4.02 – Measuring Industry Attractiveness
An industry is the broadest category or definition of the business you’ll be in. Examples of industries include:
- Automotive aftermarket manufacturing
- Business consulting
- General contracting
- Home remodelling
- Lawn and garden distribution
- Legal services
- Medical
- Pet care
- Residential landscaping
- Software development
Within these broad industries, there are often-defined industry segments that further refine the offering. Here are some examples:
- The vehicle manufacturing industry has segments for heavy-duty trucks, electric automobiles, recreational vehicles, and more.
- The restaurant industry has segments for fast food, fine dining, casual dining, and so on.
- Clothing manufacturers have segments for athletic wear, men’s suits, lingerie, women’s business attire, and bridal gowns, among others.
- The medical doctor industry has segmentation for general practitioners, surgeons, podiatrists, holistic practitioners, ophthalmologists, and hundreds more.
- The HVAC (heating, ventilation, and air conditioning) industry has segments for light-duty, boilers, and heavy-duty systems.
You’re more likely to be successful in a “good” industry than a “bad” one. In a good industry, most companies are successful. Examples include software development, mineral extraction, and insurance. In a bad industry, margins are historically low and competition is overly intense. Examples include airlines and construction. However, numerous companies have succeeded in unattractive industries due to strong business models. Examples include Waste Management (garbage), Apple (computer hardware), Nike (shoes), and Vistaprint (commercial printing).
Factors to Consider When Evaluating Industry Attractiveness
- Is the industry growing or shrinking?
- Will the industry be strong in ten years?
- How many incumbents are in the industry, and how strong are they?
- Is there an opportunity for the industry to overlap into a different existing market (convergence)?
- Could the industry provide powerful synergies with an existing part of your business?
After identifying an attractive industry, pinpoint the best subset of that market, or niche, and then identify the best customers to serve within that niche. Working in an attractive industry is helpful, but not a prerequisite. Many great business models have been created in bad industries by carving out attractive customer segments, niches, or both. For example, Vistaprint succeeded by serving microbusinesses in the printing industry with a highly differentiated sales, distribution, and cost model.
The Difference Between a Market and an Industry
Many businesspeople use the term “market” as a catch-all for the combination of industry, segment, niche, and customer. Although simply referring to the market is easier, breaking things down into more discreet pieces can provide additional insight into your model. These concepts, however, do overlap. For instance, if your industry niche is electric cars, your customer segment is likely dictated by the fact that you make electric cars. The two complement and blend into each other.
Market is best used when industry, segment, niche, or customer segment doesn’t fully cover all the bases. Industry should refer specifically to the industry and the industry segment.
Finding the Best Industry
Picking an attractive industry for your business model may seem simple, but it requires thorough research. Gather as much independent information as possible regarding current and future trends to make an informed decision. Here are some sources for industry data and trends:
- Paid services such as Gartner and Forrester Research
- General business publications and news outlets like Bloomberg Businessweek, Inc., Barron’s, and CNN Business
- Books
- Industry trade publications
- Industry associations
- Personal experience
- The IRS or state government (look for the number of businesses in an industry starting or filing bankruptcy)
Be cautious of bias when using trade publications as they often put a positive spin on the industry. Without proprietary information, you’re using the same data as your competition. Business is inherently risky, and no amount of research can substitute for time in the marketplace. At some point, you’ll need to take the leap.
Working in Unserved or Underserved Markets
Be cautious of bias when using trade publications as they often put a positive spin on the industry. Without proprietary information, you’re using the same data as your competition. Business is inherently risky, and no amount of research can substitute for time in the marketplace. At some point, you’ll need to take the leap.
Unserved or underserved markets offer significantly better opportunities. These markets have growth potential and less competition. Positioning yourself in an underserved market can strengthen your business model. Markets are underserved because:
- The market is growing and too few vendors serve it. Examples include Android application development, social media platforms, 3D printing, and passenger space travel.
- The market is stagnant or shrinking and vendors flee, creating opportunities.
- The market is considered unattractive due to perceived profitability, perceived size, or lack of appeal.
Some markets are underserved for a reason, so carefully examine the market opportunity and be honest with yourself. Choose based on all the criteria mentioned.
By considering these factors and conducting thorough research, you can identify attractive industries and niches that align with your business goals, giving you a better chance of success.
