The Marketing Section of the Plan
Market Research
December 2008 / January 2009
Volume 6 Number 6
As there are many opportunities and events throughout the year for submitting business plans to attract venture funding, it's worth discussing the market section of an entrepreneur's business plan. Entrepreneurs need to persuade potential venture capitalists that they are credible enough to warrant further investigation into their ideas, and knowing what to include in this section and how much to cover is important. The primary areas to address are the market, value proposition, competitors, customers, and likely go-to-market strategies
The first thing you'll need to cover is the market, a very big category of information. Specifically, you will need to discuss the overall market size for your industry, the size of your part of the market, and a figure or estimate of what your total addressable market might be. The idea is not to focus on the overall size, but rather to focus on your part of the market. For example, if you have a product in the solar cell capital equipment market, your market research might yield a global solar cell market of about $11 billion in 2006, with the global capital equipment market of about $5 billion. You also know that your first target market, North America, has solar cell capital equipment revenues of around $400 million. Your type of equipment is solar cell etching, which is a part of the $400 million (and if you've done your bottom up market research, you'll have the market size on that!). Research also tells you that the solar cell equipment market is growing at a rate of 40 percent per year.
This short analysis shows that you know the general global solar market, as well as the size of the solar cell equipment market in North America. You also know where your product fits into the overall market.
Along with the market size, you should be able to discuss industry players and competitors, industry issues such as regulations and economic matters, as well as industry trends. For solar cell industry participants, you could talk about Kyocera and Sharp, as well as a handful of other leaders. Perhaps the biggest issue facing alternative energy markets is the possible loss of federal and state tax credits, which have helped spur the tremendous growth in the industry. On the plus side, perhaps the newly-elected government, which has said it will champion alternative energies and the infrastructure to go with them, might help solar's cause. Always couch these issues in ways that show how they relate to your product, both positively and negatively. For the negative issues, try to mention some possible risk mitigation strategies.
As I've mentioned before in these columns, NEVER say that you have no competition. You do, even it's a different technology, and if you make that statement, you will not be considered to be credible in your business plan. What you ideally want to do is mention three or four major competitors or technologies, whichever makes the most sense for your product. List major categories of customer benefits for your type of product, and try to objectively measure each competitor and your product on how well they provide that benefit. You can lay this out in a matrix or do it verbally, whatever way makes the most sense to you. This shows an understanding not only of your competitors, but of the customer needs in your market.
This brings us to your value proposition, or what sets you apart from others in the market and the reason customers will buy. This is one of the most important items in your business plan. The competitive matrix, plus a SWOT (strengths, weaknesses, opportunities, and threats) analysis should help you arrive at your value proposition. This needs to be very succinctly stated in your executive summary, and it should also be discussed in a bit more depth in the market section.
Who are your potential customers? Your business plan should identify who they are, how many there are, and why they might buy. This is especially critical for industrial products, because customers typically don't come in large numbers. Therefore, the more you can talk about your potential customers, the more credible you will appear to readers of your business plan. Customer names are good, especially if you've talked with some of them to validate your product idea or business model. Make sure you are describing your actual customer, the one who pays for your product, rather than an end user.
Now for the marketing mix. You have to describe your market approach in the business plan. This doesn't have to be very detailed, but it should, at a high level, let people know that you understand your industry and how to sell in it.
You should discuss product, promotion, distribution, and pricing.
In terms of product, describe where you are now: idea, prototype, beta testing, pre-production, etc. Talk about the steps you need to finalize your product, such as industry certifications, further testing, or feature enhancements. This is a roadmap for where you want your product to be, and it should include timelines as well as milestones.
Discussing the distribution and sales mechanisms for your product shows that you understand how your customers do business. There are typically industry standards for distribution, and your market research should help you identify them. Distribution plans and sales may consist of direct sales, distributors, systems integrators, and the like. In many cases, sales and distribution will vary by country; depending on where your sales are likely to come from, you may need to include several channel strategies in your business plan.
Industrial products are typically promoted through industry associations; conferences; mentions and articles in trade journals and through industry analysts; and occasionally advertising in trade journals. You might mention a couple of the trade associations that you plan to join, and some of the major conferences that you plan to attend. Remember to keep this at a high level, only laying out enough information to show that you know your market and to support marketing expenditures from your financials.
Pricing is a sticky subject for most entrepreneurs. There are some industries in which you may be forced to start with price equal to or lower than others (electronics or medical products, for example). However, if you are clearly better and offer customer-validated benefits over your competitors, you should look at pricing higher than your competitors. However you decide to price initially, you should state the reasons for your decision in the market section.
In some cases, you may experience or expect issues in distributing your product (this sometimes happens with start-up companies), in developing your product, or in other parts of your go-to-market strategy. In those situations, you may need partners. Do some research to identify possibilities, and state both your needs and potential partners in the business plan. This shows a clear understanding of what you need to do to be successful in your market.
To summarize, put a great deal of emphasis on describing your market, including the competitive landscape and where your product fits, and the value proposition. Discuss at a high level the go-to-market strategy, including how you will ready your product, how you will initially price it, how you will promote it, and how you will distribute and sell it. Format the information in a way that best helps you tell your story, and your credibility as an entrepreneur should show through.
Betsy Gillette is director of market research and planning for Technology Ventures Corporation.
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