What Characteristics Make an Industry Attractive to Entrepreneurs?

Entrepreneurs are not ready to start a business until they study and understand the industry they plan to enter. There are particular industry characteristics to look for that can help project a firm's profitability and chances of survival. As much as firm-specific factors usually take higher importance, industry matters more for firms that are not well positioned and do not have products that are clearly differentiated from the pack.

Start-Up Capital

  1. Entrepreneurs generally have limited capital, and financial institutions are not typically willing to lend them large sums of money. Thus, the industry an entrepreneur aspires to venture into should require a relatively low initial capital outlay.

Entry Barriers

  1. The industry should allow relative ease for a new venture to enter. Entry barriers could be because of regulations or the formalities involved before authority is granted to start conducting business in the industry. Complex formalities and regulations may not only delay operations but also unnecessarily sap up an entrepreneur's limited capital without any immediate returns.

Growth Prospects

  1. The industry should contain markets that are underserved or ripe for innovation. The entrepreneur can thus undertake to serve the residual market or invest in research and development for growth. Growth forecasts are also dependent on anticipated environmental trends. For example, network marketing companies have high potential for growth given sustained technological advancements in e-commerce. One has also to look at other market structure variables before making full conclusions about an industry's potential growth prospects.

Competition Levels

  1. A concentrated industry with many established players will not be appropriate for a new venture. This is because most, if not all, of the competitive advantage areas will have been exhausted by the existing players, who will also have the upper hand in taking any new opportunities because of their accumulated resources. Any benefits of innovations will also be captured by the other firms, leaving the new venture struggling to gain a foothold in the market.