Dated 28th June 2018
I got asked this question last week. A business owner has a business with great growth potential however they are unsure of where they are positioned in their business environment.
In this post I will go through some tools to consider when looking at this issue.
- The Macro Environment
This is the global environment; your business is directly affected by what is going on in the world. Euro vs the Dollar, the price of oil.
A major concern which faces Irish business is Brexit. How will it influence Irish indigenous and export businesses.
In 2015 over 2.9million visitors came to Ireland from the UK , http://www.irishtimes.com/news/consumer/visitors-to-ireland-set-to-hit-record-heights-in-2015-1.2443597 this 2.9 million may have stayed for 1 night and have had one meal each and lets estimate their spend is €120 each, that amounts to €348million which is added to the Economy. Any barriers put in place could reduce the amount of visitors which will reduce money flowing in to the economy.
If the UK was a market which your business was targeting to break in to, do you now need look at alternative market?
Using models such as PESTEL analysis are tools to use when looking at the Macro environment.
- The Micro Environment
This is where most business owners focus their attention, as it has more of a direct impact to your business.
I will look at some methods which you can apply to analysis your micro environment.
Porters 5 Forces
- The treat of new entrants.
- Are there any barriers to entry, or can anyone set up a similar business?
- Is there anyone selling a similar product/service?
- Higher capital requirements mean less competition?
- Rivalry among existing competition.
- Is the market price driven?
- What is the size of the market?
- Where do you fit in this market?
- Treat of substitute products.
- What can be substituted for your good/service?
- Bargaining power of buyers.
- Is the market positioned that the buyer has price control?
- Supply and demand ratio?
- High demand = higher price.
- Low demand = lower price.
- Power of suppliers.
- Are you locked in to a contract with a supplier?
- Can you change or move without altering your product/service?
A second tool to analysis the micro environment
Business Life Cycle
Knowing where your business is positioned in the industry life cycle is a very important to know. Some businesses have a long life cycle, but it depends when you enter the market and the market size.
- Introduction phase
- New to the market, none or few competition.
- Growth phase
- Sales begin to increase, more businesses enter the market, and competition starts to develop.
- Maturity Phase
- There is a decline in growth, this is the stage where some businesses need to hold on to their existing market share and hold off competition, or alternatively adjust or move their service/product to a new market.
- Decline Phase
- Market and sales decline, high competition and market are subjective by price.
Apply these tools to your business; this exercise is extremely beneficial to analysing your market and environment. Knowing where you are is a good starting point if you want to achieve your business goals.