Q: If we have several product lines that another business also offers but does not specialize in, must we list them as a competitor? We are developing a theme store with products from around the world and including specialized services. I'm concerned about listing every Tom, Dick and Harry in our proposal that may offer one or two product lines like ours but not the specialized services like we do.
A: Identifying your competition is tricky if you are a department-type store carrying many products. Some stores have obvious competitors: 7-11 competes with Circle K and Store 24. End of story. But if you carry many product lines from around the world, how do you know who your significant competitors are? One way to explore the answer is to ask: If people didn't frequent your store, where would they go instead?
It's not just about merchandising; it's about the whole experience you offer your visitors. Time they spend in your store--whether or not they buy--is time they used to spend somewhere else. That somewhere else is your competition.
Some stores are destinations. People visit with an immediate need in mind. They feel the need, think of the store, hop in their car and travel to fill the need. If you're a destination, competition will be other destinations that fill the same need; after all, once your customer is in their car, they can travel many different places. So your furniture store may end up competing with the department store across town. People who want a couch will drive to either store to buy a product.
But other stores invite foot traffic and impulse buying. If most of your customers just drop in when they're in the area, look around the area to find out where else they may go. If you are in a mall, your competition may be the arcade next door, even more than stores that carry the same products across town. (Or the arcade may draw traffic that then shops in your store--you must analyze your situation to figure out which it is.) Again, the question to ask is: If they aren't walking in your door, where are they walking instead?
For a single location, you can take the approach above and analyze the specific situation. If you are growing and financing a chain, you need to be a bit more abstract--then it's time to do some customer interviewing and find out what it is about your store that brings people in the door. Is it the atmosphere? The staff? The convenience of the location? You can ask them where else they go and why they choose you over other stores.
What you're listening for are the criteria in your customers' minds that they use to choose you over others. Those are what you want to duplicate as you expand, and those are what you want to use to identify competitors. If you have a clothing store and customers tell you your styles and selection keep them coming back, then your competition will be rooted in fashion. If they tell you it's your convenient mall-based locations and overall "feel" that keep them coming back, your challenge will be identifying other chains that appeal to the same consumer and offer mall-based experiences that compete with yours.
If the soul of your business is about specialized services, then consider where people might go to get those same services. "The Custom Shop," a custom shirt and suit maker, is really a service business as much as a product business. And their service isn't provided by Filene's Basement department store. A little research might reveal that people who buy custom suits aren't choosing between Filene's and The Custom Shop, but rather between The Custom Shop and local tailors.
Once you've identified your competitors, the competition section of your business plan is pretty simple: Discuss how you are identifying the competition, and then list the top two or three competitors you consider major threats. If you want to do a really thorough job, go a step further and include a blurb on each competitor's response to you and how you might anticipate and deflect their actions.
Stever Robbins is a consultant specializing in mastering overwhelm, power and influence. The author ofIt Takes a Lot More Than Attitude...to Lead a Stellar Organization, he has been a team member or co-founder of nine startups, an advisor and angel investor, and co-developer of Harvard's MBA program. You can find his other articles and information at SteverRobbins.com.
This article originally appeared on Entrepreneur.com in 2002.
Stever Robbins is a venture coach, helping entrepreneurs and early-stage companies develop the attitudes, skills and capabilities needed to succeed. He brings to bear skills as an entrepreneur, teacher and technologist in helping others create successful ventures.