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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.
July 11, 2005
URL: http://www.entrepreneur.com/article/78596

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:

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.