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Building a Business Plan: Part 2
The External Environment
This article by By Terry Flanagan, DC, DABCO, MPH, MBA first appeared in ACA News • Volume 1 • November 2005
The purpose of this series is to provide doctors of chiropractic with a general understanding of the business-planning process and how a practice, whether new or established, might go about evaluating its position in the marketplace. In this installment, I will discuss how to evaluate the external environment. The emphasis will be on the development of a competitive analysis and its relationship to the advantages and barriers of growing a professional practice.
In crafting your business plan, careful analysis of the market and potential competition will allow you to outline an effective strategy. The plan will help you identify and assess the risks associated with practice. Further, the likelihood and timing of a potential risk can be identified, future problems can be better understood, and a management plan that maximizes the potential upside of each risk can be developed.
Analyze Your “SWOT”
One technique to evaluate the business environment is through a SWOT analysis. This analysis is an assessment of your potential internal Strengths and Weaknesses as well as an exploration of the external Opportunities and Threats to your practice.
Strengths will vary between individual practitioners and the types of practices they plan to start. Identify and develop the core competencies you bring to the practice. Some key areas that should be outlined are your skill levels in nutritional counseling or manipulative techniques, cost advantages, competitive advantages, personnel strengths and market potential.
Likewise, opportunities for practice success should be developed and explored. Future opportunities might include the potential to serve additional customer groups, expanded product and service lines to meet a broader range of needs, the potential for vertical integration through alignment with other physicians, and the existing market growth for complementary and alternative medicine (CAM) services.
Threats from the external marketplace have the potential to limit the growth of your practice. Slower-than-expected market expansion, increased patient utilization of substitute services, changing third-party reimbursement policies, changing buyer trends and limited entry barriers for professional competitors can all affect your ability to develop market share and can restrain your profit margins.
Competition
Along with your SWOT analysis, it's important to do a straightforward analysis of the competitive environment in which your practice will exist. Health care has expanded to include a variety of alternative health care providers and even traditional providers are now often incorporating alternative approaches. You must identify and assess new entrants into the same market niche and develop a strategy that differentiates your practice from them.
The influx of more participants in the same marketplace niche-coupled with low or no costs to patients who want to switch between various providers-tends to increase rivalries for developing market share. Careful analysis of your practice's primary and secondary market areas can determine whether you are moving into an area with an expanding population base. Develop a strong brand identification plan for your practice to constrain potential rivalries.
Moreover, the bargaining power of healthcare buyers continues to change in the external environment. In this case, health care buyers include third parties, cash payers and, more recently, people with discretionary funds in a medical savings account (MSA). A physician should think about how he or she will attract the desired payer mix.
A practice can position itself to counter potential problems and competition by leveraging its strengths. Financial strategists say that the generic strategies of cost leadership (providing a service at a lower price than competitors), differentiation and core-product focus should be primary drivers in business development.
Competitive advantages can then be further developed through patient “captivity” (attracting and retaining new patients), proprietary technology (offering the best service around) and economies of scale (leveraging higher volume to offer a lower price than competitors). A patient-captivity strategy driven by demand (i.e., a strong referral base) is a competitive advantage that is difficult for rivals to beat. It gives a practice unequaled access to new patient flows.
As part of the external environment portion of your business plan, assess each of these strategies, determine which mix is most desirable, and allow yourself to develop this competitive strategy throughout the rest of the plan.
Finally, write a short summary that paints a picture of your practice environment. It should contain a brief analysis of the environment, the impact on growth your strategy is expected to produce, and the direction your practice will take.
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