Researching and analyzing your industry is the first step in planning for your business. It is done primarily using industry reports, but additional useful data is available from federal websites such as Bureau of Labor Statistics or the Census. Trade organizations can be another good source of industry data so be sure to check their sites.
What is an industry?
Industries are formally classified based on the good or service they provide. There are numerous industry classification schemes. The two primary schemes used in the United States are the Standard Industry Code (SIC) and the North American Industry Classification System (NAICS). The NAICS is the current standard but SIC is still used as well and often has more granular classifications than NAICS. It is best to know your codes in both schemes. This will ensure you are not missing any data during your research.
More on Industry Codes:
Industry codes are integral to planning your business and writing your plan for two primary reasons.
Identifying Your Codes:
There are two methods for finding your codes. You can look them up using one of the online manuals, or you can use the databases First Research, Data Axle, or Mergent Intellect.
Click Here to search SIC codes online
Click Here to search NAICS codes online
See how to find your industry codes using First Research by clicking the Industry Reports tab above.
Industry Reports: Industry reports give a comprehensive overview of an industry with a focus on growth projections, industry drivers & indicators, and financial ratios and benchmarking. There are also extensive sections addressing challenges, trends, & opportunities, as well as talking points which will help you look at aspects of your business that you may not have previously considered. We will look further into each section, but first, let's learn how to quickly identify our codes.
Identifying Your Industry Codes Using First Research
The best way to identify your codes in First Research is to do a keyword search. For the rest of the Industry Analysis section, we will be looking at this from the perspective of a new food truck business.
When beginning your search, you have the option to search by report title, industry classification, or keyword. If you are unsure of your classification, a keyword search is always the best way to start. Below is the search page for First Research. We have entered "food truck" into the keyword search and clicked "Add" to see how many results we get. This has returned 19 industry classifications that fit the keyword search. Click "View Results" to see the list.
The codes can be found on the last page of the report.
It so happens that food trucks fall under the classification "Mobile Food Services." Often, your classification may not be what you would normally call your business. Many online music streaming platforms, for example, have the classification of "Artist Management," even though they are also streaming services and social media sites with a strong technological component. If your business is based on new or disruptive technologies or concepts, you may need to approximate, combine reports, or use an existing business as the jumping off point for your research.
An industry report is comprised of multiple sections. Before we jump in, be aware that you may find information that is hypothetical in relation to your business. For example, maybe you are not effected by current chain issues or the current regulatory environment. This does not mean it will always be that way. Markets can turn on a dime and you don't want to be caught without a plan when it does. Read this report front to back and then back to front. Be aware of all possibilities and have a plan so if it happens you can react in a manner beneficial to your business
Let's look at the sections in detail. Key information to incorporate into a business plan has been highlighted.
Click the link to jump to the section:
Industry Overview - Industry Description - Quarterly Industry Updates - Executive Insight - Challenges, Trends, & Opportunities - Call to Prep Questions - Financial Info - Industry Websites & Acronyms - Industry Codes
The overview section is a quick look at various aspects of the industry. It's a great way to get a quick impression for the industry. Many of the concepts in the overview such as the talking points are expanded upon in subsequent sections. Focus on:
Industry Growth Rating: This will measure performance vs. industry risk over the next 12 to 24 months. It can be used to determine the overall health of an industry. This section will highlight the key factors influencing the growth rating.
EXAMPLE Industry Growth Rating
Industry Indicators: Industry indicators are data from both your industry as well as other related industries that may affect yours. In the example below, not only is consumer spending on food trucks cited, but also rising costs of diesel, which may have an effect on operating costs. One thing you will notice for almost every industry is that consumer spending is one of the primary indicators of health. While this seems to go without saying, it is still important to include it in your plan. The highlighted section below is a good example of how indicators are used to predict the trajectory of an industry.
EXAMPLE Industry Indicators
Industry Forecast: The industry forecast looks ahead at the estimated growth of an industry. The forecast will give you a brief description of what the projection is based on. When looking at forecasts, keep in mind that the longer out something is the more subject to change it can be. Always monitor quarterly industry updates to check for any major changes in the projection for your industry.
