In my last post in the Business Plan series, I promised to tell you about “The Industry”. This is an important early section of a business plan that frames the overall industry the company is part of. It’s important to keep this section short (if I want to learn the history of an industry, I’ll read a history book, not a business plan.) The first part (or first few paragraphs) should describe the industry generally and then become more specific about the segment of the industry that the company is going to address.
In 1987, people talked about “the microcomputer software industry.” The gorillas of this business were Microsoft and Lotus – gigantic software companies weighing in at $200 million in annual revenue. There were many smaller companies (Ashton-Tate, Aldus, T/Maker, MicroPro, WordPerfect anyone) – of which today’s generation of entrepreneurs has never heard. Following is how I described the microcomputer software industry in my business plan in 1987.
In the ten years since Microsoft introduced the world to personal computer software via Microsoft Basic, the microcomputer software industry has grown from nothing to a multi-billion dollar business. In the wake of this growth are thousands of software companies ranging from garage operations to $200 million giants such as Microsoft and Lotus. For a while, thousands of people became rich overnight using a simple formula - create a new piece of software and toss it out into the market via magazine ads and user groups. Software heroes were common - all one needed was something neat. Even the high school computer hacker got in on the action (much to the amazement of his parents who soon were making less money working full time) by spending his afternoons writing a game and selling it to an established company.
It was inevitable that an industry (this industry is narrowly defined as the microcomputer software industry - specifically companies writing software for IBM PC, PC compatible, and Apple computers) growing this rapidly would attract some hungry, experienced capitalists. These people took the form of senior engineers, venture capitalists, and MBAs. As the pool became more populated, the structure became increasingly chaotic. No longer was simply anyone able to succeed - competition began to play a significant factor. The rest of the business world took notice as software companies began going public, large companies started divisions that developed software, and Business Week ran feature articles on the software revolution.
As 1987 begins, the microcomputer software industry is entering adolescence. The organizational frenzy of the past is becoming less of a factor. Do not interpret this as a slowdown in activity - the software industry is busier than ever. It has merely taken on some structure. Methodologies for success are being established and are becoming the norm. The days of easy money for everyone are over.
If you substitute “Internet” or “Web 2.0” for “microcomputer software industry”, does is still work? (Entertainingly, whenever I try to type “microcomputer software” I end up typing microsoft first.)
Posted in: Business PlanCOMMENTS (1)
Although I would agree that this section should be short in the executive summary, I think it's critical to have an extended description of the market either in the business plan or in a separate document, for the purpose of communication to investors and others.
In most opportunities, the structure of the market is critical to determining the strategy, and the knowledge of that structure is critical to success. Most VCs think they understand every market, so it's important to show that you know more and that your reasoning is based on the actual market in place rather than some abstraction that someone has mapped from somewhere else.
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