese
industries re l<l les lo <l piece of wh a l H20Au d io d oes. <l nd collecti vely Ih ey defin e
Ih e bulk o f H 20Aud io 's co m pelili ve l<l ndsc<lpe. If you go Ihi s roul e. yo u sh o uld
li sI e<lch o f Ih e in d ustri es <l nd indi c<l le tlw l yOll p l<l n lo expa nd yOlll" <l n<l lysis lo
incl ucle a dditi o n<l l info rm <l l io n . sll ch as curre nl Ire nd s in iPod an d iPo d accesso ry
sa Jes. lll e adV<l IlI <lge o f Ihis approach is Ih <l l il <l nch ors your <l n <l lysis in eslab-
li sh ed NA ICS cate gor ies. whe re p le nliful info rll1 <l li o ll is <lv<l il <lb le o nlin e <l nd
e lsewhe re lo <lssist you in your mw lysis.. If you defin e a n ew in d usli·y. su ch as Ih e
iPod <lccesso ry induslry. your industl")' d e finili on m ay be m o re p recise. bul il will
be mo re d ifficult lo <lccUll1ul a le good qua lit y in fo rm <l l io n fo r your in d ustry <l11<l ly-
sis. Yo u a lso run Ih e risk Ih at your re<lder will n ot see Ih e in d u stry yOll de fin e as a
legilim ale ind uslry.
llle besl Inl e rn el resources lo <lssisl in be lp ing ide nlify industri es. <l nd in
com p ie lin g <I II seclio ll s of Ih e in duslry <l n alysis. me IBI SWorlcL M inl e L <lIld
SI<l nc\md & Poor's NeIAdv<l ntage. A li I hree o f Ih ese resources <l re <lva il <lbJe fr ee
th rough m o sl uni ve rsil y li b rary Web sil es. Th ey (l re a lso hi ghlight e d in Ih e Inte rn e l
Reso urces T<lb le in Append ix 2.2 <I I th e e nd o f Cl1<lple r 2. I B1 SWorld . in p<l rticul <l r.
provides <l 20- lo 40-page an alysis fo r ne m·ly every induslry <l I Ih e fi ve-d igil NA ICS
code level. E <lch <l n <l lysis sla rt s wilh <l very d istin cI descri pli o n o f Ih e respecli ve
in d ustry. whi ch nl<ly be h elpful lo you in com pIelin g Ihis sectio n o f your b usin ess
p la n.
Th e Prim e A dult Fit n ess in d uslry definitio n is sh own in FigUl·e S- l.

INDUSTRV SIZE, GROWTH RATE,

AND SAlES PROJECTlONS
nli s seclio n o f Ih e induslry <l1 wl ysis brie fl y di scu sses Ih e size (i n da llms). Ih e
growth r<l le (i n pe rcenI ). <l nd fulur e sa Jes projeclio n s fo r th e industry a r in d u s-
Iries your finn s will be e lll e rill g. It's im port a Il I Ih ul Ihis seclio ll consist o f mo re
I h an just num bers. UnJess yo u <l re d e finill g <l new in d uslry. such <lS Ih e iPod acces-
sor ies induslry. Ih e num bers <l re f<l irl y e<lsy lo fin d. lll e key is lo m <l k e se nse o f
Ih e Ilum be rs <I nd presenl Ih em in a w<ly IIUl I buil ds Ih e cre di b ilil y o f your
business 1'1 <1 11 .
 CHAPTER 5 In dustry Ana lys is 105 .
1lle re are fo ur ge ne r<l l rul es o f thurnb for compi e lin g this secrion. First. you
sll ould a lways disp l<lY fin a ncial info rm<lti on .such as industl")' sa les a nd growth rate.
in a lllulti ye<l r form at. 111 <l kin g it easy to spot tre nds. Reportin g a single number.
suc h (l S "Ihe wom e n 's c1 0 lhinE indus lry Een e r(ll ed $17.S hi lli on in s<l les in 200')." is
insuffici ent.ln add ilio n to th<lt figure, your reade r w<l nls to kn ow whe the r industry-
wide sa les are growing a r decl ining, a nd lh e rat e of growth a r decline. The best
approach is to report three to five years of industry-wide s<l1es a nd industry-wicle
growth rates.Always pro vide a citati on fo r whe re your info r111<lti o n cmne froll1.
nI e second ru1e of thumb is to disp l<lY your infornwtion gr<lphica lly if possibl e.
Guy K<lw<lsa ki. th e e ntrepre neu r a nd in vesto r introduced e<l rli e r in th e boo k, has
sa id tlwt o ne o f th e most effecti ve W<lys to m<lke <l busin ess p lml st<lnd o ut is to
incl ude di<lgrmns and graphi cs. 21ll e re is a risk in overdoing t his. but supp1ement-
ing th e r<l W dat" for industry-wide sa les and sa1es growth with attr<l clive gr<lphs
th <lt visu<lll y depict th e sa me dat<l is " n ide" l oppo rtunit y.
Th e third rul e of thumb is to provide inforIn<lti o n about your industry o n a
regiona l a r loca l basis if <lppropri"t e. Yo u don 't need to go into de t<l il- an ana lysis
of your t<lrge t m"rke t a nd co mpe tit o rs is provided in th e nexl secti o n o f th e plm1.
covere d in C hapte r 6. Stil!. in m<ln y industri es. industry-wide sa 1es <l re no t eve nl y
dis lribuletl illTUSS lh e U nil e d Slil! es. In lh ese ins l<mces, il mi glI! be u f inl e res l lu
yOlll' re<lde rs to kn ow where lhe majorit y of th e s" les tak e place a nd where tll e
largest in cre"se a r decre"se in s" les is expectecL
nI e fi rw l rule of thumb is to <lvoid th e tempt.'llion to report oni y positi ve ar fl a t-
tering inform <lti o n "bout your induslry. 1l1is <lppro<lch not only unde rl11in es th e
credibilit y of your plan, but it <l Iso is not int ell ectlw ll y ho nest.lll e num bers t Iwt are
reported should a lso be viewed in th e ir proper cont ext. Just bec<luse a n industry"s
numbers aren't glowin g doesn't me<l n tlwt good oppo rtunities <lren't "v<lil"ble.
Mmly <lver<lge induslries h<l ve product or service g<lpS that provide excitin g oppor-
tuniti es for new busin esses. If you beli eve tlwt your COl11p<ln y h<lS th e potenli,, 1 to
o ut perform th e <lve r<lge cOl11pmli es in it s industry. st<l te your industry's num bers
f(lirl y (lnd h o nesll y, regm·d less of h ow poor th ey look . " nd in I he "'lrends" port-io n of
th e industry atw lysis. start lay ing th e groundwork for why a cOll1p<l ny lik e yours
migh t outperform th e industry. You will h<lve th e oppo rtunit y in th e next secti oll of
your business pla n to desc ribe you r specific target mark et <lnd the promise it offe rs.
Th e industry s ize. growt h r<lt e, a nd s<lles projection portion of th e Pril11 e
Adult Fitn ess indu stry an<l lys is is shown in Figure 5-2.

INDUSTRY SilE

An industry's size is no rm<lll y c\i spl<lyed in doll ars over a three to five year period.
<lS shown in th e Prirn e Adu \t FilJl ess industry fl rw lysis in Fi gure 5-2. Same busi-
ness plans <l Iso repo rt th e numbe r of finn s in th e ir industry. lll e idea l size of a n
ind ustry fo r a sta rtup is large eno ugh to <l Ilaw diffe re nt col11petito rs to se rve dif-
fe re nl segll1 enlS profitab ly but sma li e nough tlwt it isn 't a llractin g th e il11ll1 ediat e
<l tt e nti o n of larger potenti<l l compe tit o rs. 1l1e re <l re no good rules o f thumb a r
he lll'i sti cs fo r wlwt this size is -it 's strictl y <l judgl11ent c" IL
• 106 PART III Preparin g a Business Pl an

FIGURE 5-2 Industry Size, Growth Rate, and Sales Projections IPrime Adult
Fitness Business Plan}

2002 20(0 1005 2lHJ(,

ry $16.1 $ 17.3 hillitlll $ IKA hi llillll $19.7 hilli ull $2 1.tJ hillitlll
Num bcr o r 4S.28.t .t9.5.t.t 5U523 5 1.2.t5 51.831

Emplllyllh.' 1l1 -UHA I I'i .tXó.73".l SOó.X79 Sló.,'1.t3 S31.96.t

In<l llstry GW\\'l h R:II I:'.'

11.1111 111(13 l1HI5 2l.H16
IndusI ry Sa lcs .':.2 0/" 5A % 35 % 3.9% 3.6"/"
Numhe r lII' -U.7% 2.A I K, 2.0% lA "" 1.1 %
Eslabli shrne nls
EmpJtl)'melll 5.2 % .t .I'X, 2,(J'}'" 2.\)'Y"

Industry S:llcs l'roj Ct1inns

2jHI7 2ltUX
Induslry Sn les $2 I .l': bi llion $22.5 billio n
G ro wl h Ra lc 3.7% 3.3%
G l1Iphs
26 5.0

24 o
4.5
•o
'"" 4.0
22 C-
C-
" 20
o
o c-
-
3.5
O
«" 18 c- •
-"o
3.0

'n 2.5

2.0
2005 2006 2007 200X 2004 2005 2006 2007 20()x
Somce fo r all illforma lio n: IBIS \Vor ld . l\h y 15. 21()7.

