The Science: Pick a Growing Market

Market growth

You can break industries into 3 categories based on growth: growing (3% +CAGR), stagnating (0%-3% CAGR), and declining. The more the growth, the easier it will be to create a profitable business and have that business grow year over year.

📈 Picking a growing industry means anyone with a half decent product grows.

↔️ Picking a stagnant industry means only the best grow and everyone else fights for scraps.

📉 Picking a declining industry means even the geniuses lose.

There is a famous story about a top tech talent who leaves his high paying job to build a tech product and launch a business. He build the best product out there and gains 5% market share every year! However, he hits a plateau in about 5 years and the business starts to stagnate. Why? His tool helped print newspapers which, at the time, were declining by more than 20% per year.

Let’s break it down further with this table, and I am going to use a base of $1M market size to make this easy.

Declining Market

In 5 years, his market share 5X’ed but his revenue only doubled. Then, in year 5, his business started to decline.

This is an extreme example since industries rarely decline by 20% every year, however businesses rarely add 5% market share too.

Stagnating Market

You can see with a stagnating market you can grow your revenue without the market working against you. However, every other current competitor and the new entrants want to grow as well. If there is more “supply” of your service than demand, you are going to be fighting for market share. If you move forward into this kind of industry with a franchise, it needs to be clearly and significantly better than the current options to justify current customers switching to a new, untested, competitor.

Growing Market

In a growing market, it is much easier to grow and gain new customers. There is typically more demand for the service than supply. Your new market share can be made up entirely of new customers which means they aren’t switching competitors, they are just new customers in this industry. Also, the existing players probably can’t service the large demand which will cause backlogs and there will naturally be a percent of that who would rather get the job done now with a new business vs wait for the service from an established business. The risk of this kind of industry is that the growth will attract many new businesses who want a piece of the action. You can mitigate that risk if your can pair a growing market with either a large barrier to entry (large capital upfront, specialized skill, unsavory work) or a level of quality that other new entrants can’t meet (due to franchise training and support).

Comparing Revenue in a Stagnating Market vs Growth Market

As you can see, with what would likely be the same work, you could end up with almost 20% more revenue in a growing market. What this doesn’t capture is that it will likely be easier to capture new clients and make sales since a growing market is a “hot” market and the people you are selling to want to capture that growth as well.

How to Find a Growing Industry

AI Research

This is a great start because you can ask for a list of resources for you to investigate further. This way you can leverage the speed and convenience of AI while still verifying all the information yourself. Top choices for this kind of research are ChatGPT and Perplexity.

• Start with a few industries you are interested in and ask for as many resources as possible that talk about market growth

• Click on all of them and check the date of each article, the quality of the content, and the data they present

• After finding an industry you are confident about, ask for a “Deep Research” report. Use a non-deep research model to write a great prompt then turn on the Deep Research model and enter in the prompt.

Online Research

You can always roll up your sleeves and go to work researching the data yourself. Google and Google Scholar are great search options or you can opt for specialized sites. Here are some options for sites who specialize in data:

• Statista (paid with some basic info for free)

• IBISWorld (paid with some basic info for free)

• US Bureau of Labor Statistics (Free)

• PitchBook (Paid)

• MarketResearch.com (paid with some basic info for free)

Conclusion

Do your research and pick a growing market!

When you start the franchise journey and you are considering what industry you want to be in, make sure you are picking a growing industry!

This is just the start

In future articles we will explore how to tell the market size of your franchise’s territory and if the industry is growing locally in your market. You can’t service the entire US HVAC industry from Toledo, so all that really matters is the Toledo HVAC industry, and since a franchise will only give you a part of the city in one territory, what really really matters is that territory’s HVAC market.