Understanding the environment of the industry is most important when planting the seeds of a new business venture. The environment is defined as all elements outside the boundary of an organization including the industry, government, customers, suppliers, the financial community, and other business ventures.
Discussions of Industry Dynamics and Risk Analysis
In the late 1970s, Harvard Business School’s Michael Porter introduced his theories on business strategy formulation, and since then he has transformed the theory, practice, and teaching of business strategy throughout the world. The ideas in this section build and extend on his discussions.
Your first step is defining your industry. The list below segment the industry classifications that are based on the PricewaterhouseCoopers/Thomson Financial Venture Economics/National Venture Capital Association MoneyTree Survey.
These ventures develop technology promoting drug development, disease treatment, and a deeper understanding of living organisms. Includes human, animal, and industrial biotechnology products and services. Also included in this sector are bio-sensors, biotechnology equipment, and pharmaceuticals.
Business Products & Services
These ventures offer a product or service targeted at another business such as advertising, consulting, and engineering services. Also included are distributors, importers, and wholesalers.
Computers & Peripherals
This sector includes manufacturers and distributors of PCs, mainframes, servers, PDAs, printers, storage devices, monitors, and memory cards. Also included are digital imaging and graphics services and equipment such as scanning hardware, graphics video cards and plotters. Integrated turnkey systems and solutions are also included in this sector.
Consumer Products & Services
Ventures in this sector offer products or services targeted at consumers such as restaurants, dry cleaners, automotive service centers, clothing, toiletries, and home products.
Electronics & Instrumentation
Includes electronic parts that are components of larger products and specialized instrumentation, including scientific instruments, lasers, power supplies, electronic testing products, power supplies, and display panels. Also included are business and consumer electronic devices such as photocopiers, calculators, and alarm systems.
These ventures are providers of financial services to other businesses or individuals including banking, real estate, brokerage services, and financial planning.
This sector includes both in-patient and outpatient facilities as well as health insurers. Also included are hospitals, clinics, nursing facilities, managed care organizations, Physician Practice Management Companies, child care and emergency care.
Industrial & Energy
Includes producers and suppliers of energy, chemicals, and materials, industrial automation companies and oil and gas exploration companies. Also included are environmental, agricultural, transportation, manufacturing, construction and utility-related products and services.
Information Technology Services
These ventures are providers of computer and internet-related services to businesses and consumers including computer repair, software consulting, computer training, machine leasing/rental, disaster recovery, web design, data input and processing, internet security, e-commerce services, web hosting and systems engineering.
Media & Entertainment
These ventures are creators of products or providers of services designed to inform or entertain consumers including movies, music, consumer electronics such as TVs/stereos/games, sports facilities and events, recreational products or services. Also includes online providers of consumer content like medical, news, education, and legal information.
Medical Devices & Equipment
These ventures Manufacture and/or sell medical instruments and devices including medical diagnostic equipment (X-ray, CAT scan, MRI), medical therapeutic devices (drug delivery, surgical instruments, pacemakers, artificial organs), and other health related products such as medical monitoring equipment, handicap aids, reading glasses and contact lenses.
Networking & Equipment
These ventures make and/or sell networking and communications equipment. Their products include switches, hubs, routers, gateways, ATM, network test, monitor and support equipment, and Internet communications and infrastructure related equipment.
Retailing & Distribution
This sector includes venture making consumer goods and services available for consumer purchase including discount stores, supercenters, drug stores, clothing and accessories retailers, computer stores and bookstores. Also included in this sector are e-Commerce companies, those selling their products or services via the Internet.
These ventures design, develop or manufacture semiconductor chips/microprocessors or related equipment including diodes and transistors. Also includes ventures that test or package integrated circuits.
These ventures produce bundled and/or unbundled software applications for business or consumer use. These products include software created for systems, graphics, communications and networking, security, inventory, home use, educational, or recreational. Also included is software developed for vertical-specific industries such as banking, manufacturing, transportation, or healthcare.
These venture are focused on the transmission of voice and data which includes long distance providers, local exchange carriers, and wireless communications services and components. Also included are satellite and microwave communications services and equipment.
If the classification criteria in all of the other categories does not appropriately describe the product or service offered, the venture may be categorized in this sector.
The second step is to get a very basic fundamental overview of your industry by looking at key success factors, focusing in particular on the industry’s average profitability.
The third step is examining the “product life cycle” of similar products in this industry.