In 1704 Alexander Selkirk watched from the beach as his shipmates hoisted the anchor and raised the sails. As the ship hove out of sight in the distance, Selkirk looked around at his new island home. A few hours before, he had been arguing with the ship’s captain. Fed up with Selkirk’s resistance, the captain had put him ashore with a musket, a hatchet, a knife, a cooking pot, a Bible, bedding, and some clothes.

Can you imagine being castaway on an island to fend for yourself? Needing shelter, food, and water, what challenge should you tackle first? 

I’ve never been in Alexander Selkirk’s position, but I think one of the first orders of business for someone like him would be scouting out the land, like Joshua’s twelve spies in Canaan. Is there a clean water source nearby? How big is the island? What food sources might be available? Where is the ideal spot for a shelter? What threats are present: Hostile inhabitants? Wild animals? Extreme weather?

Scouting the territory to find answers to these questions could be crucial to a castaway’s survival, allowing him to create a mental map of his situation. This profile of threats, resources, and possibilities would allow him to plot a plan for survival. In Selkirk’s case, he managed to live on the island for four years until he was picked up by another ship. 

Understanding Your Industry

In this analogy, Alexander Selkirk is your business, and his island is your industry.

Selkirk’s explorations of his new island home were all about gaining context and gleaning knowledge about his surroundings. Every business operates within a context that we call an industry. Understanding that industry is important. 

Researching the profile of your industry is a little like an island castaway scouting out the lay of the land, mapping out his surroundings, and planning for survival. How large is the pool of potential customers? What competition is present? Are there untapped opportunities or resources?

Benefits of Understanding Your Industry

In 2008 Mike Brown was the owner of a struggling coffee shop in Saratoga, New York. Today he is the owner of a big business called Death Wish Coffee (I don’t care for the name, but Mike’s example is instructive). 

One day a customer’s request triggered an idea in Brown’s mind. The customer, a truck driver, asked, “What is the strongest cup of coffee you can make?” The seed was planted. Mike realized that perhaps he could create a business focused on meeting the coffee needs of blue-collar workers. He realized they didn’t view drinking coffee as a soothing morning routine, but as a tool that enabled them to work harder. Brown decided to try making “The World’s Strongest Coffee” and eventually it became a large brand known as Death Wish Coffee. 

Successful businesses occupy a specific niche within the industry. They don’t offer the same product at the same price, with the same features, and with the same service as everyone else. Like Mike Brown did with his coffee product, they differentiate themselves, giving potential customers a reason to purchase from them instead of from a competitor. Before you can know how to effectively differentiate, you need to understand the realities of the industry.

Going through the process of creating an industry profile will help you answer important questions. This may sound intimidating, but it’s not. The profile is simply a way to uncover and organize information about your specific industry.

Approach with Childlike Curiosity

Before we cover three aspects of your industry profile, we need to talk about mindset. When completing this exercise, adopt an attitude of childlike curiosity. 

As a small boy, I used to spend a lot of time in a grove of trees close to our house. There were many things there that I wondered about. “What made the jack-in-the-pulpit ‘hood’ curl up over the top? Exactly how did all those small pieces of sand and pebbles get locked together into a solid rock? Why were they different colors? What makes the clouds move?”

An attitude of childlike curiosity is an attitude of learning. However, we are often too busy “doing” with no time for “learning.” We could paraphrase the old saying, “All work and no play makes Jack a dull boy” into “All doing and no learning makes Jack’s business decline.” 

We adults forget what it is like to not know something, to have a mind that is a blank slate ready to be filled with facts. Young children, on the other hand, approach each new adventure with curiosity, wonder, and perhaps most importantly, without presupposition. 

Though we know our own businesses well, we need to be in touch with the industry around us as the future unfolds. Perhaps some of our “knowledge” is an assumption that will be proven wrong. 

Childlike curiosity helps us to lay aside our presuppositions, see with fresh eyes, and uncover new insights. 

The Industry Profile

At Rosewood Marketing, we divide the industry profile into three sections:

  1. Industry conditions
  2. Trends
  3. Competitor analysis (your top three)

Both existing businesses and startups find it helpful to complete an industry profile. For a new business, it lays the groundwork for staking claim to unoccupied territory, a niche that will allow them to prosper. 