111e induslry is in Ihc g,ro wlh pha"", of il s li fe crc le. G rowlh is bc ing drive n prim arily by il n
or I he impo r1 allce o l' filn cs'i ,Ind cxe rcisc. '111 C ind ry\ chal-
le nge is co mpe lillg fo r Ih<;.' Icisurc lime o l' il s cuslo llle rs. Timc si rappo.! d cuslo lll\:rs cHo.! less
likd y 10 rrcquclll ,I rilnc'is cluh a r o lhc r ro.!crCillio nal SpOrl S c('nlC' r.
Th\: 11Irgo.!'il t\r 111t..' b gruwing al rapid raIl..'
Ihan lhc indus lry as li wh o le. According to Ihe Intc rn alio nal He allh. RilCqllCI & Srx>rl scJ ub
Associalion ( IH RSA ).l he nllmbe r of filn ess clubs (in Ihe Uniled SIales) grew by pe r-
cl:! nt fro m 2003 lo 2004 and 8.3 perce ni rro m 2004 lo 2005.
lllC' Filness and Rccrealio na l Spo rls Ccnle rs in uuslry is a fa sle r rille I.han threc
inJuslries Ihal co mpe le fo r ils cllslo lller's doJl ars - Spo rling a nd Alhlct ic GooJs Manufacluring
(which makes homc fi lncss eqllipmenl ). Go lr COll TSe ilnd Co unlr y Clubs.and r.,'larinas'
 CHAPTER 5 Indu stry Ana lysis 107 .

TABlE 5· ' Women's Clothing Industry Breakdown

Sekli/ellI Pt'ree/II of Sale!>'
Tops (incl llding t-shi rts. s hirts. biolIses. and swea le rs) 32.0 %
Pa nls. jea ns. sharts. and s kirts 24.0%
D rcsscs 18.0%
Coats..jackets. and s uits 17.0%
Sports apparel ( includi ng swill1\\'enl'. sweat tops. ele.) 6.0 %
O lhe r <lpp.."l rel 3.0%

If your indus lry is broke n down inl o eas il y ide nlifi a ble segme nl s. it ma y be
ap pro prial e to re po rt the share (in pe rce nta ge) of eaeh segme nt. Fo r exarnple . th e
$37.5 millio n wo me n's clo lhin g induslry is broke n down as shown in Ta ble 5_1. 3
lBIS World provides this info nnalio n o n induslri es Iha t are ide nlified by
NA ICS cod es. Il"s a judgmenl ca li as lo whelh e r this level of d etali is a ppro priat e
for your p lnn.
Som e pla ns a lso repo rt th e eontributi onlhat a specifie industry ma kes to its
larger indust!'y seeto r. For exmnpl e. for Prime A dult Fitn ess. th e industry it wiU
pm1i cipale in. Mlness a nd Recrea ti onal Spo rts Centers (NAI CS 71 394). ge ne r Cl ted
10.2 perce nt of Ihe sClles of its la rge r induslry secto r. Arls. Ent erlninme nt. Cl nd
RecreCltio nal Se rvices (NAI CS 7 1).

INDUSTRV GROWTH RATE

An induSII) "S growth ra le be repo rt ed o n Cl pe rce nlnge basis. ClS shown in

Ihe Prime A dult Fitn ess induslry ana lysis in Figure 5-2. Yo u should provide Cl n
int crpretati on of what the llumbcrs Illca n. The rc are num y ways to do this. Same
pla ns comm e nt o n how th e industry growth rat e compa res to similar industri es..
Nole Ih at in it s indu su'y a nalysis. Prime A dult Fitn ess compares Ihe growth rat e of
its induslry. fitn ess ce nt e rs. lo three industries tbat compete for it s industry's
doll ars - Spo rting and Alhl elic G oods Ma nufacluring (whieh I1lClkes ho me fi tness
equipm e nt ). G o lf Courses <l nd Countl) ' Clubs. a nd Marinas. lll e faet tlml Prime
Adult Fitness's industl')' is growin g fas te r th an these co mpe tin g industries is a
positive sign. Alt llOUgh you do n't wa nt to ch e rry -pick infonnatio n Ihat places your
industr)' in a pos iti ve lighl rel Cl ti ve to othe rs. you do wa nt your re Cl cler to slwre your
e nl husiasm for the induslry you nre about to e nl e r. Prime Adult Fitness's favo rable
compCl ri son o f its induSII) ' to otbe rs is (lI1 appropriClte way of doing Ihat.
Jf you are definin g nn industry. sueh ns iPod aeeesso ri es. Ihat isn't being
acti vely traeked by a reliabl e so urce (fo r exa mple. IBl S\Vo rld or Stand a rd &
Poor 's Ne IA dva nlage). findin g good sa1es da la requ il'cs c rea li vil y Cl nd pe rsis-
le nce. II no rm a II )' in vo lves sea rchin g fo r newspa pe r Ol' magazine nrlicles tll al
re po rt the induSII) " S sCl les and sales growlh Ol' findin g an industry trade associ Cl-
I io n Ib nl Iracks nnd re po rt s I he nlll11 be rs.. MinI e !. one o f t he d a tahases l11 e nli o ned
earli cr. in a n a ppe ncli x 10 e ach o f ils induslry Cl nl1 lyses. prov idcs Ih e na mcs. pilO ne
• 108 PA RT III Prepa ring a Bu siness Pl an

numbers. nnd We b sit e nddresses o f the nHljor tra de assoc iatio ns rel ated to a p<lr-
tic ulnr indusll-y. 1f yo u de fin e a new industry. such <ts iPo c\ accessories. you co uld
sCil rch th e in d uslry nnalyses of relrl tcd in d usi rics llHl t M intel fo ll ows to l ry to find
<t trade association th al might track iPod <lccesso ry sa les as part of its large r mi s-
sio n. YOl! cou ld th en ca li o r e- mai l the tr<lde assoc ia ti o n lo ask if it tmcks iPod
ncccsso ry sa Jes Ol' 10 ask where 10 find Ih e inro l"llwt io ll .
A fu lle r li st o r s uggesli o ns for how lo tr<lck down s<l les and s<l [es-growth d<ltn
ror a newly defined in duslry. such as the i Pod accesso ri es ind ustry. is provid ed in
Ihe Bus iness Pl a n Insights box.

BUSINES S PLAN IN SIG HTS I :L-------,

Filuling Indnstry Sales Data by Knocking On Doors
If ) ou're ddining a new indus try. s uch :-as iPoe! accesso ri es. o ne ch<lll e nge you'lI e n-
COlIni e!" is findi ng good s .. lcs dat a a nd sillcs-g rowlh in fo rmai iOIl . I n 1hc.!> c ca scs. fi nd ing
lh e infonnali on becomes some whal or n scnve nger hun l. A ml lik e in ,I sca venge r hun\.
a willingness lO knock on doors a nd dogged dcl e rminalion lll<lke a bi g di ffe re nce.
He re a re some sugges lio lls ol' Ihe doors you Illighl me lap ho riC<llI y knock on lo gel
s;llcs dal;l ;I nd snks-gl"oWIh in("o nnnli o n fOl" 1h<.;: i Pod nccesso ries indusi ry. Yo ur induslry
mighl be much diffel"e nt from the iPod accesso rics indus II) '. bul Ihe Iypes of resourccs
induded in Ihis lis I represenl s a good place lo sla rt
• Typc " il>od ;I(.'Ccssorics ind usI I) '" illl o Ih c Googk Ol' Yah oo! S!;ilrch bar 10 SCI..' if
Ih e informal io ll has already bee n eompi led by a ["dia ble source.
• lI'y lodelc nnin e if Ihe re is a Irade nssoc ialion o r <lIl nnnuallrade s how for iPod
accesso ry IllOlllu filelurc rs. a nd eo ntaclt hc re lc \'alll o rganizill io nl o ;Is k if ind uslry-
wide sHlcs da la is 'Ivn ilablc.
• Sca rch for newspape r nnd magazinc nrl icles o n i Pod .1ceessories lIsing public
senrch e nginessll ch OlS Fi nd A rlicl cs ( hll p:llwww. findanicl es.co m) and tvLIgPorl<l 1
(hllp:l/www. magpo rlill .co l11 ). and Illo rc powc rful seill"ch c lIgincs s lIch <l S
ProQuesl and Lcx isNexis. which ilrc n01"11wlly avail a ble through ,I univcrs it y
library We b s il e.
Se a rch Il"adc ma g.. zincs. FOl" eX<lInple. <In ob"io lts place lO look
for a rtick s Ol lXlUI iPod accc"so rit!s is in M//c Wllrld. a mag<l zinc dcdic;ll cd lO
eove ring I he e llli re Appl e Inc. ecosys le m. J f you e<ln'l find nn art id e. cO lll<lcl
M(/(·Wo rld. and <Isk if Ihey hnve run nn arIicle o n iPod ncccsso ries induslry sales.
• Contacl il compnn y inlhe induslry to ;"Isk fOl" Icn , b, o n finding indus lry-wide s.1 k s
, bla illforl11alioll. 0 0 11 ' 1 be bashful. H20Audio. for e X:lInple. lisls il s pilOne
Ilumber <Ind e -m<l il nddress on ils We b s il e.
Ihing yo u' lllIccd 10 be C,ll'c l"ul a bout is cJ iscc rnin g Ih e crcdibi lity ot" youl" sourccs o l'
O lli.'
informnlion . D on't be ;"Irraid. however. lo elle pe rsOlml co nvers<lliollS if Ihe infonllntion
is crediblc. For insIance. it's pe rfectl y <lpprop ri <lle lo eil e a personnl cOlwc l"S<llion wi lh
Ihe direclor of a Imcie associalion if you fee l re.lson<lbly eonfide nl Ihe info nnation
you 're being provided is c red ible.
 CHAPTER 5 In dustry A nalysis 109 .

