Q: In the Venture Analysis videos in the Venture Academy, you mentioned that choosing an industry or market sector is one of the keys to a successful business because some industries have better dynamics than others. I was trying to look industries up on Google Finance, but I am at a loss on how to search for industry performance information. How would you go about researching industries to compare them?
A: The industry or market dynamics do play a huge role in the success of a venture. My primary entrepreneurial mentor was the investor in my first several entrepreneurial ventures. While my initial approach to him twenty years ago was to raise money to acquire a manufacturing operation, he told me he would only invest in me if I acquired an information services, software, or information technology business because those types of businesses performed dramatically better than any other business model (especially if it had recurring revenue and a repeatable and scalable business model, e.g. licensed products, not custom work). It was one of the most important “ah ha!” moments of my life.
Here are a few tips on how to research industries and markets:
- Google Finance does have industry and sector summaries, but is fairly high level. You can get started by going the to Google Finance home page and scrolling down to the “Sector Summary” section at the bottom. A better way might be to simply put in a company you know and then in the results, Google Finance will show how it benchmarks to other companies in the same industry and sector.
- Yahoo Finance has some better info, but it is still a bit sketchy. Here is a place to start with a listing of many different industry sectors in Yahoo Finance.
- Proprietary Databases such as S&P CapitalIQ, BizMiner, S&P NetAdvantage, Onesource, etc. are much, much better and more detailed, but they can be very expensive, so most entrepreneurs go to a library to access one of these resources to do their research. Your best bet is a university library, especially a school with an MBA program.
This is an example of an industry analysis from S&P CapitalIQ (one of the sources I subscribe to) that shows some of the detail you can easily look up in a library (I’m showing only a limited portion of the analysis that goes on and on.) You can quickly troll through various industries and sectors to analyze them.
I did a quick comparison of the Industrials industry and the Information Technology industry with data from S&P CapitalIQ. Note the highlighted metrics and the vast performance difference over the past 42 months. The IT industry has performed 2x to 10x+ better on key measures:
All-in-all, this is not to say that everyone should only start a software or IT business, but the point is to be fully-informed of how the various sectors perform and make wise decisions accordingly.
- Business Planning Documents Kit (includes several documents on business planning, including a business plan analysis e-book)
- Startup Financial Model (to help you understand your business model and its profitability)
Ask an Expert:
- Venture Academy (especially the Venture Analysis section)