For existing businesses, this profile helps them evaluate areas of expansion or reevaluate their market position as they mature and the industry changes around them. It gives them a picture of where they fit within the industry and identifies market opportunities. It is normal for competition to encroach on your existing niche. Completing an annual industry profile helps you to identify threats to your market niche before you suffer damages.

  1. Industry Conditions

In this section, we evaluate the current conditions in the market. Write down the answers to questions like these: 

  • Are most companies slow or busy?
  • What are common frustrations for companies?
  • What are common frustrations for customers?
  • Is the industry young and developing or mature and stable?
  • Are any companies disrupting the status quo?
  • What is the size of the industry?
  • What creates barriers for new companies to get started: Geography? Product knowledge? Market intelligence? Capital investment?
  • Do prices allow profitability?

Business professor Michael Porter developed what are called “Porter’s Five Forces” to analyze an industry and develop strategy for existing businesses. These forces are:

  1. Threat of new entrants: Are the barriers to entry high or low for new companies?
  2. Threat of substitutes: Do customers have access to substitutes for your product? (for example, renting a storage unit in town instead of buying a shed).
  3. Bargaining power of customers: Have competition and customer sensitivity to price driven down prices?
  4. Bargaining power of suppliers: Are you dependent on one supplier, or are multiple options available?
  5. Competitive rivalry: What is the level of competition in the industry?

Industry conditions are outside our control, but if we understand the market accurately, we can respond accordingly. If the industry is expanding and/or changing, how well are you positioned to leverage the future? If the industry is shrinking and/or highly competitive, do you have what it will take to thrive? Or should you transition to a different category or exit the industry completely?

  1. Trends

In contrast to current industry conditions, this is where we try to peer into the future and determine what direction the industry or market may be headed. The purpose of asking questions about the future is to evaluate the long-term outlook for your industry/market/business.

Write down the answers to questions like these:

  • Is the market growing or shrinking?
  • How is new technology changing . . .
    1. Business operations?
    2. Customer buying preferences?
    3. Product distribution?
    4. And more.
  • How are social/political/worldview changes affecting customer choices?
  • Is the supply of raw materials/supporting services suitable (cost, quality, availability)?
  • Do government/regulatory changes or intervention seem likely?

Changes in the world around us can increase or decrease demand. You may run a local business, but as we sometimes find out the hard way, national or global events and trends trickle down to impact even local businesses.

A growing electrical contracting company was doing a lot of new agricultural building projects. Over several years, a number of small competitors entered the market. This drove prices down. The company decided not to compete with these smaller startups. They shifted their focus to more complex, commercial projects. The smaller contractors didn’t have the resources to compete in that space.

When competition starts getting tough find a new niche.

  1. Competitor Analysis

So far the industry as a whole has been considered. Now the focus shifts to your top three competitors. Zoom in close and examine them in detail. Choose the top three places where prospects spend their money instead of spending it with you. If you are planning to launch a startup, evaluate the existing companies in the space. If you are an established business, evaluate your existing competitors. 

Competitors can be in a different segment of the industry. A toy manufacturer will face competition not just from other toy makers but also from online entertainment. 

Sometimes your competitor is not even a business. For example, instead of buying a shed, a prospect might consider building it themselves or asking a family member to build it for them.

Write down answers for these questions for each of your competitors and for your own business: 

  • Focus: What are the company objectives and capabilities?
  • Competitive advantage: Why do people buy from this company?
  • Target market: What group of customers is the company focused on?
  • Market share: What percentage of the market do the company serve?
  • Marketing strategies: How does the company attract and retain customers?
  • Products and services: What products and/or services does the company offer?

Learning about your competitor’s practices will likely give you insights into not just how to differentiate your business, but also how you can improve your operations, strategy, product, or marketing. 

Conclusion

In his book The Personal MBA, Josh Kaufman discusses what he calls the “Iron Law of the Market.” He writes, “Every business is fundamentally limited by the size and quality of the market it attempts to serve. The Iron Law of the Market is cold, hard, and unforgiving: if you don’t have a large group of people who really want what you have to offer, your chances of building a viable business are very slim.”

The primary purpose of understanding your industry is to help your business thrive. For your business to thrive, you need to have a niche. Your industry is one of four areas you need to understand to create a strong niche. We will explore the other three in future articles. Stay tuned to learn more about how to discover your niche. 

About the Author: Roy Herr is the senior marketing consultant at Rosewood Marketing. The Rosewood team guides business owners through marketing challenges into sustainable growth. Contact Roy at roy@rosewood.us.com