Industry/target market Feasibility analysis

Industry/target market feasibility is an assessment of the overall appeal of the industry and the target market for the product or service being proposed. There is a distinct difference between a firm’s industry and its target market; having a clear understanding of this difference is important. An industry is a group of firms producing a similar product or service, such as computers, chil- dren’s toys, airplanes, or social networks. A firm’s target market is the limited portion of the industry that it goes after or to which it wants to appeal. Most firms, and certainly entrepreneurial start-ups, typically do not try to service an entire industry. Instead, they select or carve out a specific target market and try to service that group of customers particularly well. Sprig Toys, for exam- ple, is not trying to target the entire children’s toy industry. Its target market is parents who are willing to pay a premium for super-safe, environmentally friendly, educational toys.

There are two components to industry/target market feasibility analysis: industry attractiveness and target market attractiveness.

1. Industry Attractiveness

Industries vary in terms of their overall attractiveness.5 In general, the most at- tractive industries have the characteristics depicted in Table 3.4. The top three factors are particularly important. Industries that are young rather than old, are early rather than late in their life cycle, and are fragmented rather than con- centrated are more receptive to new entrants than industries with the opposite characteristics. You also want to pick an industry that is structurally attractive— meaning start-ups can enter the industry (in various target markets) and com- pete effectively. Some industries are characterized by such high barriers to entry or the presence of one or two dominant players that potential new entrants are essentially shut out.

Other factors are also important. For example, the degree to which environ- mental and business trends are moving in favor rather than against the indus- try are important for the industry’s long-term health and its capacity to spawn new target or niche markets. Are changing economic and societal trends helping or hurting industry incumbents? Are profit margins increasing or falling? Is in- novation accelerating or waning? Are input costs going up or down? Are new markets for the industry’s staple products opening up or are current markets being shut down by competing industries? You can’t cover every facet of an in- dustry, but you should gain a sense of whether the industry you’re entering is a good one or a poor one for start-ups.

Information that addresses each of these issues is available via industry reports published by IBISWorld, Mintel, Bizminer, and similar fee-based da- tabases that are typically free if accessed through a university or large public library’s website. These resources are listed in the Internet Resource Table in Appendix 3.2. The First Screen, which is the feasibility analysis template included in Appendix 3.1, includes a section that draws attention to the most important issues to focus on regarding industry attractiveness during the fea- sibility analysis stage of investigating a business idea.

2. Target Market Attractiveness

We noted previously that a target market is a place within a larger market seg- ment that represents a narrower group of customers with similar needs. Most start-ups simply don’t have the resources needed to participate in a broad mar- ket, at least initially. Instead, by focusing on a smaller target market, a firm can usually avoid head-to-head competition with industry leaders and can focus on serving a specialized market very well. It’s also not realistic, in most cases, for a start-up to introduce a completely original product idea into a completely new market. In most instances, it’s just too expensive to be a pioneer in each area. Most successful start-ups either introduce a new product into an existing market (like Sprig Toys introducing new toys into the existing toy market) or introduce a new market to an existing product (like Wello is introducing Web-based, real-time fitness instruction, which is a new market for an existing product offered by per- sonal trainers, yoga instructors, etc.).

The challenge in identifying an attractive target market is to find a market that’s large enough for the proposed business but yet is small enough to avoid attracting larger competitors at least until the entrepreneurial venture can get off to a successful start. Tommy John, a maker of men’s undershirts, is an example of a company that has targeted a market that meets these criteria. Tommy John began in 2008 by making custom-fitted men’s undershirts, and has now expanded to men’s briefs and men’s socks. The undershirts are sold under the brand name Second Skin, based on the idea that they fit so well they feel like a “second skin” when worn. Tommy John started by selling through a single retailer and eventually persuaded Neiman Marcus to give its undershirts a try. Today, Tommy John undershirts are sold in Neiman Marcus stores nationwide and are making their way into other retailers as well. Although Tommy John operates in the worldwide market for men’s undershirts, it has carved out a specialized target or niche market for itself and is gaining momen- tum. One key to its success is that it has remained laser-focused on a clearly defined target market. The number one question the company gets is “when will it start producing women’s undergarments?” So far it’s resisted, preferring to remain focused on its Second Skin line of men’s undershirts.6

While it’s generally easy to find good information to assess the attractive- ness of an entire industry, discerning the attractiveness of a small target market within an industry is tougher, particularly if the start-up is pioneering the target market. Often, under these circumstances, information from more than one industry and/or market must be collected and synthesized to make an informed judgment. For example, say you were developing new, innovative sunglasses for snowboarders, consistent with the illustration provided earlier. The question for a product like this is what market to assess? Obviously, a combination of markets must be studied, including the market for sunglasses and the market for snowboarding. It would be important to not only know how well sunglasses are selling but whether the market for snowboarding acces- sories (and the number of people who participate in snowboarding) is on the rise or decline. If the market for sunglasses is on an upward trajectory but the market for snowboarding accessories is on a sharp decline, the target market you would be pursuing would be much less attractive than if both markets were on the rise.

A failure to fully understand both the broad HR/recruitment industry and the specific markets it was targeting contributed to the problems encountered by Standout Jobs, a company that developed an innovative recruitment portal in 2008. The Standout Jobs story, which is rich in lessons about the importance of feasibility analysis, is included in the nearby “What Went Wrong” featur.

Source: Barringer Bruce R, Ireland R Duane (2015), Entrepreneurship: successfully launching new ventures, Pearson; 5th edition.

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