This is Part 6 in a series that discusses the drafting of an effective business plan for use in promoting a scientific idea or start-up company to the business community. Each month, a different section of the business plan is discussed. This week, we discuss the marketing assessment--the part of your business plan that describes the current competitive environment for your product.
The marketing strategy section of the business plan needs to do two things. It must describe the current market for your product or service (the market assessment), and it must describe how you're going to sell your product or service in that market environment (the marketing strategy). To write the first part, you have to do some research; to write the second part requires creative thinking. Because they're so different, we've divided the marketing plan into two sections: the market assessment and the marketing strategy. This month, we'll discuss the market assessment; next month, we'll discuss strategy.
For many scientists, the marketing assessment is very difficult to write because it is the section that requires research in a field most scientists know very little about: The current competitive environment for your product.
The first step is to determine the size of your market and how fast the market is growing. For example, if your company is developing a new drug for Alzheimer's disease, you should find out, and write about, the number of people who currently suffer from Alzheimer's and estimate how many people will have the disease in the future. If you're selling a new form of sequencing apparatus, you should determine not only how many scientists worldwide are using this type of apparatus, but also how many will be buying new sequencers in the next few years.
Estimating market size is an intrinsically uncertain exercise. And more isn't necessarily better. You will probably find that the more market sizing research you do, the more uncertain your estimates will become. This can be unsettling to scientists, who are taught not to publish a number unless you've checked it five times and found it to be within a certain acceptable deviation. But ambiguity is the nature of business. The fact is, NO ONE knows how many people in the world have Alzheimer's, or how many scientists are planning on buying new sequencers in the next year. But there are ways of estimating these numbers that are defendable to people reading the business plan.
For diseases, the best place to look is the scientific literature. Many overviews of the disease will estimate how many people have the disease. Books like the Merck Manual will often also estimate these numbers. And if you have a publicly listed competitor, chances are they've published their estimates on market sizing in their annual report, issuing prospectuses, and other materials available to the public.
For goods like a sequencing apparatus, this research can be even more difficult. Look to your competitors; estimate the total size of the population (number of molecular biologists) and make broad assumptions about how many of them will be purchasing sequencers. Do some digging on the net. Remember that these numbers don't have to be right, they only have to be defendable, and "in the right ballpark."
A Look at the Competition
Once you've estimated the size of your market, the next logical step is to take a look at the number of competitors in that market. This is a very difficult thing to do accurately. Companies are (understandably) very secretive about their sales numbers and forecasts. However, by doing a little digging, you can find out a lot.
If your field is pharmaceuticals, start by determining which drugs are being prescribed for the disease you are trying to treat. Look to see how many different drugs there are for the disease, and who makes them. If you've got four major pharmaceutical companies competing directly in your space, you had better have a pretty good reason for physicians to prescribe your product over those already on the market. However, if there are only one or two products out there, and they're not established yet, you've got more of a fighting chance. On the other hand, if no single product has a big percentage of the market, you might be able to compete with a dozen other companies. Look to see who your competition is and estimate the percentage market share each one has. If no one has more than 10% of the market, it's easier to get a chunk of business than if, for example, one company has 90% of the market.
Unfortunately, due to the long product development times for most pharmaceutical products, it isn't enough to simply look at what products are already on the market. You've got to dig a little deeper and look at what products are under development--after all, your own product may be 5 years away from production! This research is very hard to do, as most companies like to keep this kind of information under wraps, and away from their competitors. Fortunately, we live in a world where people are extremely stock-price conscious, and a world where public companies are required, by law, to publish any material facts. These two factors combine to force most companies to publish information about products that they are developing many years before those products come to market. By doing a little research, you can get access to this information--there are even sites on the Internet, like www.recap.com, that consolidate a lot of that information, so you can see who has what products in what stages of development quite quickly.
Finding out that Novartis has a product much like yours in Phase II of clinical testing doesn't mean that your product is worthless. However, you'll likely have to spend a little more time explaining why your product is better and how you're going to sell it to consumers, given that competitive environment.
The Current Environment: A look at the Distribution Channels
The third thing one must consider when sizing up the competitive environment is the existing distribution channels for that product or service. Are there regional wholesalers that control distribution? Is distribution through a doctor or nurse? Are there buying groups that will effect your profits? Really what you need to look at here, using our example of an Alzheimer's drug, is how current Alzheimer's drugs get from the pharmaceutical company to the patient. Each step of that distribution chain may offer challenges, as well as opportunities--which we will be looking at next month, when we discuss the development and drafting of a marketing strategy.