Dear M & M:
I am thinking about starting a business what are some of the things I need to research that I might be forgetting about? – Tom
As a business owner one must not only understand what is going on in your business you must understand what is going on in the industry you are entering. While you can’t control most of these external factors you must understand them so you can make plans to identify how you are going to deal with them. One needs to know how the industry works and how you fit in. What stage is your industry in its lifecycle?
Is this a new industry, expanding, declining or just holding steady? Is your industry growing faster or stronger than the economy? Make a list of the market leaders and what share of local, regional, national or global markets they have? When researching your competition don’t forget competitors with substitute products? Understand how and where money is made. What percentage can you mark up your products or services and still make money?
What are employees expecting to get paid in this industry? Know your industry financial ratios; inventory turnover, labor as a percent of sales, amount of sales that is spent on marketing, average cost per square foot for leased warehouse storage or retail storefront, average age of accounts receivables are just some you must understand. Do not forget the profit opportunities as well as the expense side of your industry.
Is there something else your competitors are doing that makes them money (diversification, vertical integration or other business alliances)? There always is a legal side to every business. What licenses, permits, laws and regulations touch your industry? This can be from sign permits to insurance. Find out what rules and laws pertain to you. Another area one must consider is technology and how it will affect you.
How quickly are new and emerging changes likely to take place? Are your competitors embracing and understanding them? What are the costs to stay current and ahead of the technology curve? Another important area to consider is logistics. What is the process to receive, store and deliver your products or services? Identify major suppliers; how far away are they, how effective and how accessible are they to your needs?
Finally, one must be able to clearly identify your “competitive advantage”. What is everyone else missing that you can provide? How do you stack up against the competition in your industry? Be realistic. Identify risks and come up with solutions to mitigate. If you don’t understand and know what some of these risks are, you are behind some of your toughest competitors already. I am certain they have already identified and came up with solutions. External forces are difficult to deal with. Understanding and finding solutions to problems should be the focus.