How to Write a Business Plan: Market Analysis

The objective of the market analysis is to examine your external environment, which includes competition, environmental factors, economy, and other forces that may influence your business and how it competes in the marketplace.

This section of business plan help should contain numerous subsections.  To start, make sure to cover the industry that your company will be competing in.  For example, as a business plan writer, I compete in the business consulting industry.  From this, I would make sure to discuss the business consulting industry as a whole.  This would include research related to the growth of the industry and number of competitors, if possible.  The next section to cover would be discussing your target market.

The target market is the perfect person or type of person that you wish to sell too. Identifying the target market, you will be able to better understand how you can customize your advertising and business model to best appeal to this market.

A final topic to cover in the section would be your competitive analysis.  In your competitive analysis, identify your strengths and weaknesses, discuss your competitors’ strengths and weaknesses, identify any barriers to entry into the marketplace and how you will overcome these barriers, and finally examine your perspective market share gain after the first year of business.  By covering all these topics, readers will not only understand how you will compete in the marketplace but this will also show them that you have done your research and that they should have confidence in your assessments.

The market analysis section of the business plan should address and examine the external aspects of the business.  Common external aspects of business would include the business’s industry, competitor review, and possibly a discussion about the economy and its potential effects on the industry as a whole.

Industry Overview:

Identify the main industry the business completes.  Once the industry is identified, then try and determine if there are sub-industries, with enough data, that aligns with your business concept.  For example, in the restaurant industry, subcategories include food trucks, casual dining, and quick service establishments.  With this done, now research, and take notes about, the statistics and trends, such as total industry sales, growth rates for the industry, and popular tends currently being exploited.

Business Plan Writing Tip:

Thoroughly describe the characteristics and trends in the industry.  For example, in the retail industry, common characteristics would be products sold to consumers, the price range of the products, and, or how, purchases are paid for by the customer (do they need to finance the product?).

Sample:

Juice and smoothie bars sell fruit drinks, protein shakes, vegetable drinks, and other healthy food and drink items.  The foodservice industry, as a whole, should exceed $5 billion next year.  The juice and smoothie bars industry, which is a sub section of the foodservice industry, will reach over $3 billion in sales for 2019.  For the next several years, industry experts project annual revenue growth of approximately 1.8%.

Analysis:

This example started with explaining the specific characteristics commonly displayed by competitors in the industry.  Next, a brief revenues and growth discussion of the overall industry was offered.  This then led to addressing the potential revenues for the subsection industry, as well as, the potential growth rate for the future.

Industry Statistics:

Industry statistics may focus on a wide array of topics.  A great way to start the company statistic segment is just do an internet search about the industry and its statistics.  Once this is complete, start reading articles and taking notes about the industry and specific statistics.

In going through this process, not only will the business owner deepen their knowledge about the industry, but they will also be able to show, through writing, in-depth research was done on the topic.

Business Plan Writing Tip:

When writing this section, I prefer to utilize bullet points to show statistics about the industry.

Sample:

Statistics

  • Studies have shown that close to 30% of all US adults do not meet or exceed their daily servings of vegetables and fruit.
  • On a global basis, juice bar sales have exceeded $9 billion.
  • Premium juice sales have grown by approximately 11% since 2000.
  • 83% of consumers have stated that a fruit-based smoothie is preferable as compared to a dairy base.

Analysis:

This example shows various statistics in relations to the juice and smoothie bar industry.  As you can see, the structure utilized is a bullet point format. To take it a step further, make sure to utilize footnotes for citations.  This will add credibility to your statistics section.

Threats, Trends, and Opportunities:

The trends, threats, and opportunity section are an excellent opportunity for the business owner to show how “in tune” they are with customer trends, and industry opportunities.  When I write this section for clients, I usually like to equalize the information with an even number of threats, trends, and opportunities.  This shows a well-balanced and researched section.

Business Plan Writing Tip:

Even though “opportunities” is listed last in the title, I often start this section by discussing opportunities in the marketplace first.  Opportunities in an industry may be found in a multitude of ways.  Some restaurant owners survey potential customers to find out their needs.  Other business owners will network with regional or national competitors to identify industry opportunities.  Regardless of how opportunities are identified, make sure to thoroughly explain your findings.

As for structure, I prefer to use paragraph form for addressing the threats, trends, and opportunities.

