Competitive
Analysis: BizPlanIt
Newsletter
Competition
There might be a planet somewhere in the universe
where companies have no competition, but this planet isn't
one of them. Many entrepreneurs make a critical mistake in
their business plans - they claim they have no competitors.
A plan stating that no competition exists, quickly loses credibility
with bankers, investors, and experienced business people.
Don't make this mistake yourself. Unless you're a government
entity, public utility, or communist country - you have competition.
And even these monstrous organizations are realizing that
competition exists for everyone.
But competition isn't necessarily bad. Coke
has Pepsi. Nike has Reebok. Wal-Mart has K-Mart. And the list
goes on. The value of competition is that it forces you to
analyze who you're up against and what it takes to achieve
success in your industry, market, and business. Competitors
actually help you clarify your selling position and determine
how to best distinguish yourself from the crowd.
Nike makes billions and so does Reebok.
But, everyday they wake up with the desire to compete against
each other and win. At one point in time, Nike even adopted
the mission statement, "Crush Reebok". Signifying
how a competitive rivalry can drive companies to greater heights.
Investors will read your business plan and
expect to see your competitors identified - don't disappoint
them. Keep in mind that most investors ARE investors because
they successfully dealt with business competition in the past.
With that in mind, never even imply the following ideas in
the competition section of your plan: "XYZ Corp has no
competition", "XYZ Corp's product is so superior
that we have no competitors", or "XYZ Corp's service
is so different and unique that we have no competition".
Your reader will disagree, wonder why you can't see that you
operate in a competitive environment, and assume you're a
business dunce. This is clearly not the goal of your business
plan.
Instead, your business plan should honestly
and intelligently outline how your business fits into the
big picture of your area, market, and industry. If you do
this concisely but thoroughly, and pinpoint factors that separate
you from your competition, it will go a long way in the eyes
of the investors reading your plan.
So exactly how do you identify your competitors?
Sometimes it's easy to determine and sometimes it is not.
If you intend to open a donut shop, then all the other donut
shops within perhaps a 10 mile radius would be considered
competition. But what about supermarkets that serve donuts?
And what about bakeries that sell donuts and other baked goods?
These are pretty obvious, and most people would consider them
when starting a company and writing a business plan.
But what about Bagel shops? They don't serve
donuts, but they still compete for the same breakfast dollar.
And what about the coffee shops and the Starbucks of the world?
Your potential customers might decide to spend their money
on a morning cup of coffee instead of a donut from your shop.
Consider including these topics in the competition
section of your plan:
Competitor Profile
This section should outline the basic characteristics
of your competition. Discuss the key features of competitors'
products or services such as: purchase price, peripheral costs,
quality, durability, and maintenance needs. What is the perceived
value of their product? Is the image or name brand a factor?
Where are they located? What are their credit policies and
delivery terms? How does their customer service stack up?
Also consider the financial strength, marketing
savvy, and technological advantages of your competitors. How
solid is their access to suppliers, wholesalers, distributors
and retailers? Do they have any strategic partnerships or
patents, which could cause problems for your company? Do they
have economies of scale in place that make it difficult for
your company and others to compete.
Market Share
In this section, provide a breakdown of your competitors
by percentage of market. If possible, try to analyze and present
this information from both a revenue and units sold perspective.
This gives you insight into your market, who the big players
are, and where you can fit in and begin to take market share
from. Consider preparing a five year analysis showing how
market share has changed and shifted over time.
Your company's ability to focus on a market
niche can help you gain market share. Pick a niche and make
it yours. It can establish your products and reputation, and
will help you gain loyal customers and market share as your
company grows.
Comparison of
Strengths and Weaknesses
Clearly present and compare your strengths with that
of your competitors in this section. Don't forget to present
your weaknesses. Every company has them. Be honest and logical
about the comparisons you make. Consider product superiority,
price advantages, market advantages, management strengths
and weaknesses, and more.
Barriers to Entry
Think about the factors that make it difficult for
you to enter and compete against established companies - these
are called barriers to entry. The following list of barriers
should be addressed in your business plan, considering both
the positive and negative issues related to your business
and your industry.
- Patents/Proprietary product differences
- High-start-up costs/Capital requirements
- Substantial expertise required
- Manufacturing or engineering difficulties
- Market saturation – no room within
market for new competitors
- Economies of Scale
- Brand Identity
- Access to distribution
- Government policy
For more advice on writing the competitive analysis
section of your business plan:
Email
us at BizPlanIt if you have comments or suggestions about
our Virtual Business Plan.
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