The competition section can reveal a lot about your market opportunity and competitive advantage. Your business’ success depends on knowing who your competitors are and how they operate. Investors will also want to see this analysis in your business plan.
What if my business doesn’t have any competitors?
Don’t tell an investor you don’t have any competition. Not in your formal plan, your pitch, or in any summary.
Investors see this as a sign of inexperience. Competition is a critical element of any business. If it is so new, it doesn’t have any competition; it will have a competition tomorrow. Your competitive analysis should predict which significant competitors will be entering the market in that situation. A business that has no competition may not be an excellent choice to enter the market.
How to identify your competitors
You may think that you are the only one who can solve your problem. But, what are other people doing to solve it? How many businesses will jump on the opportunity to create a new market? It is your competition.
When I developed templates for financial planning in the mid-1980s and then sold them to other business plan software users, I was the first one to do so. I didn’t think I had any competition. Back then, there was no competition for spreadsheet templates. It was books, classes and blank spreadsheets that anyone could program. There is always some competition.
How to write a competitive analysis
The competitive analysis will allow you to define the section of your business plan dominated by competition. It is how it’s done in just a few steps.
1. Define your business use
First, decide which one of these business uses applies to your situation for the competition section in your business plan.
Plan for internal management
A competition section is included in the management plan for business owners. It serves to understand competition and develop strategic positioning. Your team and you will examine your competitors’ strengths and weaknesses. It leads to strategy.
Formal business plan
You describe the competition in a business plan event, where a plan is presented to potential investors or as part of an application for a loan. It assures your target reader that they are well-informed about the situation and are prepared to capitalize on opportunities and avoid pitfalls.
How can you determine what your plan will be used for?
Your business goal should be proactive and offensive in the first instance. It is about anticipating the problems and opportunities that may arise in the future. You want to generate ideas and respond. You want open discussions. What could happen? What should we be concerned about?
The second case is where your business goal will be defensive and reactive unless you’re very careful. Again, it is essential to demonstrate that you are familiar with the territory and have all the defences in place.
It is subtle and not obvious. Keep your goals in your mind as you create your competition section. It will help you determine what is essential. How detailed do you need to be? You can leave out the details and focus on the critical points if it is a management plan. If you don’t have all the details, your formal business plan will make you look unprepared.
2. Establish your competitive position
It is essential to understand how your business ranks about its value to its target market. Marketing tactics include pricing, distribution and messaging. Others are about positioning your company against the background of other offerings. So how does your business compare to the rest?
Positioning (setting up your business against other offerings) is the goal. It also makes that positioning clear to the target audience. How can you position your unique differences in the eyes of your customers? What can you do better? What can you do to work towards your strengths and avoid weaknesses? How do you compare to others?
Map of position
Philip Kohler, a marketing expert, has a simple strategic positioning map for breakfast that I frequently refer to. To see how a market stacks, you can draw your map using any two factors of competitiveness. It serves as a reminder.
There will also be positioning maps with both horizontal and vertical axes. It is pretty common to see the price on one axe and a crucial qualitative factor on another. Of course, this assumes that price and quality should have a relationship. Here is an example of breakfast options.
Competitive matrix
Many businesses have a competitive matrix that shows how the different competitors stack up to about essential factors. These factors will help you compare your product or service to the rest. So, how does your product or service compare to the rest? It is an excellent place to show the competitive matrix.
I have seen many competitive matrices and pitched proposals, but I have never seen one that did not show that this company is better than the rest. Maybe that will tell you something about credibility and what to do to improve it. Nevertheless, I have seen them all in the context of investing, so it could be that this is the nature of the game.
3. Establish regular competitive review channels
Know what your business needs are. If you have the condition, use your competition section as a guideline or support for your pitch. You measure the value of your business plan by how it leads to decisions.
With competitive information, it’s no longer a matter of finding the right needle from the haystack. Instead, it’s about choosing from a multitude of hands. There is a wealth of information available online and on mobile apps about your competitors. It is the hard part of sifting through all that information and deciding what to focus on.
Online reviews
It is essential to be flexible and pragmatic when it comes to finding and using information. Find information that supports what you are trying to say. As an example, I may use reviews from Amazon and Yelp as a surrogate to measure quality. It would be a lot more practical than primary research and credible for the audience.
It used to be challenging to find information about smaller competitors compared with the wealth of financial information available for companies listed on major stock exchanges. Today, reviews, social media and websites are readily available for many local businesses. It is not because you aren’t trying hard enough, but for not ranking or evaluating competitors. Be careful not to have too many. Don’t give your readers too much information.
Sourcing financial information
Do not assume that you can obtain financial information about privately-held companies. If you need information about the number of employees, rooms or vehicles, use a surrogate. You might consider taking on the role of potential customer to gain insight.
These factors can be identified and “rated” by industry associations, publications from the sector, media coverage, financial information, and marketing materials and websites.
Online financial profiles for the industry are also available. You can find statistics such as average annual growth, average sales per employee, sales per square foot, average profits, and other benchmarks from competitors for $100 per profile. To find the correct information for your industry, you can start with a Google search.
Remember: You have competition
Real businesses can’t be competitive even for a brief time for two reasons:
First, your product or business is unique and unmatched. The second is that you know of a fatal flaw in your product or company that other people don’t. It is not enough to be a successful business to attract other people.
You have competition in either case. Your match is just waiting for you to get in. In the second case, it’s already happening, so prepare. The second case is a bit more complicated.
Disclaimer. The opinions and views expressed in this article are the authors Andrew Napolitano.