EXAMPLE Industry Forecast
Industry Overview - Industry Description - Quarterly Industry Updates - Executive Insight - Challenges, Trends, & Opportunities - Call to Prep Questions - Financial Info - Industry Websites & Acronyms - Industry Codes
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The Industry Description section contains the bulk of the information you will need to analyze the industry and compare it to your local market. If you have looked at an example plan before, you will quickly notice the subdivisions for the Industry Description line up with the important sections of a business plan. We will look more at this in the "Putting it All Together" section. Focus on:
Industry Description: The description will tell you what services the industry provides along with basic info about who the primary customers are. The most important information to be aware of is the number of establishments and total revenue. This allows you to compare market share ratios of you local market. Be ware that this ratio may be skewed if there are large companies operating in your industry. In the example below, we see no major companies dominate the industry to you can easily get an average market share by dividing total revenue by the number of companies.
EXAMPLE Industry Description
Competitive Landscape: This section talks more about what drives demand in the industry as well as which businesses will be your major competitors. Focus on any strategy for competitive advantage, as highlighted in the example below.
EXAMPLE Competition
Products and Operations: This section of the report focuses on how businesses in the industry manage their day to day operations. The information here may include operating hours, which products make up the bulk of sales, necessary employee qualifications, ideal locations, and more. The example below is an excerpt which focuses on how food trucks are integrating technology into their businesses.
EXAMPLE Operations
Sales and Marketing: This section contains information such as your target demographic, product price ranges, and the most common advertising strategies.
EXAMPLE Sales and Marketing
Finance and Regulation: This section contains information regarding financial and regulatory factors which affect your industry. The information may include price or wage ranges, major laws that affect the industry, and the authorities who make and enforce those laws and regulations. It will also contain the working capital turnover ratio, which measures how efficiently a company leverages its capital to generate sales.
EXAMPLE Finance and Regulation
Regional and International Issues: This section focuses on the core themes of the industry on both a regional and international level. For most small businesses, you will be focusing on any national or regional information. The bulk of this section is usually international with information on the United States often located toward the end of the section. For example, in the Food Trucks report, the top states for food truck sales are listed.
Human Resources: This section is where you can find the average number of employees for a business in your industry along with the average salary/wage. It is presented in 2 charts. One for employment growth and one for average hourly earnings. Comparisons for these 2 charts can help gauge the effectiveness of the workforce. In the example below, we can see hourly wages rising while employment numbers stay the same. There can be multiple interpretation of this data. On the surface, one could say the industry is doing well as workers are making more money. Upon closer examination, one may realize this may be for several reasons. Are workers doing better more efficient work and therefore generating higher revenues which are then reflected in their wages? Are wages rising due to other regulatory or social factors? The answers to these questions will involve research into these possible causes, using industry reports and trade association websites to better understand what is driving the data.
EXAMPLE Human Resources
Industry Overview - Industry Description - Quarterly Industry Updates - Executive Insight - Challenges, Trends, & Opportunities - Call to Prep Questions - Financial Info - Industry Websites & Acronyms - Industry Codes
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The quarterly updates, along with the subsequent sections are primarily "food for thought" exercises. That is to say, not all of the questions will be relevant at the time but may become relevant later. You want to be aware of these issues and know how the answers fit into your business model.
The quarterly updates focuses on questions for various levels of management within the company. As a small business just starting out, you are most likely all those people. Don't worry. Focus on those that are relevant. For the rest, file them away and keep them in mind. These questions are updated quarterly so it is wise to check them in each new report as they will reflect the changing market environment. This is a good practice, even after you have opened your business.
EXAMPLE Quarterly Industry Updates
Industry Overview - Industry Description - Quarterly Industry Updates - Executive Insight - Challenges, Trends, & Opportunities - Call to Prep Questions - Financial Info - Industry Websites & Acronyms - Industry Codes
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Executive Insight lets you know which different levels of management as well as HR and marketing, are focusing their attention on particular issues in the industry. As with the previous section, you are most likely all these people in the beginning, although that does not lessen the importance of this information.