INDUSTRY SALES PROJECTIONS

11lis seeli o n sho ul d report fulu re sfl les projecli o ns fo r your in d uslry. If you fl re
reporling o n fl n eSlflb lished ineluslry. IBI SWorleL Slfl ndfl rd & Poo r's Ne lAdvfln-
Iflge, Mini e!. fl llel simil fl r sourees repo rt Ih e ir pred icti o ns. You e,m guo le from
th ese repo rt s. bul you shou ld do so spm in gly. Mosl of Ih e refl de rs o f your pla n fl re
mo re inl e resled in whfl l yo u Ihink IIu1I1 in whfl l Slfl nda rd & Poor 's o r Minl ei
think s.As indi efl led efl rli e r in Ih e boo k. fl busin ess pl<l n no t o nl y la ys o ul f<lc ls. but
il a lso demo nslr<1 les lo yo ur reflde r how yOll Ihink a nd inl e rpre l d<1 la.
You sho ul d in cl ude eoncre le num bers for wlw l you think your induslry's
sa les fl ncl S<lles growlh rale will be fo r Ih e ne xl o ne lo Ihree yefl rs. rf you project
Ih e DlItll bers yourself. explfl in how yOll m rivecl a l your est il11 fl les. A se nsible flp-
pro<1ch . which works in mosl insla nces. is lo sim ply eX lwpol<1 le from th e hislo rie
Ire nd da l<l you Iwve aVfl il <1b le. ln <I II cases. yOll sho uld eOlllm e nl o n whfl l Ih e pre-
dicli ollS Ill e a n. rf yo u fl re pred ielin g <I shfll'per in ereflse in sa les Ilw n would be
expecled by looking fl l hislo ri e Ire ne!s. yOll shoul d prov icle <l mlio ll <l le fo r your
pre di clio n. In mosl inslfl nces. you will po int lo illl prov in g industry Ire nds flS pmt
of yo ur juslifi ca lio n fo r hig he r Illltllbe rs. Brie fl y me nlio n Ih e key imp rovin g
Ire nds he re. blll do no t e la bow le. Th e Ihird seclio n o f yo ur industry <lll a lysis defl ls
exclusively wilh indusli'y trene!s.

INDUSTRY CHARACTERISTlCS
111is seeli o n lfl lks <lboul Ih e slructure of your indusI l')' a nd la ys o ul its compelili ve
Ifl nclscape. Th e fo ur key issll es lo de<1 1 with fl re in duslry slrueture. Ihe n<1 lure of
th e pmti cip<l nl s in fl n in duslry. key w lios. fl nd th e in d uslry's key suceess fflC lo rs.
A II ho ugh you COli Id cOl11tl1 e nl o n much l11ore. it 's sim ply im possible lo include <1 11
the potenti<1 1 topics within th e cont ex t of a 25- to 35-page busin ess pl fl ll . P<l rt of
Ih e ,Irl of wrilin g <1 busin ess p lfl n is dele rl11inin gwlw l lo incl ude <1 nd wlw l lo le<1ve
Olll. Yo u will expe ri ence Ih e fr ustrati o n of hflvi ng lo le<1ve olll pote nli fl ll y im por-
t<1 nl info rm <1 li o n as you writ e thi s seeti o ll of yom industry aIw lysis.
Th e in d uslry porti o n of Ih e Prim e Adult Fitn ess in d uslry
",wlysis is shown in Figure 5-3.

INDUSTRY STRUCTURE

111 is I opic is pmt icul m iy i111 pOrt fl nI. A n inelust ry's size and its g rowl h mte , regfl rd-
less of how positi ve Ih ey fl re. fl re bfl siefl ll y mont po int s if fl n in d uslry isn' t slruc-
lura ll y fl tlmctive fo r fl stm tu p. hulustry strudurl,;', in Ih e conl ex l of fl busin ess
p lfl n. re fe rs to how concentr<l ted Ol' fr agme nt ed th e in d ustl')' is <I nd wheth e r !he
in d uslry's eo m petiti ve lfl ndseflpe is in ge new l <1 ttr<1ct ive o r un <l tt wcli ve.
In regfl rd to in dustry conce nlm lio n. you silo ul d re po rt hO\\I cUllcl,;'ntr:ltcd o r
fr:lglllcntcd your ind uslry iso Co nce ntr<1 te d in dustri es me dO lllilw ted by a few
lmge o nns. whe re<ls fr<l gment ed in dustries include fl l<l rge num be r of smfl ll e r
com p<l nies. No rnw ll y, <I n in dusIl')' is co ncentrnted if Im ge cflp it<l l req uirelll ents
• 110 PART III Prepa rin g a Bu sin ess Pl an

FIGURE 5-3 Industry Characteristics IPrime Adult Fitness Business Plan)

Industry Strul1urc
l llC induslry is fragl11 cnted. wilh Ihe 101' four rirl11 s accounling fo r onl y 13 perccnt o l' indu s-
Iry s<llcs. lllere tl re nmny smali fil ness ce nl cr s. d<lnce sI udios. gyrnnasiurns. ice skaling rin ks.
<lnd similar faciliti cs. which d ecreilses induslry COllce lll raI io n . Barri ers lo en Iry a re high al
Ihe high-e nd ol' Ihe mark eI (full-se rvice filn oJss cenlers) due lo lhe hi gh cosl ol' reill esl ale
anJ equipmc ntanJ low allh c lowe r-end o l' I he mark L"1 (s l11 <l l lc r filn ess d ubs and d<lnce
SI11 dios). duc lo 1hc pl cnli ful nal11re o l' renlal space aV<l i labie in sI rir 1I1alls.
O[her slruclur<l1 characlerislics or lhe indusl ry inclllde the fo llo wing:

• Tlle A gilIg of lIII' I'opalmio// . Appr ax i millc1y 25 perce nI or fil ness ci u b mcmbcrs
arc 55 ycars o lJ a r o ldc r. as are 23 Ik: rccn I a f a II A mcri cans. A s 1ime gocs o n. o lder
A meri cans will 111ake up even 11 Jarger percent age of lhe populalion. wh ile Ihose aged
25--44 wi ll dec line in nU111bers. As a rcsull a r Ihese lrc nCls. lhe induslry is shirting ils
emph asis 11way fr o m a focus o n lh c youngc r de1110gTilphic lo <lIl eqllal f ocus o n lhe
necds of yOll nger 11 nd o l dcr pa[fOns. Becall se o lder pal ron s have mo re discrctio na ry
in come <lIKI free lime. lh e indusl ry is geming up 10 sery..:: al1 o ldcr d ic nteJe.
• COlllpelilioll. C0111pel ili o n 1h ro ugho ul 1he industry is sI TOng. For-profil fi lness imd
recrea li o nal cc nlers mu sI compelc aga i llsl cenl ers lh al are no npro ri1. such as lhe
YM CA . and fil ness faci l ilics subsidized by loca l governm enl s. hospil als. and busin esses
fo r lheir cmployees.
Tlie l ilipucI ofCu l"1."/'s IlIlematio//ol. Curvcs. which was founJed in 1992. int rod ucc J
lh e no li o n of lighlly foc used (Curves is j USl fo r women) . 10w-ovcrh cmL we Jl-run
"' nc ighbo rh ood "' filn ess cenl crs [o lh e induslry. As a rcsull o l' Curves and simil ar co m-
p<lllies. thc ind uslry has beco mc mo re bifurcal cd . wilh [he mosl desiTilblc posilions al
1he high-end o l' 1he mar keI. rc prcse nled by full -service filn ess cen Ic rs. <Ind Ihe low-
end . whc re lighlly focused cen lers ser\'c a specific cl icn Icle... Low-end'- does nol impJ y
a d i minished cxperi encc. Low--cml ccnle rs such as Cu rves deli bcr ale ly fealurc smaller
fac iJili cs and fewer ame nili es in exchange fo r a lo wer Illo nlhl y membc r ship fec and
lh e abili l y 10 loca le lheir facilitics doser 10 [heir Ill ernb ers. Curvcs. and similar low-
end cenl ers. o ffc r a cornbilwli on o l' a 20-40 minute preplanned worko ul and a
j lldgmenl-free almosphere. which has slruck posili vc cord wilh lheir di cn[eJc.
• COSIS {II/d Sile SeleClioll. lllC hesl for rull -ser vice. high-end filness ce nlers are in
denscJy IX11Hl1alion areas wit h an afnu enl populalion.llli s fa ct presenls a
chall enge because Ihesc areas also Iwve Ihe highcSl rea l esl al e pri ces. Sile se k ction is
easic r al lhe lowcr end o f lhe market. wherc filn ess cen lc rs such as Curves and Cll[S
(CU1 S isj USl fo r men) loca le primaril y in renl cd Faci lilics in slrip malls.
• l1asisfo r Compeli/ioll. Al Ihe high end of lhe mark c1. finm compete o n Ihe basis of
sl al c-of-lhc arl equipmc nt and mulliple cJasses. This melhod ol' C0111pc1ilio n implies a
hi gh COS I o l' doing busin ess. A l lh i) lowcnd llf lhe markeI. firrm co mpct c by se rving
lh eir targelm ark el we ll and pTOviding pl.'! rsonalized se r vice.

