You may think you know, intuitively, your competitive market but take the time to do some research. There are many important things that once written down and placed into a window give insight that will allow you to better structure your marketing plan. There are numerous ways to get this information. I usually start from publicly traded companies, get a list of the major competitors from Yahoo Finance and then check the press releases. Google also does a very good job getting the information about market sectors. Some things often overlooked are local, state and federal governmental regulations, anti-competitive hooks in major competitor contracts, and available of financing for the proposed business environment.
Let’s say your company provides Hospice services to rural communities. The addressable market is easily identifiable, it is a tremendous growth area and the competition is rather limited. A search on Yahoo identifies numerous Health Care Management companies working in the space. A closer look shows that these companies are dedicating their resources to larger population centers. Reading their press releases it becomes evident that they are doing this because there are limited number of healthcare professionals, thus the professionals are requiring fair wages. Most importantly, since much of the Hospice work is done in the patient’s home, the healthcare professionals are asking to be paid for traveling to and from the patient’s residence.
The price paid for the services would easily cover this additional cost of travel however given the corporate structure, these are publicly traded companies who must return 18% to shareholders and cover general and administrative costs, the company locates its facilities in large population areas where they can benefit from economies of scale allowing the company to save on travel expenses. It is also possible for these companies to leverage more qualified personnel with less skilled labor in the large population areas. This would not be possible where the patients are not concentrated in a small geographical area.
Governmental regulations also play heavily into the administrative costs of this business since, more often than not, these patients are covered by Federal Health Insurance Programs. These programs are costly to administer and often require specialized employees in order to receive fair and timely compensation for the services provided.
Knowing these basic characteristics tells us numerous things. Most likely large corporate entities will not attempt to compete in our addressable market. It also says that we do not want to count on significant revenues from larger population centers, and finally we need to structure our company to have qualified personnel involved in both the care giving and administrative services. Finally it also tells us that we do not want to attempt to source aggressive money. Aggressive money will, over time, force the company to make bad business decisions and eventually fail.
Know your competitive market before you define your plan. Buy their products and try their services. Understand why they have structured the way they have and you are one step closer to success.
Tags: Small Business Private Equity Business Plans Financial Model Financing Marketing Sales
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4 comments:
David, this and the previous post were very interesting. However, it raised ain issue in my mind.
At what point in the development path do you normally look at the company? By implication, the firm must have been in an existence for a while since you refer to existing sales patterns.
Jim When I come in as pre-investment due diligence the company has been in business anywhere from 3-10 years. Private Equity is looking for very specific return and profitability parameters.
I also develop ideas for my and for others from scratch but the concepts are exactly the same. The keys to get a private equity investment are the same as those necessary to build a successful business.
In some cases I have come into companies that have been around for 70+ years because their business has changed, they want to prepare for a generational shift, say from father to daughter, or management just lost its way and the company needs someone to get them back to basics.
So this makes you in my terms a business focused management consultant and/or merchant banker. I say business focused because a lot of management consultants in fact concentrate on specific areas whereas you have to cross the field.
The hospice example is interesting from an Australian context because you have picked up two key points. The economics of operating in a rural or regional area are different, more difficult, because of the thinner population. But the competition is also a lot less.
Jim You could see my position as an executive manager responsible for seeing ways to modify or tweak business model or to help executive managers lead their structures to obtain the desired objectives. In a very few cases, I will actually take over the President or CEO position of the company while the change is taking place.
Regarding the Hospice, all businesses are the same, whether we are selling oranges or healthcare. Each business also has unique challenges that can, for the entrepreneur with vision, become differentiating factors.
Generally, I believe, if something can be done by throwing money at it, the financial markets have already done it. I believe strongly in businesses that take challenges that require unique capabilities and vision. This creates defacto barriers to entry no matter how big the attacking company may be.
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