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Cracking the Code

“Cracking the Code”

Refresher: Tap free market research through NAICS and SIC codes.

The success of your business plan depends on the information you base it on, says Robin Lasher, a FastTrac facilitator and founder of On Time Business Solutions, a business research firm in Fort Worth, Texas.

“Too many entrepreneurs build their plans on beliefs or assumptions rather than facts,” she explains. “Before you can plan for growth, you have to understand the environment in which you operate.”

For example, is your industry expanding, retrenching or moving in a new direction? What are your competitors up to? What about suppliers? The first step to answering such questions is to find out where you fall within the Standard Industrial Classification (SIC) system and North American Industry Classification System (NAICS).

Originally developed in the 1930s, SIC uses four-digit numbers to organize companies into groups offering similar products or services. NAICS, a newer classification tool developed in 1997, reflects new or expanding industries in the marketplace, such as service and technology. Its six-digit coding system identifies 1,170 industries, in contrast to SIC’s 1,004 industries.

Although NAICS is a more extensive tool, it has just recently come into widespread use with providers of industry information, so you’ll benefit by using both systems.

Getting started

The best place to determine your company’s SIC code is the U.S. Occupational Safety and Health Administration’s (OSHA’s) Web site at http://www.osha.gov/pls/imis/sicsearch.html. For your NAICS code, visit the U.S. Census Bureau’s Web site at http://www.census.gov/epcd/naics02/.

Tip: When entering search terms, try variations. Singular words are usually better than plural ones, but there are exceptions. For example, on the OSHA site, “florist” doesn’t bring up any results while “florists” delivers six different code categories.

Once you know your SIC and NAICS numbers, you can research other companies that operate under the same code. Because competitors come in a variety of sizes and flavors, you’ll probably need to look at several codes. For example, if you’re a florist (SIC 5992), competitors may include grocery stores (SIC 19800) and online retailers like 1‑800‑Flowers.com (SIC 5990). “One of the benefits of OSHA’s Web site is it shows related industries,” says Lasher. “That way, you can see not only who are direct competitors, but also kissing cousins.”

Finding Your Free Lunch

Once you determine which codes are most relevant to your business, you can do some serious sleuthing. Industry information is abundant—but many companies charge fees, so start with free Web sites. One of the best is EDGAR Company Search.

EDGAR, which is the Securities and Exchange Commission’s Electronic Data Gathering Analysis and Retrieval system, is used for transmitting documents public companies are required to submit. For industry gumshoeing, the most valuable documents are initial public offering (IPO) and 10-K reports.

“The IPO prospectus is a treasure trove of information,” Lasher says. “This is where companies spill their guts about who they are, how they plan to market, what technologies they’re using, and who their competitors are.”

The annual 10-K report recaps a company’s recent activities and future intentions. “These documents tend to be lengthy, so take advantage of the search box at the top of the page,” Lasher says. “For example, searching for ‘marketing’ quickly takes you to each place in the document where the word occurs.”

Another great freebie is Reference USA, which is the library version of InfoUSA. This database contains detailed information on more than 12 million U.S. businesses. Company profiles provide information on employees, revenues, contact information, credit ratings, and more. (Depending on your public library, you may be able to access Reference USA over the Internet.)

At Reference USA, you can use both SIC and NAICS codes to identify companies by a specific geographic area, such as zip code, city, county, or metropolitan statistical area. This is especially helpful for business-to-business companies because they can research potential customers as well as competitors.

Some final words

“Remember, no information source is perfect, so it’s important use multiple sources for market research,” Lasher says. And once you’ve identified competitors or potential customers, don’t forget to check their Web sites. There’s often a lot of free information there, including background information on the management team, products, and services.

Having hard facts about industry trends, possible government regulations, competitors, and customers enables you to make strategic decisions, Lasher adds. “Instead of knee-jerk reactions to unexpected events, you are in a much better position to proactively plan for your company’s growth.”

Writer: T.J. Becker