Natu n' uf lJ:lrtidpants

Finns in the lllC indusI ry i s co111prised o l' a wide vmiel y of parl icipanls. rangin g
from largc. fu II -se rvice fitn es:o; eoJn lers run by Imge chains. 10 srn a II. da nce
SI11dios and ice skaling rink s. No singk firm caplures 111 0re Ih an 5 poJrcenl ol" induslry sa les.
Thc Imges l firm in !he ind uslry is Bally Tll !<l l Filness (5%). f o llllwcc1 hy 24 H a lIT Fi!ness
Wo rlcl wide (4%) . L ife Tirne r::iln ess (2%). <l nd Curves I nlernali o nal (2%).

lllC most C0 11l1110 n wa y 10 sl.'!gmc nt lh e indusl ry is by prodllct/ser vice as

shown below.
 CHAPTER 5 Industry An alysis 111 .

FIGURE 5-3 Icontinued)

• H C<l llh and Filness CC III C I'S

D Dance Stud io
11.6%
D Swimming Pools
D TClln is CO llrl s
11.7% I:J Rinks ( lec and Ro lle .. )

21.4%
D Oth e r

Clit'ntl'lc. 11lc o t" 1h,..: is as foli o\\',,-

A llImal HilUschll!d Inn ll11c
Agt Sharc uf Innlme S h lU C uf I\ I.ukct
6--11 ycars lllll -1-% < $24.91}9 8%
12- 17 ycaN old S'X, $25.IJOIJ II' 1 t)'J{.

1X-J..\ VcaN oJd J5 'Yu $SI I.um II ) $7-1 .1}<.)l) 23 %

35- 54 oJeJ 33% $75.000<l l1d u\'er 50%
55 lind olelcr 20%

R..
To gai n as vivid a picIU re of (he indusl ry possibl c.lh c followi ng wcrc uhlilin cd
froUl I he sourccs ci l ed.

! IIIJ] 211114
Ta tal Rc\'cnuc!Ccnlcr 2.07 million 2. 17 millio n
EB ITDA '):, 0 1''1'1)1,11 Rcvc nu ... .{ OO'Y.. 16.6%
EB rT o/., R C\\: llll c..; ').()() 'J{, 5.7'J{.
Avo.:ragc M cmbcrslCcnlcr 3.U9 1 3.1 74
Tot.11 PayrlllJ as li % of Salcs ·O.f.:% -13.0%
Ralc Ilf Mcmh..:r Re' elll jon ,",7.7% 69.2%
Rc \"c nuc / M cJll h..: r $683.00 $719.00
Indoor Sljuarc FoolJMe mbe r l-U 13.3
R...'\\!IlUc / lmlllllr Slluarc FIlII! $-I6.YS $-IS.XI
Rcvc nllC as <I % o f Rcvc nllC 27.2% 2K 1'Yu

f: /l l 1'0/\ I)/'frm' illlt' r est, ltI.w.\". (k/Jreriali(JII. mul

HIJl {" - el/mil/g.l· (Je/ ol"t' ill cOllie /(IW.I

C lub Prkt-'S (cnrollmc nt fces llrc unc-t il1lc k't!s)

Ell w llmc llt Fcc I\ lo llthly O IlCS
Regular lndividllal (single adull ) $1 50.00 $55.00
Corporat e Individ ual Wi'.50 $48.00
• 112 PART III Prepa rin g a Bu sin ess Pl an

FIGURE 5-3 (continuedl

[nrulllllc nt Fcc I)lIcS

COllp[C $ [99.00 $89.00
Fami[ y $ [99.00 $89.00
Junio r $99.00 $39.00
Se nio r Citizc n $ 100.00 $44.62

SOl/fec: Survey or 1 fi tncss cl ubs co llcc tcd by thc Internati onal Hca lth . R.1Cq uct & Sport scl ub
Associa tion (I H RSA). Thc I H RSA is a nonprofi t t rade msociation that rc prcsc nts fitn css
cl ubs and faci lit ics worl dwidc. N Ul11 0crs arc rcport cd o n a ycarl y basis.

Cust Strm'tllrc Ratius

Pcn'c nt of Cost
Wages 29.3%
18.2%
D cpreciatio n [5.5%
RenI 12.5%
A dve rtisin g 5.0%
Uli[ilies 3.4%
Olher 7. 1%
Profil 9.0%
SOl/fec: 1B IS\Vorl d. r...-1a y 25 . 17.

SlIn'css radun;
TI1C keysuccess facto rs for Ih c induslry arc as follo ws:
• /.. OCllIiOlllllld I l/come. 1I is imporl anll o [oc<l le in an are<l lh <l l has a high percenlage o f
pcop[e who e<l rn $75,()J() a r mo rc. T hesc peop[c are mosl [ikcly l o suppo rl fi lness and
rccreal io na[ SIX)rI Sce n Icrs. A 11 excepli on may be a li ghl [y foc use([. [ower-overh ead
cenler such as C urves. which c harges 11 [owe r mo nlh[ y fee and draw s from a broader
income range.
Riglil M ix ojCh/Hes al/d AClivilies. Bcci1 uSC filn ess and recrea lio na[ cenlc rs musi co m-
pete fo r thcir custo lllc r's Icisu re t imc, and bcc:1 use an incrcasi ng n ul11 bcr a r ce nters arc
l arge ling a specific c[ienl e[c. il is imporl anll l) carefully malch Ihe and aclivilies
l o Ihc
• M nl/ber M Oliwl/ioll. Acco rding lo 11 survey commissio ned hy M in I e!. moliva lion re-
mains the kc)' l o winnin g new members and kee pin g new members engaged. A l ol a[
of fi7 pcr cenl or people who cl lrrently do no t bclong lo a fitn ess cenler said they
wou[d j o in if Ihey knew Ih e aclivilies woukl keep Ihem moti va l ed.
Informed 1I//{I I'roacliI'e SllIf! II is impo rl anl Ih al mC'mbers fecl l ike Ihey ca n gc l helI'
when Ihey are havin g Iroub[ e wilh a filn ess machinc Ol" h,1\'c a qucslio n aboul a class.
M any fitn ess cenl ers l oullhe c uslo mer scrvice skjll s and qu alifica l io ns uf Ihei r sl aft" as
a basis of difkrenli ali o n.
• 'figlulI' /-"ocl/Sed "li/rgcl M arkef. Since people var y in l eT1m of Ihe exercise nwchines
and classes I hey fin d Ihe mosl usefu[. a num ber o t" ce ntc rs are opling l o focm o n a sin -
g[e cl ienle[e. \\'omen and o rd er peop[e are more [ikcJy to reporl l"ce [in g out a r pl ace ar
i n li midal ed in 11 I radili o na[ fil ness cenl er. A s a rcsull. sing[e-ge nJer 1111(1 ce nl ers re-
slricl ed lo cert ain age groups m e [ikcly lo grow i n nU1T1bers.
• Prices C!w rged for USI' of I ;ilcililies. Pri ccs va ry wi dcly bet wee n ce nl ers. depending on
Ihe age lInd Iype nfeq uipmc nl providc d. lhe nU111ber o t" classes o ffe red, Ih e [oca li on of
Ihe ce nier. and Ihe amc nli as provided. I I is e11sy fo r consumers l o compari son Shl)p. l i
is impOrl anL Ihal a center' s pri ces he simi[ ar l o ils competit ars.
 CHAPTER 5 In dustry Ana lysis 113 .
m e necessmy lo p<lrticip<lle, o r il h<lS llw lure d mld <l subSlmlli<l1 <llnounl o f con-
solid<l lio nlws la ken place. An induslry is Iyp icall y fm gmenl ed if it's in Ih e e me r-
gence sl<lge o f ils life cycle, and/a r Ih e cosl ot e nlry is reblively low. rf you ' re
launching inlo a fm gme nl e d induslry, nOlhin g Ill o re Iypic<l ll y needs lo be sa id-
mosl slmtups l<l unch inl o fm gme l1l e d mmk e ls. lf you're laun ching inl o a concen-
Ir<l lecl ll1<lrke L yo u'll need lo provicl e <l ci em mlionale in Ih e nexl sectio n of
Ih e pl<l ll (which focuses 0 11 your l<l rgel 1I1m'kel) of how yOll pl<lll lo com pele.
So me SI<l rIU pS are able lo 1<llll1 ch inl o co ncenlr<l le d induslri es by finclin g Imgel o r
!liche mmk e ls Ih <l l a re less expensive lo cOlllpe le in a r by lowering Ih e ovem ll
c<lp il<ll req uire me nl s necessm'y lo enl e r Ih e industry Ih rough some inn Ov<l li ve
mea ns. For example, ma ny microb rewe!"ies have successfull y e nl e red Ih e highl y
concentr<ll ed brewe ry induslry by brewin g Ih eir bee r loc<l ll y mld re lying o n a
10C<l 1!liche m<lrkel clienlele. A llh o ugh I his <lppIO<lch limil s Ih e lwtionwide pOl en-
lia l of Ih e microbrewery, a l leasl inili a ll y, il lo we rs Ih e cosls o f brandin g <lnd
disllibulio n. Similml y, some cOlllpani es a re <l bl e lo lowe r Ih e Capil<ll require-
me nl s o f e nl e rin g a ll indusIl")' o n a bromIe r sCu le lhro ugh inn ova li ve <lpproaches.
An exmllple is D<lyJe l (htt p://www.d<lyjeLcOm '),<ln a irlin e slm'tup Ih a l will soon
sla rt o ffe ring "a ir lax i" se rvices in th e southeasl pml o f th e Unil ed Sla tes a nd will
com pele direcll y <lga insl regio nal a irlin es. nI e key lo Ih e co mpa ny's busin ess
pla n is th<ll il will fl y <l new gene ml io n o f planes ca ll ed "ve ry li ghl jels:' whi ch <lre
much cheape r lo bu y mld ope ra le Iha n commul e r pla nes, a nd wi ll llw ke use of
comll1unity a irpo rts, which <l re less expensive,
Th e seCOlld lopic regmding indusl ry struclUl'e is Ih e gene r<ll a ttract iveness
(ar l<lck o f attr<lclive ness) o f a n inc\ustry's compelili ve lml dscape, A stru clur<lll y
a ttr<lcli ve induslry, accord ing lo H<lrv<lrd professar Miclw e l Po rt e r 's "fi ve forces"
mode L sho uld have relali ve ly high bmrie rs of entry lo kee p compelil o rs o uL not
e llough ri va lry lo crea le cutthroul compelilia n, no good subslilul es for Ih e b<l sic
producI a r service Ih e induslry sells, lilllil e d powe r o f suppli e rs lo negolia le in put
pri ces up, a nd limited power o f bu yers lo far ce se lling prices down. 4 You no nn<1 11y
wo n 'l cO ll1m e nl o n e<lch of Ih ese poinl s in <l brief induslry mla lysis, bul you
should a llude lo Ih e most sa lie nl o nes: Fo r example, if you 're e nl e rin g <l ll in d us-
Iry with hi gh bmTie rs lo e nlry, Ilwt's good: high barriers lo e ntry del e !" co mpe li -
lo rs, sa you sho uld hi ghlight Ilwl aspecI of yOlll" indusIl")' in Ihis secti o ll o f yOlll"
ind uslry an<l lysis. Of course, if Ih e e nlry bmTiers <l re higlL you'lI h<lve lo exp];lin,
ll ol he re bul in Ih e nexl sectio n o f Ih e plan Ilwl de<l ls wilh yOlll" Imgel rnmk eL
how you're able lo enl e r.

