From the April 1997 issue of Startups

Cindy Rice clearly remembers the first time she realized International Brownie, her mail order gourmet brownie business, had competition. Walking through Boston's Faneuil Hall, a restored historic area and shopping district, she noticed a retail store selling trays of gourmet brownies. "I said, `Oh my Gosh! This is exactly what I'm doing!' " recalls Rice.

Now, two years later, Rice says she realizes that competition is a fact of business life. "Actually, competition is good for me," she says. "It keeps me on my toes and reminds me that I can't slack off. I have to provide really good customer service and a unique product." To make sure she's ahead of her competition, Rice periodically orders from her competitors and compares their packaging, service and quality to her own.

"Business is like any battlefield. If you want to win the war, you have to know who you're up against," explains Tim Fulton, a consultant at Clayton College and State University's Small Business Development Center in Morrow, Georgia. Unfortunately, he adds, competitive analysis is something many entrepreneurs overlook. "They assume that they have such a good product or service that either they won't have competition or they don't have to worry about it."

The truth is, every business faces some form of competition. Like Rice, savvy entrepreneurs recognize that finding a successful niche for their business depends on identifying--and standing out from--their rivals. Here's a step-by-step plan for getting the goods on your competitors.


Carolyn Z. Lawrence, MBA, is a small-business consultant and writer living in Southern California. She can be reached via e-mail at CZLAW@aol.com.

Pinpointing Your Competitors

The first step in competitive analysis is deciding who your competitors are. Sounds simple, right? Guess again. Fulton says entrepreneurs often have difficulty defining exactly who their competitors are. Start by identifying direct competitors--firms currently selling a similar product or service to the same customers you hope to reach.

Consider Jan Zobel's business. Zobel runs a successful tax-preparation firm in Oakland, California, that caters to the tax needs of individuals and small businesses. One obvious competitor for Zobel's business might appear to be H&R Block, the national chain of tax-preparation offices. Zobel, however, doesn't consider the company to be a direct competitor. "H&R Block is an entirely different kind of service," Zobel explains. She focuses on serving clients who want an ongoing, personalized, year-round relationship with a tax consultant, while H&R Block serves the needs of customers looking for once-a-year tax assistance. Although she still keeps tabs on H&R Block's pricing and marketing, Zobel considers her main competitors to be the firms that concentrate on serving the same market niche that she does.

On the other hand, Rice says that even though her business is entirely mail order, she still considers retail stores that sell similar products to be direct competitors. "I have to worry about competitors that have stores," she explains, "because people still go there to buy brownies."

How do you identify your direct competitors? Fulton says a look in the Yellow Pages or a call to your town's chamber of commerce can help identify local competitors. If you expect to sell to a national market, broaden your search for competitors. Industry associations, trade publications, and even a search on the Internet can help you turn up competitors. You can find listings of industry associations in Gale Research's Encyclopedia of Associations, while Ulrich's Guide to International Periodicals can help you locate trade magazines in your particular industry. One excellent place to spot competitors in a specific industry is in the Thomas Register of Manufacturers, available in bound volumes, on CD-ROM, and also over the Internet (http://www.thomasregister.com). All three directories are available at most public libraries. Asking your potential customers who they're currently buying from is another good way to get a handle on your rivals.

Once you've identified your direct competitors, dig deeper. Customers have to make choices about where and how to spend their money. Many businesses, therefore, also face indirect competition for customer dollars.

Fulton says he discovered this when he owned his own travel agency. "I thought my competitors would just be other travel agencies," he says. "But I found I wasn't just losing business to other travel agencies, but also to the local jewelry store and appliance store. I realized I had to worry just as much about my indirect competition."

Indirect competition can be particularly important if you're introducing a totally new product or service concept. To succeed, you'll have to convince consumers to spend their hard-earned money on your product instead of on something else. You must determine which customer spending habits you'll need to influence in order to get customers to buy your product.

Getting The Scoop

Once you've determined who your main competitors are, it's time to start sleuthing. Your goal should be to know your key competitors inside and out. A thorough competitive analysis should include data from as many different sources as possible.

Begin at a large public or university library. Ask the reference librarian to direct you to business publications, directories and databases. Check back issues of your community newspaper for tidbits on local competitors. Where and how do they advertise? Are they hiring? Do their owners participate in local community associations? Even a seemingly trivial news item might provide an important clue about your competitor's strategies and plans.

