Familiarize yourself with the market in 3 steps!

Starting something new often requires you to read up on an industry and do those tedious swots, pestels and other analysis. The problem with these is often that the assumptions you take into the process are also the ones that comes out. If you think many small companies in the industry is an opportunity for intruders, well than that’s where you place it in the analysis, and that’s what you’re going to base your recommendations on. Only now it’s no longer just intuition, it’s derived from a model. Anyone else see the problem here? This framework doesn’t solve this, but helps you ground your understanding of an industry’s players in reality, and that’s a good start for a market analysis. The purpose of this analysis is the give you, the analyst, a tacit understanding of the industry as well as some models that describe it. So let’s dive in!

1. Define area, get lists
In my thesis I needed to understand “biotech companies in Norway”, I went to the business register and looked through the classifications that companies could choose from when they register the company. From this I chose (by using my preconceived notions) some classifications that may or may not contain biotech firms. The classifications included everything from "Research and development activities within biotechnology" to "Production of medical and tooth-technical instruments", as you can imagine some categories proved more relevant than others, but I’ll get back to that. Now I had a list of about 2000 companies, most probably not relevant since I included most categories that could be biotechnology.

This list of course can be anything; maybe you don’t want to look into a specific industry, but maybe a geographical area. If you want to start a company in your town, you could get a list of all companies in that town (however your dataset may be too big to actually get through) to understand what the major industries are and so forth.

2. Google, classify, sort, iterate
When I had the list, the next part was easy, I picked a category that I really believed in, "Research and development activities within biotechnology", started at the top and typed in each name in Google. The companies that have websites was easy, I just found somewhere it said in simple terms what they were doing and pasted it in next to the company name. For example the company Biosergen in Trondheim claims they are “a biotech company developing new drugs based on cutting edge biosynthetic engineering of natural products, combined with chemical synthesis”. Next to the “what we do” column I start making categories. This is where you should leave your assumptions at the door. Take the first two companies, and ask yourself “if I had to place both companies in a category what would that be”, for me it was “Biomaterials”, the third company then either fit’s in the category or needs a new category. After a few companies I realized this was not a good classification system, but by then I started understanding better, so I changed the categories. This is the iterate part of the process, change the categories.

The companies that do not have a website you can call and ask politely what it is they do, “Hey, I noticed you were classified as a --- company, but I can’t find your website. I was just wondering what field your company is in”. I noticed that I could do about 200 companies a day, and trust me, after a day or two you know the categories by heart and really gain an understanding of the industry that no SWOT or PESTEL analysis can give you. And if going through 2000 companies sounds like a lot, well, you are right, but over half of them were removed from the analysis because after 10 companies in the category I realized that I probably wouldn’t get any biotech companies from there. This of course depends on how thorough you need to be. If you have little time the try to spend a day, start with the most relevant category and just sample the rest, you still get a pretty good understanding of it all.

3. Model it
When you have worked for a while and are comfortable with your categories you should take a brake and define the categories you have come up with, then you start to see that some categories are overlapping or for some other reason should be better defined. For example for a while I operated with a category “Drugs” and a category “Therapy”, the distinction was really useless and I merged them, together with another category into “Treatment”. Other categories I ended up with was “diagnostics”, “research institution”, “services” and “supplements”. You should take the categories, define them properly, for instance “Treatment: Companies in this category are companies that a) at present or in the future will have as a core competency to treat ailment or b) facilitate that caregivers (such as doctors) use their products in order to give treatment or c) in any other way be a service provider based on their product that treats patients”. It is worth noting here that for my purpose I removed companies that weren’t based on biotechnology, because I was only really interested in that sector, not in for example hospitals.

Once you have the excel sheet with all the companies, sorted by category and with a short description of the company you can start modeling it. Make a box for each category, write down how many are in it, what they typically do, how big is this category, who are the biggest actors. Draw arrows and new boxes; try to make a model of the industry or area based on your analysis.

Extra tips and tricks:

• You can use several categories for each company, but from different sets. For example a company can be "Treatment" in one column and "Oslo" in another. But in each set of categories you need to be mutually exclusive, if one category is "Treatment" and one is "diagnostics", you don't want a company to be in both. Have mutually exclusive categories in each category "set", but feel free to use more sets based on different criteria.
• The initial list should be made thinking it's better to include companies that's not what I'm looking for, than to exclude companies that I am looking for.
• Many lists that you can get also contains more information that the name of the company that can be useful when modeling, such as location, revenue, year founded an d so on.
• If you are more people, try spending a few hours on your own classifying the first 100 companies, meet and see what categories you have come up with. Why do you have different categories? Which are best? Try then to classify the next 100 together using a system you have agreed on. If you still have companies to classify separate and do different companies, you now have a common understanding of the industry.
• Use this analysis before the swot or pestel or whatnot, the findings here can be valuable in understanding what it is you will do, and what topics you should look into in the other analysis.
• After modeling try to talk to people who work in the industry, how do they perceive it, do they agree with your understanding of the industry? Did you miss anything?

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