NATURE OF PARTICIPANTS

nI e nex l secli o n of Ihis porlia n of your busin ess pla n de<l ls wilh Ih e n<l lure of Ih e
pmtic ip unl s in an induslry. You r remle r will a lreudy kn ow \ .... helh e r Ih e indusIl")' is
consolidaled ar fr<lgm e nled. In Ihi s bri e f descripli o n , yO ll wanl lo prov ide your

• I r you'rc unfam iliar wi lh t\.'1ichac1 POrl c r's fivc ·fo rccs model. rO ll fami Iiarizc wil h
lhe model and whal il means whi le wriling Ihis I'orlio n o f )"ollr indusIr}' ana lys is. A desc ripli o n o f
lhe model is pro vided in an y manage me nl textb oo k.
• 114 PART III Preparing a Bu siness Pl an

reade r with a "fee l" for the nalure a nd m ix lure o f finns in yo ur ind us lry. Who a re
Ihe majo r playeIs in th e induslry? Wlmt pe rce nt age ofmark e l share d o they co n-
troi? A re th e m ajo r competitOls o nline firm s Ol' tradilio nal finn s? You also want
your remie I' lo visuallze how your firm will fil in Ol" see Ihe ga p th at you r firm wiU
fili. A lthough the in duslry a nalysis does not talk about your firm per se. th e reade r
knows whal your compa ny is by read in g t he previoll s sect iOll s o f Ihe pla n. Dra w
a me n tal map fo r yo ur reader Iha t shows exac tl y whe re your firm wiLi fit lnl o tll e
industry.
You sho uld also disc uss how the induslry is segme nt ed . This discussio n can
get fa irl y complex beca use industri es ca n be segm e nled in d iffere nt ways. For
exa mple.lhe computer industry ca n be segme lll ed by product type ( i.e .. lmndh eld
comput e rs. laplOps. peso minico mpute rs. <lnd m ainfra mes) O l' by clIstome r seg-
me nts sen 'ed (i.e .. indi vidll als. businesses. schoo ls. a nd gove rnme nl ). Simil <l rl y.
yOll ca n segme nt Ih e fitn ess <lnd recrealiona l sports cent e r industl) ' by Iype of
club (i .e .. hea lth <l nd fitn ess club. ice a nd roll e r r ink . tellllis court s. swimming
pools. squash a nd racque lba ll elubs) Ol' by Iype o f owne rship (i_e., comme rcial.
no nprofit. corporal e. hote lIreso rt . spa ). Th e best approac h is to segme nt your
induslry by yo ur po int of ent ry, SA if you're start ing a compan y lo sell specially
des igned compute rs for e lementary schools. il would make the most sense to seg-
me nt the compute r induslry by cllsto me rs se rved . as sho wn previo usly. A s you
discuss the diffe re nt segmenls o f your industlY. if you know wh ic h segme nt is
growin g the f<l stest and/or is Ih e l1Ios l profi lable. th at's good info n natio n lo
convey. The re me a lso ind ustries Ilmt have elea rl y b ifurca ted. with Ih e mosl suc-
cessful compa nies se rvi llg eithe r Ih e lap e nd of th e ma rket (in tellllS o f qua li ty of
good s and price ra nge) Ol' the bollom e nd. 1l1is trend is see n in industri es such as
gracery stores, whe re mosl of the money is be ing made by high-e nd stores such
as Who le- Food Ma rke ts a nd Trade r Joe's a nd law-end provide rs such as Wa l-M m1
a nd Costco:'i n1e worst p lace lo be. in bifurcated in duslri es, is ri ghl in th e middl e.
A ga in. if yo u're a bl e to id elllify Ih e most pro mising a reas o f an indusu'y, a r the
meas to a"oid. Ihal info rm atio n should be re po rt ed.

RATlOS

Il's im porta nt to re port all induslry's key fil1all cial mlios and othe r mlios of inle resl.
1l1is in formation 1I0 t only provides furth el' insight Into Ih e sl ruclu re a nd a ttracti ve-
ness o f an induslry, but il also provides a po int o f refe re nce to compare a compa ny's
fin ancial a nd no nfin ancial projecti ons against. For eX<lIn ple, if a compan y re po rt s in
its in dustry ana lys is tilat th e average ilrm in it s industry ea rns a 6 perce nt ne t profit.
a nd in la te r pa rts of th e plan indica tes il will earn 12 pe rcent for it s firs l three years.
the firm wiU need lo explai n how it pla ns to gene r<l te over twice the net income of
t he avernge fi rln . Simil a r compa riso lls cnn be made \Vith th e oth e r I\um bers.