If one of your competitors is a publicly held company, call their headquarters and ask for a copy of their annual report. This can provide you with important insights about new products, changes in strategies, and the company's financial standing.

Entrepreneurs with online connections may be able to uncover data through computer databases. Sign on to CompuServe, for example, and you can get credit reports, search trade publications, and access other data about competitors across the country. Many industry associations now have World Wide Web pages that often list information about their members.

Although sources like these can give you facts and figures, the most important step is to look at your competitors from the customer's point of view. The best way to do this is to go right to the source. If you can, identify your competitors' current and former customers through market research and informal contacts. Ask them about their experiences. Visit your rivals' stores or, as Rice does, place a phone order with them. Evaluate their customer service, product quality, marketing materials, and pricing to see if there are gaps your new business can fill.

Other possible sources of information include former employees, industry suppliers, local better business bureaus, and even professionals such as bankers, accountants and lawyers.

Surprisingly, your best source of information about a competitor might come from talking to the competitors themselves. Jane Reifer runs Clutter Control Organizing Services in Fullerton, California. When she started her business, she joined the local chapter of the National Association of Professional Organizers (NAPO). Through NAPO, she's been able to network with other professional organizers. "I've been pleasantly surprised about the amount of information shared through this group," Reifer says. "We work on jobs together, make referrals, and help new organizers."

Zobel also tries to keep in touch with her competitors. She's invited some of her competitors to lunch, where they exchanged ideas and information about their tax consultancies.

Your Competitive Strategy

The final step of competitive analysis is taking the data you've collected and using it to develop a strategy that puts your business ahead of the competition. For each of your main competitors, list "strengths" and "weaknesses." You should be able to list at least five things that each of your competitors does well and five things that they do poorly. Try to remain objective. Look at your rival's strengths and weaknesses from the customer's point of view. Do they excel at customer service? Is their pricing too high? Are their employees well-trained? Is their product of inferior quality?

Entrepreneurs sometimes find it easier to identify weaknesses in their competitors than to identify strengths, but it's important to make a realistic assessment of both. Your competitors' strengths can be an important bench-marking tool for you to use in planning your new business, while weaknesses can be a signal of opportunities on which you might be able to capitalize.

Next, compile a list of strengths and weaknesses for your own business. Will these attributes be enough to set your business apart in your customers' minds? Are you giving them reason enough to switch from your competitors? If you are introducing an entirely new product or service, what will entice consumers to change their buying habits? You may find it necessary to change your strategy or to target a different market based on the information you uncover about your competitors.

For example, when Zobel decided to write a book on small-business taxes, she conducted an extensive analysis of books on the market. Initially, she was discouraged because she felt the existing books adequately covered that broad topic. Examining her own strengths, however, she realized there was indeed a gap in the market: No book addressed the unique tax concerns of female entrepreneurs. She targeted that market segment, and her book, Minding Her Own Business: The Self-Employed Woman's Guide to Taxes and Recordkeeping (EastHill Press, $16.95, 800-490-4TAX) has just hit the bookstores.

Remember that competitive analysis is an ongoing process. Set aside time at least every quarter to re-evaluate your competition, especially as new competitors enter your market, or as you introduce new products and services.

Also, bear in mind that competition can have positive connotations. "When I saw products that were similar to mine, I used to be afraid they were going to take away my customers," says Rice. "Then I realized that what it really meant was that there's a market out there for my product. Competition doesn't scare me now."

10 Questions Every Entrepreneur Should Answer

1. Who are my competitors?

2. What are their financial resources?

3. How do they market their products/services?

4. How many employees do they have?

5. Where are they located?

6. How do they treat their customers?

7. What are their pricing strategies?

8. What are their main strengths, and can I meet or exceed them?

9. What are their main weaknesses, and how can I do better?

10. How will they react when I start my new business?

Contact Sources

Clutter Control, (800) CLUTTER.

EastHill Press, 6114 LaFalle Ave., #599V, Oakland, CA 94611, (510) 530-5474.

International Brownie, 602 Middle St., Weymouth, WA 02189, (800) 230-1588.

Small Business Development Center, Clayton College & State University, Morrow, GA 30260, (770) 961-3440.