“Most innovation comes from outside your industry applied to your own.” – Tony Hsieh
Did you miss the first series? Click here to learn about personal evaluation and its importance in starting a business.
Once you decide on the business that fits your goals and lifestyle, you need to evaluate your idea.
A proper evaluation of your business idea involves asking yourself the following questions:
- Who is the ideal person that will buy your product or service; the one that will derive value from using your product? We call him/her the “Target Customer”
- Who else in your environment is offering the same or a similar service? We call him/her the “Competitor”
- How much do you need to start the business? Where would the money required to start the business come from? We refer to this as “Funding”
Personal Evaluation was meant to get you thinking and serve as a reality check. The same thing applies when it comes to researching your business and the industry you’d like to go into. The following are steps to take in evaluating your industry:
1. Source for Information
There are several ways through which you can get information on your industry/competitors, depending on the scale of your business. Some include:
- General Google searches
- One on one discussion- going out and speaking to people already in the industry, customers, input suppliers, and any other stakeholder in the industry.
- Study: Read books, magazines and newsletters by/on people in the industry. Research key people. Read relevant news sites and industry magazines and take a class or two (where this is possible).
If you don’t have time to perform the research or would like a second opinion, there are people you can go to for help, like government ministries and research companies.
Other ways to get information on your industry include:
- Nigerian Bureau of Statistics database
- Industry report from consulting firms such as Agusto & Co, KPMG, Deloitte etc.
- Suppliers of your industry
- Students of Tertiary institutions who can embark on the research at minimal fee
- E-commerce and online directories e.g. Amazon, Jumia etc.
2. Evaluate your industry
There are critical questions you should be able to answer that will give you insights to how attractive your prospective industry and market is, beyond your personal “feelings”.
- How urgently do people need the thing you’re selling or offering right now?
- What is the market size like? Are there already a lot of people already paying for this thing? For example, the number of weddings and events happening every weekend could give you an insight to the need for an event planner, photographer, decorator etc.
- How easy is it to acquire a customer and how much will it cost? If you are a manufacturer of bespoke home furniture and fittings, you may require a significantly larger marketing investment than a manufacturer of Zoboand drinks.
- How much money, personnel and time will it cost you to deliver the value you would be offering?
- How long do you have to do background work before you are ready for the market?
- What size of investment do you need to make up-front? Is there a need for rent? What’s the cost of equipment and machines? Marketing cost etc.
- What is technology doing in your industry? What technological tools are people in your industry adopting? What are the ways in which technology can improve your value proposition? What technology do you need to drive your business? Is there a new trend that could impact your industry?
- Will your business continue to be relevant as time passes? A business that exclusively repairs iPhone 5 screens will only remain relevant so long as the iPhone 5 sticks around. If your business is only relevant for a specific period of time, you will also want to consider your future plans.
The answers to these questions will help you validate your business idea.
Remember to use information gotten from research as earlier noted and not just your perception in answering these questions.
3. Review your Idea and Strategy
Go back to the drawing board and review your idea. Is it feasible? If yes, what strategy do you need to adopt to optimize your chances of success?
If possible, you can even take things a step further and consider the consumer needs currently not being met by the businesses in the industry. This would be a good foundation for differentiating your line of business and creating a competitive advantage.
This leads us to taking a look at potential competitors. Remember, the presence of competitors is oftentimes a good sign! It means that the market for your product or service already exists, so you know that from the outset, you’re not flying entirely blind.
4. What is your Competitive Advantage?
Competition analysis is all well and good but it’s a means to an end and not an end in itself. If you want to be successful and not just average, then it is important to offer more to the target customer than your competitor. There must be a differentiating factor in your business and this is what is referred to as “Competitive Advantage”.
A competitive advantage is what makes you better than the competition in your customers’ minds with an overall impact on their perception of your “brand”. The term was first applied to businesses, but it works for anyone, from employees to countries.
Before describing your competitive advantage, you’ve got to know these three determinants:
- Benefit. Whether it’s a good or service, you must be clear on the benefit your product provides. It must be something that your customers truly need and that offers real value to them. For example, the availability of free news on the internet accessible from anywhere is a clear benefit over traditional newspapers.
- Target market. Who are your customers? You’ve got to know exactly who buys from you, and how you can make their life better. That is how you create demand for your product, and as we all know, demand is the driver of all economic growth. As an example, a traditional Newspapers’ target market has now drifted to older people who aren’t comfortable getting their news online.
- Competition. That’s more than just similar companies or similar products. It includes anything else your customer could do to meet the need you can fulfill i.e. a competitor for Coca-Cola is not just Pepsi but every company that produces drinks including a sachet water company, because when you are thirsty, they all compete for your money. Newspaper companies thought their competition were other newspapers until they realized it was the internet. Nigerians currently get news more from Linda Ikeji than they do the newspapers. They fought to compete with a news provider that was instant and free.
To be successful, you now need to be able to articulate the benefit you provide to your target market that is better than the competition. That’s your Competitive Advantage.
The three primary ways companies achieve a sustainable competitive advantage are cost leadership, differentiation and focus.
- Cost leadership, which means you provide reasonable value at a lower price. Companies do this by continuously improving their operational efficiency.
- Differentiation means you deliver better benefits than anyone else. A company can achieve differentiation by providing a unique, customized or high-quality product. Another method is to deliver the product faster. A third is to market the product in a way that reaches customers better. A company with a differentiation strategy can charge a premium price. That means it usually has a higher profit margin.
- Focus means you understand and service your target market better than anyone else. You can use either cost leadership or differentiation to do that. The key to focusing is to choose one specific target market. Often it’s a tiny niche that larger companies don’t serve.
While you’ve got the time, learn as much as you can about your competitors, about what they provide to their customers, how they attract attention, and whether or not their customers are happy. If you can figure out what’s missing before you even get started, your job will be made much easier when you do finally set up shop.
Remember this 3 key words: Innovation, Quality and Customer Service, they are the main drivers of successful businesses.
Innovation means you meet the same needs in a new way. Quality means you provide the best product or service. Customer service means going out of the way to delight your customers.
Are you in business and you have found this helpful or do you have other advice on industry and analysis? Please feel free to share in the comments section.