As you read the entries, try to picture how they fit with your particular business plan. Again, not all may be immediately relevant but could be in the future. These are great issues to address in your plan and go a long way toward demonstrating industry knowledge to banks, investors, or lenders.
EXAMPLE Executive Insight
Industry Overview - Industry Description - Quarterly Industry Updates - Executive Insight - Challenges, Trends, & Opportunities - Call to Prep Questions - Financial Info - Industry Websites & Acronyms - Industry Codes
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Challenges, Trends, & Opportunities
This section is the industry report equivalent of a SWOT analysis. These are either opportunities & trends you may be able to capitalize on or challenges you will need to be prepared to deal with. Neither is inevitable but you need to be aware of them and have a plan should they arise.
EXAMPLE Challenges, Trends, & Opportunities
Industry Overview - Industry Description - Quarterly Industry Updates - Executive Insight - Challenges, Trends, & Opportunities - Call to Prep Questions - Financial Info - Industry Websites & Acronyms - Industry Codes
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Call to prep questions are not predictors or indicators but rather questions you want to ask yourself before finalizing your plan. These questions can help you address something you may not have missed or otherwise would have thought of. The questions address all aspects of the industry. Some reports have a general set of questions while others are more extensive with questions categorized around topics like marketing, regulation, and the like.
EXAMPLE Call to Prep Questions
Industry Overview - Industry Description - Quarterly Industry Updates - Executive Insight - Challenges, Trends, & Opportunities - Call to Prep Questions - Financial Info - Industry Websites & Acronyms - Industry Codes
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Financial information is the nuts and bolts of how the business will operate financially in order to pay back a loan and generate a profit. Some plans have a financial section of a balance sheet, financial projection for the first three years, and some simple ratios. Others will have detailed breakdowns of projected in and outflows, marketing costs, logistics, and detailed predictions and calculations based on sets of ratios.
How much information you will need for your financial section will depend on the complexity of your business, both in operations and staffing, as well as the type of funding you plan on attaining. Businesses with multiple private investors or partners will need a greater detail of how the expenses are split and the resulting compensation for investors.
Ratios from an industry report can be used to compare your local market to the industry as a whole. Another popular use is to apply them to your competitors business data in order to gauge their strengths and weaknesses. Ratios can be a powerful tool when planning your business but will require some prior knowledge and math abilities. Carnegie Library of Pittsburgh has plenty of books on business math in the collection which can help you use the ratios for various business applications. If you are not comfortable with numbers, it's worth finding someone to assist so you can leverage the data. Additional ratios can be found int he Key Ratios database as well as the D&B Business Browser which has the RMA Industry Norms.
The financial data is broken up by small, medium, and large companies. Be sure you are looking at the data for companies of your size. Most businesses are considered small when starting out (under 5 million in revenue).
The following examples are not a comprehensive look at the financial section of a report. Please see the attached report for the full financial data section.
EXAMPLE Financial Information
Industry Overview - Industry Description - Quarterly Industry Updates - Executive Insight - Challenges, Trends, & Opportunities - Call to Prep Questions - Financial Info - Industry Websites & Acronyms - Industry Codes
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This section highlights industry and trade association websites as well as any common acronyms used in the industry. The websites are useful for 3 primary reasons:
Not every industry site will have marketing or industry data but it's worth checking them out because when they do it will be particularly focused.
EXAMPLE Websites and Acronyms
Industry Overview - Industry Description - Quarterly Industry Updates - Executive Insight - Challenges, Trends, & Opportunities - Call to Prep Questions - Financial Info - Industry Websites & Acronyms - Industry Codes
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Your industry codes will be the last section of the industry report. Be sure to write these down as they will be very useful in future research, particularly when looking at your local market.
Congratulations! You've made it to the end of the industry report. Now go back and read it 2 more times. It is important to know your industry front to back and be able to speak about it if prompted.
Industry Overview - Industry Description - Quarterly Industry Updates - Executive Insight - Challenges, Trends, & Opportunities - Call to Prep Questions - Financial Info - Industry Websites & Acronyms - Industry Codes
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