KEV SUCCESS FACTORS

Kcy Sll ccess fa clOIS in every indu su'y clc fin e whnt a n o rgan iza li o n in IIl e induslry
has 10 be good at 10 be successful. Mos l induslri es have 6 lo 10 key fa cto rs. Most
 CHAPTER 5 Indu stry Ana lysis 115 .
of fh e sueeessful firm s in an induslry are co mpele nt in tl 11 o f Ih eir in dustry's key
suceess fa elo rs. a nd Ihey Iry to diffe re nlitlte Ih e mse lves by exce11ing in Iwo o r
three tl reas.
You sho uld ide nli fy Ih e key sueeess ftl eto rs for your indusII")' and report Ihe m
in Ih e indusl!"y analysis. If Ihey are n'l readily a ppare nL re ading Ihrough [B ISWorld
a nd Minl e i induslry profik s a nd lookin g al in duslry Imde jo urna ls and magtl-
zines should revea l Ih e m. A leehnique Ihal so me peopl e find helpful in ide nlify-
ing an induslry's key sueeess fa elors is lo pose lile rh elorieal queslio ll. " Fo r a
compan y lo be s ueeessfu l in Ihis indu sI I")'. il must be good al ... (l isI 6 lo 10
il e ms)"'. 111e answe r lo Ihi s quesli oll is a good slartin g po inl in asee rtainin g Ih e
key suecess f<let o rs fo r a n indusI 1)'.
Th e key sueeess faelon; vary widel y by induslry - Ih ey a re 110 1 gene ric eOIl-
cepts. Fo r exmnple. th e key suecess fac lo rs fo r Ih e eleclronie ga mes induSII) ' are
as fo 11ows:
• ProducI fe atures a nd playability
• Brand name recognilion
• Co mpalibilily o f p roducts wilh popular pla lforms
• A ccess lo dislri bulio n channe ls
• Quality o f product s
• Ease o f use
• Price
• Mark eling suppo rt
• Qualily o f euslo me r serv ice
As you ca n see. lhis list is ve ry specifie lo the el eclroni c ga mes induslry. A diffe r-
e nl indusIr)' would ha ve a much diffe re nt list.
Kn owin g the key suecess faeto rs for nn induslry is impo rt a nI beca use an y
filll1 in a n induSII) ' can be judged by Ihe degree lo which il covers il s bases o n
each f<l cto r and excels (or h<lS pla ns in place to exce l) a t one O l' Illo re f<l etors.

INDU5TRY TREND5
111e fin al [Xlrti on o f a n industry a nalysis dea ls with induslry Irends. 111is is ar-
guabl y Ihe most importanI sectio n of an induslry ana lysis because o fl e n la ys the
foundati o n fo r a new bus in ess idea in an indus lry (i.e .. o lcle r people a re becoming
increasingly int e reSled in fim ess - Ihus. m tlybe a filn ess club jusI for aclults ma kes
sense) . <lnd il typiea ll y provicles Ih e juslifi eati on fo r claims ma de earlier in Ihe
indus u")' a ni1 lysis. such as why industry-wide sa les sho uld be expected to eo ntilluC
to incre ase Ol' clecrease.
Th e two types o f Ire nds Ihal m e Ihe most im porfa nt lo foeus on i1re e nviro n-
me nl <l l tre nds <l nd business tre nds. 111e bes! plilCC 10 loo k fo r trend info rnwti o n
is indusII) ' tracie jo urn als. indus lry-s peeifi c Illtl gazm es. industry re pOI1 S fw m
• 116 PART III Preparin g a Bu siness Pl an

FIGURE 54 Industry Trends IPrime Adult Fitness Business Plan)

llle re <IW a nUlllbe r ol' cnviwlllllcnlaJ and business Ircnds affecling Ihe growl h <Ind all rac-
liveness of Ihe filn ess and recrealional spnrts cenl er induslry. lll ey are as follows.
Trcnds Thll1 Fa'-ur .he
Americans are illcrcilsingly aware of Ihe necd for e xe rcise. weighl conl roI. gooel
nulrilion. and a heallhy lifesly le <l lllong bolh adults <Ind childre n.
Nalionwide ecoJlomic condiliolls a re slrong. which boosls consumer confide nce and
makes il easic r fo r induslry parlicipanls lo bo rrow money.
An increascd emphasis on wellness is cviele nl across man y seclors or sociely. [n parli c-
ular. posili vl.' prcss abo ul l hl.' bcndils of yogil. Pilalcs. a nd s i mila r acl i,-il ies cause
people lo sce k oul businc'Sses Ihal offe r Ihose scrvices.
The increasing cosls of ol hcr sporls and recrealionaJ acli \il ics. such as golf and boal -
ing.ca n res ull in people oplingoul ol' Ihose aclivili es in fa vor of joining a filn ess club
o r olhcr rccrcal ional spo rls ce ni e r.
Increasing health cme cmls are JllOli valillg co rporalions lo in vesl in corporal e
wcllness programs. Many corpo rati ons now supporl Iheir own filn ess ce nle rs or
oHo.: r filncss cenlC rs mc mbe rships as a bcnefit.
Trcnds Working Against thc
LeislIre limc is becoming less avaiJable. Timc-slrapped consume rs fin d il ha rde r 10
makc lime lo frequc nl a filn ess cenle r.
Increasing prices for gasolinc and health carc are Jowe ring consu me rs' disposablc
in comc.
Americans are bccoming more and more o hcse. wilh } ·t I !,c rccnl of all iH.JUJt S agcd
20 lo 74 co nsillered ove nn:: ighl. Man y of lhese indi vidllills ma y nol see Ihcl11sc lves as
fil e nough lo work out.

resoUl'ces such fi S IBI SWorlc1and Standa rd & Poo r's NetAdvan tage. and th rough
ta lki ng to in dust ry participan ts. 1l1e Int ernet Reso urce Table in Appe ndix 2.2
at th e end of Chapter 2 provides Web s ite addresses that me helpfu l in identifying
the SOUl'ces o f this inform ation . Man y in dustl"i es alw lwve int eres t groups thal
sponsor \-Veb sites to promate th e ir industry and ta lk about curre.nt tren(k Fo r
exa mp le. th e Web site Style.com (http://www.style.co m) is a fashion industl"}' sit e
thal has a s peci al sectio n d edica te d to " news a nd lre nd s" in fa shi on .
The ind ustry trends portion of the Prime Adu lt Fitn ess industl)' ana lysis is
provided in FigUl'e 5-4.

ENVIRONMENTAL TRENDS

A s d iscussed in Clwpte r 2.e nvironm ent al trend s are ver y important.1l1e stre ngt h
oC a n indusliS often su rges Ol" wa nes not so much beca use of the ma lwge.men l
skilI s o f the finn s in an indu st ry. but beca use e nvironm ent a llrends shift in favor
o r Ol' ng,]inst th e productsol' se rviccs sold by Ih c fil'llls in the indusIr)'.
Th e most import ant environmenta l trends are econo mic trends.socia llre ncls.
tech no logica l <ldvances. a nd po li tical a nd regul ato ry changes. YOtl sh o uld think
 CHAPTER 5 In dustry Ana lysis 117 .
lhrough cach a rca to de te n n inc ifth c rc iI re Ire ncIs that are positi ve ly Ol' ncga tivcly
i1ffcclin g yOlll' induslry I hal sho uld be comlllc nt ed o n. Fo r eX<lIllple. a ny induslry
thal reli es o n the consumpli o n or fossil fu e ls. su ch ns Ih e Irucking industry a nd
th e air li ne in duSII'}'. tS bc illg ad ve rsc ly affec ted by hi gh fucl p rices. In COIlI HISl.
<Hl y in d us i l'}' lh a t providcs prod ucls Ol' se rvices lo o ldcl' people. s uch as hCCl lth
care a nd tmvel. sta nds to be nefit by the agin g of th e popu la ti o n. So me til1les th e re
<l re ll1u lt ip le e nviro nm e nl al cha ngcs a t wo rk th <l t se t Ih e stngc fo r an indllstry's
fu t me. nlis po i nI ill ust raIcd in I he fo llow ing sla le rne lll 1'1'0 111 Sta nda rd & Pom's
Ne lAdv<lIl lage assess rne nl ol' the fulUl'e o l' the leisure prod ucls indus try. This is
the induslry. in Sland<l rd & Poor's vern Clell lm . tlwt sell s prodllCIS su eh as golf
c1 ubs. bon ts. ho me filn css eq uipm c nt . lc nni s rncquc ls. nnd so fo rlh .

While we see the lo nger-Ie rm oul look for leisure producI s stocks <lS
ge ne ra ll y f<lvor<lble. we Cxpec[I O see a wide var ia nees nmo ng
compa lli es. Dllrin g [h e nex [ d ecade. as [he pop ula lio n bubb lc o f b<l by
boomet"s continll es lo adva nce. we beli eve th e o Ull oo k fo r <l reas sueh as
bO<lti ng <I nd golf. whic h le nd lO be rn vo red by middl e-aged <Ind o lde r
A lll c rica ns sho ul d imp rove. whil e pu rsui ts lhat involve more vigorous
physien i <lcti vit y. such as skiing <ln d te nnis. lIl ay see a corresponding
decline. We belie ve th a t Ihe facl o rs dri ving long- te rm le isUl'e spe nd in g
inc1ude d e mogr"phics. in come levels Cl nd growth . CO IlSllm e r co nfi dence.
and Ihe " mo unl o r frcl! timc flva ilil ble,6

nlis sho rt st"l e mc nl illll slral es th e degree to whic h e nvironm e nlil l c1wn ge ca n
<l frcet o ne in d uslry a nd th e e bb nnd fl ow o f the pop ul(I["it y o f Ih e scgme l1t s wilhin
il. Simi la r fo rccs il re a l wo rk in ali industries. which s ho uld be d isce rned fl nd
re port ed in yom induslry a nalysis.
SO l1le in d uslri es ex pe rie nce slow Ol' no growth fo r yea rs ilnd the n ex pe ri e nee
sudde n upswin gs in growlh fl nd po pu la rit y fi S th e result ot" Sflvvy industry in elltn-
be nts a nd/or e nlre pre ne urs who refl lized tlwt cll vironllle nt il l c hnnge hns Iu rn ed in
favor o f t he induslry. A recenl examp le is t he mallr ess induSII) '. In Business
2007 list o f "nI e Best ( 100) Suw ll Co mpa ni es 10 Wntch ." Iwo ot" the eo rnpnni es.
Te m]Jllr-Pedic lnt e n wt io nnl (hllp:l/www. tc mpu rpcd ic.com) a nd Se lccl Comf0\1
(http://www.selecleomf0l1 .co m) were ma ttress compa lli es. Serious ly. wilh ali Ihe
high-tech a nd othe r inl e resting com pa ni es in Ih e U nile d Stales. would yOll have
guessed thal IWO m<l ll rCSS co mpani es woul d l1l <lk e Ihe Probably no t. BUl if
you stllcly Ih e m<l ttress induslry. yom a ltitudes will change. A Ilumber ol' signifi-
ca nt e n vi ronm e n la l [re nds a re work i ng i n fa vo r o l' 1he in dust ry: 7

