Industry Types and the Opportunities They Offer

It is helpful for a new venture to study industry types to determine the opportunities they offer. The five most prevalent industry types are emerging industries, fragmented industries, mature industries, declining industries, and global industries.

1. Emerging Industries

An emerging industry is a new industry in which standard operating procedures have yet to be developed. The firm that pioneers or takes the leadership of an emerging industry often captures a first-mover advantage. A first-mover advantage is a sometimes insurmountable advantage gained by the first company to establish a significant position in a new market.

Because a high level of uncertainty characterizes emerging industries, any opportunity that is captured may be short-lived. Still, many new ventures enter emerging industries because barriers to entry are usually low and there is no established pattern of rivalry.

Industry characteristics:

• Recent changes in demand or technology; new industry standard operating procedures have yet to be developed

Examples of Entrepreneurial Firms Exploiting These Opportunities

•  Apple with its iTunes Music Store

• Windspire in small-scale wind-generated power

• PharmaSecure’s process for detecting counterfeit pharmaceutical products

2. Fragmented Industries

A fragmented industry is one that is characterized by a large number of firms of approximately equal size. The primary opportunity for start-ups in fragmented industries is to consolidate the industry and establish industry leadership as a result of doing so. The most common way to do this is through a geographic roll-up strategy, in which one firm starts acquiring similar firms that are located in different geographic areas. Zipcar, the car-sharing company, is currently engaged in a geographic roll-up strategy to consolidate the car-sharing industry and position itself as the industry leader. In 2007, it merged with Flexcar, its primary domestic competitor. In 2009, it acquired a minority interest in Avancar, the largest car-sharing company in Spain. In April 2010, it acquired Streetcar, a London-based car-sharing club.

Industry characteristics:

• a Large number of firms of approximately equal size

Examples of Entrepreneurial Firms Exploiting These Opportunities

•  Starbucks in coffee restaurants

•  1-800-GOT-JUNK? in junk removal

•  Geeks on Call in home computer repairs

3. Mature Industries

A mature industry is an industry that is experiencing slow or no increase in demand, has numerous repeat (rather than new) customers, and has limited product innovation. Occasionally, entrepreneurs introduce new product innovations to mature industries, surprising incumbents who thought nothing new was possible in their industries. An example is Steve Demos, the founder of White Wave, a company that makes vegetarian food products. White Wave introduced a new product—Silk Soymilk—into a mature industry—consumer milk. Silk Soymilk became the best-selling soymilk in the country. Soymilk isn’t really milk at all—it’s a soybean-based beverage that looks like milk and has a similar texture. Still, it has made its way into the dairy section of most supermarkets in the United States and has positioned itself as a healthy substitute for milk.

Industry characteristics:

•  Slow increases in demand, numerous repeat customers, and limited product innovation

Examples of Entrepreneurial Firms Exploiting These Opportunities

• InstyMeds in prescription drug sales

• Fresh Health Vending in food vending

• Daisy Rock Guitars in guitars

4. Declining Industries

A declining industry is an industry that is experiencing a reduction in demand, such as the retail photo finishing industry. Typically, entrepreneurs shy away from declining industries because the firms in the industry do not meet the tests of an attractive opportunity,. There are occasions, however, when a start-up will do just the opposite of what conventional wisdom would suggest and, by doing so, stakes out a position in a declining industry that isn’t being hotly contested. That is what Cirque du Soleil did in the circus industry.

Entrepreneurial firms employ three different strategies in declining industries. The first is to adopt a leadership strategy, in which the firm tries to become the dominant player in the industry. This is a rare strategy for a start-up in a declining industry. The second is to pursue a niche strategy, which focuses on a narrow segment of the industry that might be encouraged to grow through product or process innovation. The third is a cost reduction strategy, which is accomplished through achieving lower costs than industry incumbents through process improvements. Achieving lower costs allows a firm to sell its product or service at a lower price, creating value for consumers in the process of doing so. Initially, a small firm but now quite large as a result of its success, Nucor Steel revolutionized the steel industry through the introduction of the “minimill” concept, and is an example of an entrepreneurially minded firm that pursued this strategy. Most steel mills in the United States use large blast furnaces that produce a wide line of products and require enormous throughput in order to be profitable. Nucor’s minimills are smaller and produce a narrower range of products. They are, however, energy-efficient and make high-quality steel.

Nucor proved its concept and quickly found growth markets within the largely declining U.S. steel industry.

Industry characteristics:

• Consistent reduction in industry demand

Examples of Entrepreneurial Firms Exploiting These Opportunities

• Nucor in steel

• JetBlue in airlines

• Cirque du Soleil in circuses

5. Global Industries

A global industry is an industry that is experiencing significant international sales. Many start-ups enter global industries and from day one try to appeal to international rather than just domestic markets. The two most common strategies pursued by firms in global industries are the multi-domestic strategy and the global strategy. Firms that pursue a multi-domestic strategy compete for market share on a country-by-country basis and vary their product or service offerings to meet the demands of the local market. In contrast, firms pursuing a global strategy use the same basic approach in all foreign markets. The choice between these two strategies depends on how similar consumers’ tastes are from market to market. For example, food companies typically are limited to a multi-domestic strategy because food preferences vary significantly from country to country. Firms that sell more universal products, such as athletic shoes, have been successful with global strategies. A global strategy is preferred because it is more economical to sell the same product in multiple markets.

Industry characteristics:

• Significant international sales

Examples of Entrepreneurial Firms Exploiting These Opportunities

• PharmaJet in needless injection systems

• d.light in solar-powered lanterns


Reference: Entrepreneurship, Successfully Launching New Ventures