Jay Ebben: “No business is a sure thing, but much of the uncertainty can be resolved through analysis of three of its sources: the market, the operational model, and the financial model. Market risk is a result of many factors, including whether the market is large enough to support your business, whether the market is growing, what trends exist in the industry, how the competition is structured, and how distribution works. If industry trends are moving away from your product or service or if potential customers are already locked up by competitors, it will be difficult to gain customer momentum. The issue of market size is also important in feasibility analysis. For instance, if you are starting a microbrewery, it is important to understand that your market likely is not the nationwide microbrew market, nor the local beer market. It is more than likely the local microbrew market, which is much smaller. Additionally, you should understand what regulatory trends are occurring: If you want to open a cigar shop and lounge, for instance, you would be wise to consider the potential impact of anti-smoking laws. Again, though you cannot get rid of all of the risk in entering a particular market, you can reduce your margin for error by understanding the nature of the market and customer buying behaviors. As a mentor of mine likes to say, ‘Become a student of your industry.’”
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