Pg 101 the market Entrepreneurs identify their primary customers by recognizing a need or pain in An overview of industry analysis Pg 102 Questions that constitute an industry analysis o How is the industry described o Is the industry growing o Where are the opportunities o What is the status of any new technology o How much do industry companies spend on research and development o Who are the opinion leaders in the industry o Are there young successful firms in the industry o What does the future look like o Are there any threats to the industry o What are the typical margins in the industry Gathering secondary sources of industry information Pg 103 Begin research by looking at secondary sources to obtain background data Search engines are great resources to obtain an introduction to an industry and to pick up on industry trends Journals trade magazines industry analysts government publications and annual reports are also great secondary sources but provide more targeted information about an industry Trade magazines provide a good sense of key firms and the direction an industry may be taking LexisNexus and STAT USA are sources for industry statistics The North American Industry Classification system NAICS the classification system that the U S Canada and Mexico developed to identify industries and allow for common standards and statistics across North America is replacing the U S Standard Industrial Classification system SIC Stages of the industry life cycle Pg 106 107 Birth o Demographic shifts o New industry emerges Growth and adaption o Changes in customer markets Differentiation and competition Shakeout o Exit of firms that cannot compete Maturity and decline o Domination of a few firms Analyzing an industry Pg 109 o Companies must identify niches that have not yet been served o Intense product differentiation Uncertainty reduced Proprietary rights less exclusive It is often helpful to put a framework around the concept of an industry to organize all the data collected and to be able to evaluate the industry Most commonly used competitive framework is Porter s five forces Porter s work has been challenged stating that a sixth force the government or public should be included and that the attractiveness of an industry cannot be evaluated independent of the resources the company brings to the industry Possible Bonus Question Know how to draw PORTER S FIVE FORCES Supplier bargaining power Intensity of competitive rivalry Buyer Bargaining power Barriers to entry Threat of Substitutes Economies of scale means that costs to produce have declined relative to the price Economies of scale Pg 110 of goods and services PEST analysis Pg 114 A PEST analysis examines the environment in which the new venture will operate and ensures that the entrepreneur s strategies are aligned with the path of the industry and the markets in which the new business will compete The areas a PEST analysis covers are o Political o Social o Technological o Economic Characterizing the target market Pg 116 The goals of market research are Identify and profile the first customer 1 2 Estimate potential demand from that customer Intensity of competitive rivalryBarriers to entryBuyer Bargaining powerThreat of Substitutes Supplier bargaining power 3 Identify subsequent customer segments and needs to grow the company Targeting the first customer Pg 116 The first customer is the one who most needs the benefits of the entrepreneur s product or service The first customer serves as an unserved niche that enables the entrepreneur to enter a market with no direct competition To narrow market research and to save time money entrepreneurs should identify two or three prototypes of a business that seem to be most feasible Targeting the first customer continued Pg 117 The internet is a good starting point for gathering secondary data Using census data entrepreneurs can determine whether the geographic area they have defined for the business is growing or declining whether the population is aging or getting younger or whether available work force is mostly skilled or unskilled Exploring the market with primary data Pg 118 The most important data that entrepreneurs can collect on potential customers are primary data derived from observation online or in person surveys phone surveys interviews and informal focus groups In order to avoid bias a sample should be random ie entrepreneur has little control over who participates Most entrepreneurs because of limitations on cost time use a convenience sample This means that not everyone in the defined target market has a chance to be chosen to participate Structured Interviews Pg 119 Advantages of personal interviews o Provide opportunity for clarification discussion o Nonverbal communication may be observed by the interviewer o Response rate is high o Permit open ended questions that can lead to more in depth information o Provide opportunity to network and develop valuable contacts in the industry Structured interviews are the best source of valuable information from customers suppliers distributors and anyone who can help the entrepreneur determine who the first customer is It is important to develop questions that have a basis for response comparison identification of useful patterns and questions that help answer the feasibility questions of the product service Informal focus groups Pg 119 A focus group is a representative sample of potential customers that are brought together for a presentation and discussion session Often used to elicit feedback on customer needs relative to potential product or service or to compare products Informal focus groups can prevent an entrepreneur from making the costly error of offering a product or service for which there is little or no interest The customer profile Pg 122 The information that goes into the customer profile includes o Age o Income level o Education o Buying habits when where how much o Where these customers typically find these types of products services o How they would like to purchase these products services New products and services create assets that need to be protected this is called Pg 129 Intellectual property The impact of technology Pg 131 Technology has shortened product life cycle A complete product life cycle can be as short as 90 days or as long as 100 years A product life cycle is comparable to an industry life cycle with periods of product development market introduction growth maturity and decline Companies