Sample:

Trends, Threats, and Opportunities

An important threat to an industry would be related to the overall economy.  Currently, health insurers pay a portion of a patient’s health expenditures.  However, patients are still expected to pay out-of-pocket for some costs.  In our current economic climate, patients have enough discretionary funds to afford this pay structure.  Unfortunately, in the event of an economic recession, as discretionary funds for patients decrease, profits for the healthcare industry may show a correlated effect.

As for an opportunity, there are no major medical practices dominating national or regional markets.  This allows for startup physician firms to enter the market place due to no clear industry leader.  Finally, trends in the medical field may be found in technological innovations.  Technological innovations may help medical practitioners offer more services at premium prices.

Analysis:

Each topic, trend, threat, and opportunity were given equal attention.  Also, thorough explanations were provided to support each finding.

Keys to Success:

The industry “keys to success” section will different as compared to the “keys to success” discussion found in the company description category.  As noted in the company description section, the keys to success were written based on the business owner’s perspective of the business.  In contrast, the industry section keys to success utilize research, and the perspective employed should be from the industry as a whole.  In other words, what are most of your competitors doing, and doing well, in order to be successful in the industry?

Business Plan Writing Tip:

For this section, make sure to do research and take notes.  When I write a keys to success section for the industry, I often review articles related to industry leaders.  As I go through the articles, I will jot down notes related to actions they have taken to be successful.  After I have gone through several articles, I then compare the notes with the objective of finding commonalities.  To illustrate, for restaurants, an important key to success is a themed presentation.  Just look at Olive Garden, Outback, or Mello Mushroom.

Sample:

Keys to Success

To be successful in the construction industry, competitors need to focus on the basics.  Small businesses must employ and retain qualified and well-trained workers.  Qualifications may not necessarily be in traditional schooling.  However, experience with installation, repair, and remodeling is necessitated for quality end products.

Analysis:

In this example, the keys to success were focused on a small business owner competing in the construction industry.  An important identification, based on industry research, was the need for skilled workers.  With this as a foundation, a brief reflection as to why this fact was focused on is needed.

SWOT Analysis:

The SWOT analysis is a popular strategic tool used by business owners to quickly and broadly identify different aspects of the company’s internal and external environments.  Unfortunately, most small businesses utilize the SWOT analysis incorrectly.

The SWOT analysis is broken up into four segments, which are strengths, weaknesses, opportunities, and threats.  This is common knowledge for most small business owners.  However, what most small businesses owners do not know is that the strengths and weaknesses are one category and opportunities and threats are a second.

In the strength and weaknesses segment, small business owners should focus on the internal aspects of their business.  What are the business’s strengths and weaknesses?  For the opportunities and threats section, this is where the small business owner examines their external environment, seeking out opportunities and potential threats to the organization.

Business Plan Writing Tip:

Make sure to utilize a visually appealing format, bullet points, and always, always have at least twice as many strengths and opportunities as compared to weaknesses and threats.

Analysis:

Most important fact to identify in the example provided is that the strength and weakness section focused on the internal aspects of the business.  Whereas opportunities and threats segments concentrated on the external environment.

Competitive Analysis:

The competitive analysis section is where the business owner has an opportunity to examine and discuss local or regional competitors.  This section may be as short as listing competitors, their distance from the target organization, and a paragraph summarizing the competitors’ strengths and weaknesses.  Or, this segment may be a full-blown competitive analysis analyzing important segments of each competitors’ operations.  For most business owners, the former approach is often best.

Business Plan Writing Tip:

The competitive analysis section, in my most humble of opinions, should be short and sweet.  The preferred structure that I use is to identify the competitor’s name, address, hours of operation, and a website link.  With this completed, I then analyze the competition from a customer’s perspective.  To do this, just review the competitor’s website and Google/Facebook reviews about the business.  In following this structure, the business owner is able to gain important perspectives as to how the competition operates and, potentially, their glaring strengths and weaknesses.

Sample:

Car Way XYZ is a self-propelled car wash in the Washington DC. area.  The company was founded in 1984 and prides themselves on their 24hr availability format.  As for services, the car wash offers a basic wash, deluxe wash, and complete wash.  Based on a Google search, customers have had mixed reviews.  Most reviews seemed satisfied with the car washes results.  However, some past customers complained that different aspect of the wash was not working, such as the dryer or wheel protector.

Analysis:

The short paragraph above succinctly noted the name of the competitor, a brief background of the competitor, if available, and a short discussion related to how customers perceive the organization.