When you have made up your mind on being an entrepreneur, the most important decision now is which type of business you should start. This decision is highly related to the industry in which you want to venture. There is a whole lot of industry in Africa. Some of them are matured industries, while others are still in their primitive stages. You can be a great entrepreneur, but picking the wrong industry can literally make your entrepreneurial journey a real hell on earth and even make you lose belief in your capacities as an entrepreneur. How then can one rightfully select an industry? What are the key metrics involved in the selection of an industry? This article layout the seven (7) most important steps involved in the selection of industry.
1. Have a vivid interest in the industry.
This is what most people call your passion, but we prefer to call it a vivid interest. You must have a genuine interest in that business. There must be some things about that business that excites you. It might be the mechanisms in that business or even the impact that this business is having on society. Whatever it is, you must find it and it must be interesting enough, to give you the motivation to start a business in that industry and make it a success. If you do not have an interest in that industry and you are just venturing in it, because of the FOMO ( Fear Of Missing Out), then when things start going wrong you will be quick to pack up and leave. Do not follow the crowd, follow your interest, it will be more rewarding than you think.
2. Understand the core mechanisms of the industry
Despite the variety of businesses in an industry, some key mechanisms are common to all of them. As a potential entrant, you must understand these principles and make them a part of your penetration plan. It can be the starting point to your unique processes which can just be an alteration of the pre-existing processes. A deep understanding of these mechanisms will also be pivotal in dealing with the competition, which leads us to the third point.
3. Know your competition
Bill Gates once said, “whether it’s Google or Apple or free software, we’ve got some fantastic competitors and it keeps us on our toes.” Competition is very important in business. If you are going to succeed in an industry, it mostly means that you are going to take a portion of the market share of the current businesses operating in that industry. This will not be possible without you knowing who are these businesses, what is their value proposition, which makes customers patronize their products.
Once you know these key points about them, you can even know whether it is worth venturing into that industry. In the case your value proposition is not unique and will not make customers see you differently, then do not bother venturing in that business.
4. Study diligently the top players
When you are fixated on a particular industry, or even have your unique value proposition, it is worth studying the top players in the industry. There are mostly hundreds of companies in each industry. When a few of them manage to control a significant market share, it means there is something particular about them and therefore double attention must be given to them. Learn about why they are successful and how you can imitate or improve on what they do. Also if there is a group of competitors likely to take you out of the market, it is this same group of very powerful industry leaders. Therefore know them as much as you can, so that you can defend yourself well when they strike.
5. Assess scalability in your industry
Some industries from the outside appear very lucrative and therefore seem to attract many entrants every year. From a closer look, the reality is completely different. There is little or no considerable margins to be enjoyed in them. The cost of entry is very high and the regulatory framework is very tight. These types of industries in the words of Rener Mauborgne and W.Chan Kim, are ‘red oceans’. They are flooded with excessive competition and give little chance for success to new entrants.
Besides that, the business model in these industries is not scalable, therefore giving little growth potential to its players. Knowing the level of scalability in your business is essential to avoid being stagnant.
6. Understand the regulatory environment in your industry
Every industry is regulated by the political powers and operates under a particular jurisdiction. As a potential entrant, you need to know the laws and governmental rules in the business. You will need to also get the necessary authorizations if you decide to establish yourself in that business. Failure to apprehend the regulatory framework can be costly to you and your business.
7. Understand funding avenues in your industry
It is nearly impossible to build a big business without external funding. Your business may be thriving in the early days with your funds, but when assessing expansions projects, you might need a push. You may at this stage think about equity financing or debt financing. Nevertheless, know what the economy has as available funding opportunities for businesses in the industry you want to venture in. It may be that banks are reluctant to give loans to businesses in your industry. If that is the case, you must be aware before you join that list.
8. Beware of the risk
There is no industry without its dose of risk. Agriculture is great but has its portion of risk and it goes across every industry, IT is also risky. But the real focus needs to be on the elements or the factors that make that industry risky. In your study of the industry, you will fall upon businesses that have failed. Chances are that these failures are related to the risk involved in the industry. It is therefore worth spending time learning on the risks involved in your market.
Now that you have a comprehensive idea of what you will need before venturing into a new business as an entrepreneur. Africa is still its early entrepreneurship years and the biggest companies are yet to be built. African talents should not be wasted or invested in the wrong place.