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Know Your Competition

Whether you're creating a new business plan or revamping an old one, knowing what your competitors are up to can save your business.

Every business plan needs to include information on competitive analysis. It's one of the most important points in your plan and should always be included, even when you're just doing an internal plan but especially when outsiders will read it. A competitive analysis is your chance to look closely at your market and your competition, to learn what the others are doing and why. Companies that annually update their plans should always include a competitive analysis to catch changes in the marketplace and in their competition; startups need to know the landscape before they begin.

Your business plan's competitive analysis should list your main competitors and their strengths and weaknesses. The more information you have about them, the better. Know where they're located, what they sell, their prices, their marketing messages, their web addresses and their reputations.

And don't ever say you don't have competition. Quick: Try to name a successful business that doesn't have competition. I bet you can't do it. But I'm amazed at the number of business plans that claim there's no competition for their new business idea. That normally means you either don't understand your business or have a business nobody else wants. Neither option is good.

And you need to know what your competition is doing. You can't say no information is available. You have to open your mind to what customers are doing, where they're buying and how they fill their needs. People are finding your competition to buy from them, so you should be able to find them, too.

The information search is easiest when it involves publicly-traded companies. There are thousands of companies whose stocks are traded in public markets, and those companies have to share an amazing wealth of information with the world because the law requires it. It's hard to imagine a business that doesn't have at least a few publicly-traded companies that compete against it. For example, if you're planning to start an auto repair shop, then look for information on the main franchise organizations and car dealers. If you're building websites, look for information on Yahoo! and Google. If you're opening a restaurant, search for information on franchise restaurants. If one or more of your competitors is public, you can start there.

When your competition is small or local or private, the information will be harder to come by, of course. Private companies have no obligation to tell you anything. You probably won't get financial information at all, and you certainly won't get their business plans. But you'll still be able to develop a competitive analysis. It gets harder--you have to research more and accept more educated guessing where you'd rather have hard information. Still, there are ways to get a good idea. Try these options:

  • Shop your competition. Depending on what business they're in, you can probably call them, visit their offices and perhaps buy from them. Get a price list. Listen to their pitch. If it's applicable, count the cars in their parking lot. Count customers coming out of their store, both with and without purchases.
  • Talk to their customers. What do their customers like or dislike about each competitor? Why and how do customers decide between one competitor or another?
  • When competitors are local, take a look at the Yellow Pages of your local phone directory. When I see a plan for a small, local company that should be listed in the Yellow Pages, I expect them to count the ads for the businesses they compete with. Analyze what the others businesses say in their Yellow Pages' ads, which points they emphasize.
  • Purchase credit and background reports at Dun and Bradstreet's website . I just checked while writing this article and reports cost about $100 per company.
  • Purchase mailing lists and directories. They're available for certain types of businesses in certain areas. Try searching the web for mailing list sellers and visiting your chamber of commerce or county government office to see what type of directories they have available for businesses in your area.
  • Go to the economic census at www.census.gov to obtain lists of types of businesses per county in the United States.
  • Small or not, local or not, check your competitors' websites. Study them carefully. Many companies offer an abundance of information about themselves on the web. Do they offer their products or services in an online store? Or do they simply provide information only? Do they have a price list? What are they emphasizing on their site? What do they say about themselves? What conclusions can you draw? Their websites are a great source of company information. No website? That's interesting competitive information as well.
  • Do a thorough search of the internet, using your favorite search engines. Besides their own site, you want to see where else your competition turns up. Maybe they don't have their own site, but they're listed on other sites or have a store in an online mall. And maybe you can find press information on them, articles that profile them or offer information on changes they may have gone through, such as store openings or hiring a new CEO. The web is amazing in what it can reveal.

A business plan needs to be sensitive to the information that's available. You can readily have a competitive analysis that isn't based on hard evidence-legal, factual information. And when they're well researched, educated guesses can be enough to be the basis of planning and decisions. But one way or another, you need to know your competition.

The author is an Entrepreneur contributor. The opinions expressed are those of the writer.

Tim Berry is the president of Palo Alto Software Inc., based in Eugene, Ore., which produces business planning software. He is also the author of 3 Weeks to Startup and The Plan-As-You-Go Business Plan, published by Entrepreneur Press.
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