• Risin g in co rnes a nd CI posilivc eco no mi c e nviron mc nt Iwvc led lo in cre ased

ma llress S<l les a t 1he high e nd o f the marke t.
• High shi pping cosls have limit ed im po rts (impo rls represe nl onl y 2.9 pe r-
ce nI of u.s. malt ress induslry sales).
• The reccnl upswing in new ho using construeti oll a nd re novations lo ex isting
homes has led to inc reased be d room numbe rs a nd sizes.
• 118 PART III Preparing a Business Plan

• A recent upswin g in hote l a nd mote l co nstructio n h<lS result ed in a spike in

n1<lttress demand fro m tlwt sectOL
• lll ere are approxinwtely 2.7 millio n hospit al and nursing hotne beds in
th e U nit ed Sta teS.1l1ese faciliti es typi ca ll y purehase high-e nd mattresses
wit h e nhan cement s that allow th em to be e lectronically adj usted. A s the
popu lati on ages. the hea lthca re ma rk et for mattresses wiU continue to
expand .
• An inere ased e mphasis o n we lln ess has cre<lted new markets fo r mattresses
that improve sleep qualily a nd provide bell er neck and ba ek suppo rt.
Jf you spend <I few minut es brows ing Seleet Co mfo rt <I nd Tempur-Ped ic's Web
sites,you'Usee tha t th ey're t<lpping int o th ese eX Clct tre nds. Th e blOader U.S. mat -
tress industry grew by 8.8 perce nt in 2004 and 6.9 pe rcent in 2005. That's bell e r
than eithe r til e wo men 's clothing sto res indus try o r th e fitn ess and recrea tio nal
spo rts ce nt e r industTy. 1l1e !ypes of trend s de picted in th e pre,c eding bullet po ints
are th e types o f tre nds that you'lI wa nt to discern for yo ur industry. A n <l\va reness
of these tre nds Cilll help s tilrtups develop lllore impressive industt-y amtl yses and
po tenti all y mo re s uccessful busin ess p la ns.

BUSINESS TRENDS

Othe r tre nds impact indu st ri es th nt are n't e nvironme ntal trends per se but ,He
impo rtani lo menlio n. For example. are profil Imugins in th e indus u)' increa sing
or fa lling? ls innovatio n <lccele mting or wa nin g? A re input cos1.s go in g up a r
down? Are new market s for the industry's staple produets open ing up. Ol" ,He
existin g mark ets be ing shut down by co mpeting industri es? You CCl n 't CQve r every
possibl e fact affecting an induslry. but you sho uld me ntio n lhe major trends.

LONG-TERM PROSPECTS
llle indusi I")' nna lysis sbo uld conclude wit h a brief stal ement o f your be liefs
rega rdin g Ih e lo ng-term prospec ts fo r th e industry. No new information s hou ld
be provided nt Ihis point. Jn stead . dra w trom Ihe precedin g secli ons of Ihe indus-
Iry a nCl lys is lo suppo rt yOlll" concl usio ns. You r concl usio ns sho ul d be precise Clnd
lo Ih e po int. No mo re Ihall seve ml senle nees a re required.
Whe n yOll read Ihrough reporls o n your industry. from JBI SWorld . MinI e!.
ond Stonda rd & Poor's NetAdva ntn ge. th e report s wiU include their tlssessments
of th e future prospeets o f the indusII)'. Resisl simply repe,lIin g what othe rs <lre
sayin g. YOlll' aSSCSSlll e nl ot' the lo ng- le r111 prospccts fo l' yom indu SI I")' s ho uld
re fl eel youl' Ih o ught s cllld beli e fs. and sho ul d be fuli )' cOll sislCll1 wit h Ihe info rnw -
I io n co nl ain ed in Ih e preceding seclio ns o f your induslry <l na lysis.
ll1 C Lo ng-Term Prospects seeti o n fo r Ihe Prim c Adult Filn ess indusu")' aualys is
is sho wn in Fi gure 5-5.
 CHAPTER 5 In dustry Ana lys is 119 .

FIGURE 5-5 Long-Term Prospects (Prime Adult Fitness Business Plan)

TIl€ induslry is likely 10 maintain ils curreJ1llrajecl ory. An increasing inleresl in filn ess and
Ihe cmergencc nf new cnncepls such as C urves (j USI for women ) and Culs (j USI for men)
wi ll co nlinu e lo spur bullhe indu slry's gr owl h ral e iSIl '1expecled l o exeet:d ils
reeenl 3.5 pereenll n 3.9 perce ni annual leve ls. Thc gr\)wt h in Ih e filn ess eenler segmenl
of Ihe indllsl ry may be higher. TI1C aging of Ihe populalion is a long-Ierm posilivc Ircnd for
Ihe induslry. Older pcnple are becoming illcreasin gl y inleresl ed in filn ess and have more
mo ney and spare lime l o devole l o a filn ess cenler. TIIC nalure nf Ihe indllsl ry is likely lo
ch,lIlgc as a result of I his de\"elopmenl. Recreal iorwl ce nlers Ihal realUre vigoro us exe rcisc.
such as ra cquc\ball and ler1l1is clubs.are likcJy lo suffer. whereas riln ess cenl ers Ihal o ffer
specia lized classes and cquipmenl for older people likcJy lo benefil.

HOW THE INDUSTRY ANALYSIS AFFECTS

AND IS AFFECTED BY OTHER SECTIONS
OF THE PLAN
Industry a nal ysis is a foundational aspect of eva lu ating th e lll e rits of a prospec-
ti ve busin ess venture.llle induslry Ihal a co mpan y participales in . as a result of
il s stru cIuraj characl e ri sli cs. hislori ca l co ndili olls. and curre nl Ire nds. basica ll y de-
fin es Ih e play in g fi eld thal a firm wil l participate in. A carefu l ana lysis of a firm "s
induslry also lays oul whal is rea Ji sli ca ll y possible and wlwl isn "1 realistica lly
possibJ e for a startup lo acllieve. 1l1e re m e some finn s. lik e Dell in Ih e co mput e r
ind ust l")' a nd Starbucks in th e specia lty restaura nl industry. which bas ica ll y
turn ed th eir indu stri es upside down by introducing new busin ess models and o ut -
performillg th e ir industries on most if not all me tri cs. However. th ese firm s a re
th e rare exception rath e r than th e rul e. Most startups a re constrained enough by
th eir industries th at th eir performance fall s in lin e with wh(lt you would expect
afler reacling th eir industl")' ana lysis.
Th e industl")' anal ysis affecls Ih e o lh e r secti ons of th e busin ess plan in that it
provides a po int of refe re nce to work from . Sawy busin ess pl<ln wril e rs find
themselves refe rrin g ba ck to th eir industry ana lysis freque ntl y whe n writin g
olher parts of th eir plan. Th e all(ll ysis is (In th (l t describes how the average
finn s in an industry are doing and what th e overall tre nds are.and most busin ess
p lan write rs benefit by constant ly comparing th eir plml aga in st this anchor.1t also
helps tempe r t he ellt husiaslll of busin ess plan writ e rs and provides a useful refe r-
e nce for a pla n 's reade rs. Fo r exa mpl e. if <l startup projected <l growth in S<l les of
17 percenI per yea r for ilS firsl fi ve yea rs. and it s industry is onl y grow ing a t 5 pe r-
cent pe r yea L <lI1 obv ious in congruit y exists. A savvy reade r will think. '" (sn "t
th e induslry on ly growing <l I 5 percent per ye<l r ? Ho\\' is l7 perceni possibl eT
nle re may be a n expla nalio n. but tll e in congruit y be tween th e indusll-y"S sa les
a nd the startup "s projecled sales must be explai ned in IIl e plan.
• 120 PART III Preparing a Bu siness Pl an

