write on the money:WITH NATSAI MUSARURWA
In the top three key sections of your business plan is the market analysis. Last week we talked about defining your target market and that information is going to come in handy here. Knowing information about your target market will help tailor your market analysis to only include relevant points instead of just throwing in anything and everything, which is sure to make your potential investors lose interest while reading your plan.
Let’s start by looking at the purpose of the market analysis. The market analysis is supposed to give investors a full picture of the market you operate in, both at an industry and macro level. This section should inform the investor about any factors that can affect your businesses and their investment, either positively or negatively. The information in the market analysis should give as clear a picture as possible of the potential of your business and also outline some of the potential risks.
There are many ways of doing your market analysis, just make sure the method you choose achieves the above stated purpose. At Amras Communications we like to use the PESTLE Analysis, Porter’s Five Forces Analysis and a competitor analysis table, the components of which I’ll talk about shortly. The reason these are my go-to market analysis tools is because they adequately cover all the factors that need to be considered. So today I’m going to go into a bit more detail about these tools, if these aren’t your methods of choice perhaps you can still pick up a thing or two.
I like to look from the outside in, i.e. look at the macro factors which affect multiple industries first then when I have an understanding of the larger environment, I can make sound deductions about the specific industry. For the macro analysis I use PESTLE.
PESTLE is an acronym for Political, Economic, Social, Technological, Legal and Environmental. Under each title you look at the factors that are important to your business. With political factors you would assess the political environment of the country or countries you operate in such as stability and policies.
Politics have a cascading effect on the other factors that follow so although you can start anywhere with the PESTLE Analysis it may be helpful to begin here.
Economic factors include GDP, inflation, interest rates, unemployment, etc. These factors give investors an idea of where the country is and where it may be headed. I’ve also found that this section helps businesses identify opportunities and gaps within the market. There are a lot of economic factors you can consider, however, as much as you want your investor to be as well informed as possible, only stick to what’s relevant.
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Now the third set of factors, Social, is where knowing your target market will be most useful. Relevant social factors depend a lot on the demographic characteristics of your customers. Here you would look at aspects such as age distribution, cultural factors, or lifestyle trends that could affect demand for your product or influence how you sell it. Again, remember to only include what’s relevant.
Technological factors, which is self-explanatory, looks at technology such as innovations that could boost your business, adoption of technology, penetration rates of technology, etc. With this analytical tool some choose to stop here, making it a PEST analysis. That isn’t to say there aren’t any Legal and Environmental factors to consider but their impact or relevance may be null. Examples of Legal factors, however, include employment or contract laws and Environmental factors include climate conditions.
Whatever tool(s) you decide to use for your macro analysis remember to be specific. If you’re talking about inflation, give actual figures, just saying inflation is increasing won’t be sufficient. Additionally, when you give this information explain how and why it would affect your business. Don’t make the investor have to figure it out.
Now taking a step inwards we have the competitor analysis and Porter’s Five Forces, which look at the specifics of the industry. I use a table for my competitor analysis which outlines information such as what the company does, their marketing strategy, market share, strengths, weaknesses, etc. This analysis not only helps you see how you rank competitively against other businesses but it can also help you identify gaps that competitors are not filling that you can leverage. Only keep the analysis to five companies at most, even if there are one hundred competitors, and make sure they range in size, location, etc. so your sample is representative.
Building off your competitor analysis, the Porter’s Five Forces Analysis looks at your industry’s environment in the context of competition. The five forces are; degree of competition, threat of new entrants, threat of substitutes, bargaining power of buyers, and bargaining power of suppliers. I like to rank each of these factors from very low to very high but you can use what suits you. I won’t go into detail about this analysis tool, as I’ve said in previous articles you can find great resources that explain this online. One thing I would like to point out, however, because so many people get it wrong, is that bargaining power of suppliers refers to your suppliers, not you.
This isn’t the most exciting section of the business plan to write. A lot of research will be required to properly complete the analysis, but please don’t take short cuts, it’s very important. If you find it a bit overwhelming to do on your own, Amras Communications (hopefully by now you know who we are) also offers market research reports which you can integrate into your business plan.
l If you have any questions or need some guidance on your market analysis, feel free to contact us on +263787722016 or at info@amrascoms.com. We are committed to your success.
