Industry and market knowledge matter
As a startup, you are playing in a certain industry amongst other different kinds players, for example, suppliers, distributors, service providers or others... In certain industries it's quite clear who the players are, what they do, and how they interact and get money from the other players. In other industries, there are many different intertwined players and middlemen and it's more complicated.
What are Industry Dynamics?
Industry dynamics study how the players complement, interact and pay each other from a value chain perspective. Industry Dynamics also show the players' "power".
A value chain is the step-by-step description of the the activities required to create and deliver a product or service. The industry value chain covers all parts to be performed by external parties as well. It's important to consider them because they might be your suppliers, providers, vendors, distributors, promoters, competitors, after services partners etc. Therefore, they can have a major impact on your own business.
Why are Industry Dynamics important?
Understanding the value chain, its dynamics and where you are situated in it, is important for several reasons:
It gives you an idea of how you can position yourself amongst the players
It shows where your "value creation" part is
It allows you to think about who might be your partners
It allows you to understand other players and their goals, so that you can make them your allies.
How to look at Industry Dynamics?
To look at the industry dynamics you can take out the Framework: Industry Dynamics.
First, you can think about the whole process through which a product is created and delivered. You can think of all the steps different players have to perform until the product/service is delivered and used (this can also include after sales). Think from your own business perspective without going into the value chains of the identified players themselves (unless you need to because it's relevant and you are covering it in your business).
Second, you want to look at what type of players perform those steps (you don't need to know the names of the companies yet, but rather the types of companies).
Third, depending on your business, it can also be useful to look at how much this step costs and how long it takes.
Fourth, you want to look at the money flows. Who pays whom and how much?
Finally, try to understand which types of players have a lot of "power". Power of buyers and suppliers are terms coming from the Porter's 5 Forces. You can check more about the Porter's 5 Force and what determines your suppliers' or buyers' by clicking on the respective links.
Supporting Tools & Additional Resources
Every industry has its own dynamics, so get to know them well and if possible even talk to experts!