Chapter Summary
I. A n industry is a group o f finn s producing a similar product Ol" se rvice. such as
airpla nes. mus ie. electro nie ga mes. Ol" fitn ess club membershi ps.
2. Separatin g the analysis of a finn 's industry and it s ta rget mark et is impo rt ant
because it 's pre malure fo r a new finn to se leet. o r even talk abo ut . a speeific
ta rge.t marke t until an unde rstandi ng of th e broade r industry is obta ined .
3. lt"s import a nt that th e indus try a nalysis appear early in a business plan be-
ca use it log iea ll y precedes th e ana lysis o f a firm 's ta rget marke t and its mar-
keting s trat egy. II a lso helps set up and support the remain der of th e plan.
4. 11le maj or secti ons o f an indust!"y ana lysis in clude industry definition : indus-
try size, growth . and sal es proj ections: ind us try charilcteristics: industry trends:
and lo ng- term prospeets.
5. If yo ur firm o perates in two Ol" more industri es. you sho uld ide ntify a ll the
industries th at it pa rtieip ates in a nd reeogni ze th at it will be necessary to
conduet an industry ana lysis fo r each o f th e indu stries. Some disereti o n is
,11l0wed regarding the we ight p laced o n the indi vidual a nalyses. In som e in-
stan ces. when a firm opera tes in mo re than o ne indust!)', it ma y be appropri-
a te to eon duet a fu li anal ysis o n the primary indust!)' th at firm ope rat es in
and a n abbreviil ted analysis o n the o th er.
6. Th e key to the indus try size. growth. a nd sales projecti ons po rtion o f the
ana lysis is to nol just report th e nu mbe l"S. Make sense of the num bers and
prese nt th em in a way th at builds the credibilit y o f your bu siness plan.
7. Th e· fo ur key issues to dea l with in th e indu st!")' characteri sti cs seeti on of the
analys is are indusu'y structure. th e nature o f the participant s in an industry.
key rati os. a nd th e industry's key success fa ctors.
8. Th e topi e of industry structUl'e is pmticularl y important. An industry's size
and its growth rat e, regardless of ho w pos iti ve th ey are·. a re basieall y moot
points if a n ind ust!) ' isn 't stru ctura ll y attracti ve fo r a stm·tup.
9. llle industry tre nds po rtio n of an indu stlS ana lysis is arguably the most
imp0l1 an t secti oll beca use it oft en lays th e foundCltio n fo r a new business
idea in an indu st!")'. a nd it typicall y provides th e jus tifi ca tio n for cla ims made
ear li er in th e in d ustry ana lys is.
10. Th e indusu)' ana l)'sis should condude with a brief state me nt of your be liefs
regarding th e lon g-te rm prospect s fo r th e in dust ry.

Review Questions
I. What is an industry? Wh )' is it impo rtanI lo indude an -- in duslry analys is" in
a business pla n?
2. Wh)' is it impo rtanI Ih at the indusI!")' ana lysis focus strictl )' o n a finn 's in d us-
Iry ral her tha n it s indu str)' a nd il s target mark et sill1ult aneolls ly?
3. Wll y is i1 impo rt il nt fo r nn indusu'y mlil lysis to appea l' ea rl y in il business
plan ?
4. Wll y is iclcnl ifyin g a cO Jll pa ny's indust!")' t1l o ugh cali inllwn y ins t<l l1 Ces'?
 CHAPTER 5 Indu stry An alysis 121 .
5. Wh <l t sho ul d you do if your firm ope r<l tes in mo re tiulIl o ne industry?
6. Wh <l t m e th e fo ur ge ne r<l l rui es of Ihumb fo r com ple tin g th e industry size.
g rowt h. <I nd S<l les projec tio ns port io n o f I he indust ry (l]w lysis?
7. Wh <l t to pic sho uld be discussed in th e " industry structure" porti o n o f <1 n
in d ustry <llUl lysis? Wh y <l re Ih ese to pi cs impo rt il llt ?
8. Why is il im pO n <1 nl to kn ow how <I n in d uslry is segment ed?
9. Why is kn owled ge of th e key Sllccess f<lcto rs in <1 n in dustry im port<l nt ? H ow
C<1 n <I n in d ustry's key suceess f<lcto rs be identifie d ?
10. Why is t he industry tre nds poni o n of th e in d uslry <l n<l lys is <l rgu<l bly t he mosl
im po rt <l nt secti o n o fth e mw lysis?

Application Questions
I. YOll jusI rev iewed <l busin ess p l<l n fo r a com pan y Ih <1 1 w ill nw ke <l lhl etic
shoes w ith roll e rs o n Ih e boil o m . whieh will <l ll ow it s use rs to lil e ra ll y sk.:tl e
fro m place to pl<lee as if th ey were \vea rin g roll e r sk<l tes. O ne thin g you
nOlieed is Ih at Ih e pla n d idn 'l in clucl e a n in d ustry <llUl lysis. Whe n you aske d
Kevin . th e aut ho l' of th e pla n. wh y th e induslry ana lysis W<1S le ft o ut he sa id .
"A re yOll ki d din g? M y induslry is o ne o fth e ho tt esl o nes in A me rica. Heelys.
a eom pa ny just like o urs. Iws over two milli on use rs alre<1dy. A n in d uslry
[lJUl lysis isn 't necessmy." D o you <1g ree w it h Kevin ? If he sa id lo yOll . "O k<ly.
pe rsu<lC!e m e tlUl t <I n in d ustry [lJw lysis is ne cess<l ry," what would you te ll him ?
2, Cybex Int e rn aliOJw l (hll p://www.cybe x.com) is <I com pa ny th at nw kes pre-
mium exe rcise eq ui p me nl fo r ho me <I nd comm e rci<l l use. Wlw l in d ustry is
Cybex in ? (Provide boi h <I n S IC and NA ICS code.) Report Ih e in d uslry's
pasl Ihree yea rs of s<1 le s <I nd s<l les growth . and m<l ke a pred ieli o n fo r il s s<1 1es
<I nd sa les g rowth fo r Ih e nexl yem. Is Cybex in Ih e S<l me ind usu'y <lS Prim e
Adult Fitn ess? Expl<l in your a nswe r.
3. Kell y Rya n. <l high-school cl<lssm<l le o f yours. is Ihinking aboul sl<l rlin g <l
com p<l n y lo co m pe te wi th Ca rtri dge WorkI. th e com p<1 ny Ilw l sell fr<lllChi ses
lo people who ope n sm ali slo re fronl s lo refiii prinl e r ink cmtri d ges fo r Ih e ir
cuslo me rs. Kell y is writing a busin ess p lan a nd is wo rkin g o n Ih e in d uslry
[lJw lysis. Ke ll y's IUl ving lro u ble l1 <1 ilin g down th e exact in duslry he will be
com pelin g in <1 nd is Iwv in g trou ble fin d ing SOUl'ces of info rm ali o n lo he lp
him d iscern Ih e e nvirollm ent al trends th at m e im paetin g hi s in dusll'y. lf Kell y
<lsked yOll fo r your he lp. ho w wO lll cl you he lI' hi m de le nl1 ine the ind uslry his
cmlri dge re fiII com p<l n y will pa rticip<l le in . a nd what suggest io ns wOlll d you
give him fo r fin d ing info rnw li o n o n th e e n vironm e nt<l l Ire nds Ilw t <l re im -
pacting his in d uslry?
4. Cerea lil y (http://www.ce re<l lit y.co m) is acom p<l ny.s th at.s l<l lln ched <I n e xcit-
in g new concept in th e resl<l urflnt industry. Spe nd a few minul es lookin g
<I I Cere<1 lil y's We b sil e <1 nd sludy in g il s busin ess concep!. If th e fo un ders of
Ce realit y had cmefull y stu died th e re stmlr<llll in d usIl)' be fo re com ing up
w ith th e ir bus in ess idea. wlUl I facto rs <1boul Ih e in dustry might IUlve le d th e m
to th e ide <l fo r Ce reality?
• 122 PART III Preparing a Bu sin ess Plan

5. O ne industry m e nti o ne d in th e c\Hlpte r th <l t is f<l irl y " ho f ' is th e m <lltress

industry. Spend e no u gh lim e stud yin g th e nw ttress industry to de t ermin e
w he th e r il is structur<l ll y <ltt m cti ve fo r n ew e nt w nt s. R epo rt your conclus io ns.

Endnotes
I. " Wo men's Cl othing Stores in th e US: 4481 1" ( I BI SWorld Industry Re port ).
http://www. ibisworld.cO Ill.<l ll (Fe bru <l ry 13.2007).
2. Ci. K<l w<ls<lki . n /e A rt o! l ii I' 5/(11"1 (New York : Portfolio. 2(04).
3. " Wo me n's C lolhing Slores in Ihe US: 44811" ( I BI SWorlc1 Induslry Re port ).
hllp://www. ibisworld.co m.<l ll (Fe bnwry 13. 2007).
4. M. Pa lt er. Compelilh' t SIn/legy. "/ (>cllIliqueJ fOl AI/ulyzil/g Indllsllics (II/d CompelilOls
O

(New York: Free Press. 1980).

5, M. J. Sil ve rs le in. Trt'{/S/lre I / lili I (New York : P011 fol io. 2006).
6, " Leisure Praducls" (SI<l nd<l rd & Poor's). hllp:llwww. net<l dv<l nt Clge.st<ln(brd poor. co m
(Jun e 3. 2007).
7, " MClllress M<lnuf<lcturin g in the US: 33791" ( I BISWo rki Indu st!)' Re po rt ).
hllp://www. ibisworld.co m.<l ll (Fe bru<l ry 15. 2007).