Industry: An Important Element For Evaluating A Business Model

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Industry is the most important element to consider when evaluating a business model. In all probability, once you get into an industry, you will not be able to exit it if something goes wrong. Unless you shut everything down and start afresh. For example: If you are in internet and technology, it is very difficult to imagine that you will be able to create a food and beverage-based business alongside. Such a tricky situation will arise when the business you started is not doing well and you need to diversify. You will be able to do so only within your industry, if at all.

Some points that you should think through:

What is your strength in that industry? You should have some expertise in it or feel a lot of passion for it. A completely fresh start might take a long time to build something meaningful.

Sunrise or sunset? It should be a sunrise, not a sunset industry, that is, an industry which is growing on its own. If the industry is de-growing (sunset industry), then even your business would de-grow some day or the other. If it is a sunrise industry your business too would grow automatically. For example: Physical greeting cards would be a sunset industry while mobile applications would be a sunrise industry.

Who funds and what? If you are looking at external funding, you should know who funds this industry and how much. For example: Historically, VCs have not funded builders and constructors and banks have not funded mobile applications.

Category and sub-category. Industry and category go hand in hand. For example: Internet a e-commerce a fashion apparel. Category and sub-category should be evaluated the same way as you would evaluate an industry.

Ideally, it should be a sunrise industry which offers multiple options to pursue and in which you have some expertise or about which you feel passionate. Market share and competition. The amount of importance you give to competition is relative to the industry or to consumer usage behavior. For example: Competition in the food and restaurant industry is restricted to a street or an area. For businesses like social networking and search engines, no boundaries are strong enough to hold out against the two global biggies. This is because a consumer would love to eat in various restaurants, but not be active on two social networks.

Competition means that the industry or product category is proven, because someone has already done it.

It also becomes a learning ground to know what to do and what not to.

Having competition means that the consumer wants the product or service and is likely to move if given something better. What needs to be evaluated here is:

What is the overall market size of the industry and how much of that has already been taken by the competition?

If you have to enter it, how much investment will be needed from your end to set up a substantial business?

How much would the competition bother you or take from you?

Do you have a differential from your competition or are you like any other player? The price differential is not a long-term differential as it can be matched by the competition, if its sustainable by you.

How long can you keep the differential?

Is the market big enough or growing enough to allow multiple players to thrive or co-exist?

Learn more about entrepreneurship and evaluating a business model only at the University Canada West, one of the most admired universities in Canada.

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