Know Your Competition Here's how to get the goods on your competitors and stay one step ahead.

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 yourcompetitors are. Sounds simple, right? Guess again. Fulton saysentrepreneurs often have difficulty defining exactly who theircompetitors are. Start by identifying direct competitors--firmscurrently selling a similar product or service to the samecustomers you hope to reach.

Consider Jan Zobel's business. Zobel runs a successfultax-preparation firm in Oakland, California, that caters to the taxneeds of individuals and small businesses. One obvious competitorfor Zobel's business might appear to be H&R Block, thenational 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, whileH&R Block serves the needs of customers looking for once-a-yeartax assistance. Although she still keeps tabs on H&RBlock's pricing and marketing, Zobel considers her maincompetitors to be the firms that concentrate on serving the samemarket niche that she does.

On the other hand, Rice says that even though her business isentirely mail order, she still considers retail stores that sellsimilar products to be direct competitors. "I have to worryabout competitors that have stores," she explains,"because people still go there to buy brownies."

How do you identify your direct competitors? Fulton says a lookin the Yellow Pages or a call to your town's chamber ofcommerce can help identify local competitors. If you expect to sellto a national market, broaden your search for competitors. Industryassociations, trade publications, and even a search on the Internetcan help you turn up competitors. You can find listings of industryassociations in Gale Research's Encyclopedia ofAssociations, while Ulrich's Guide to InternationalPeriodicals can help you locate trade magazines in yourparticular industry. One excellent place to spot competitors in aspecific industry is in the Thomas Register ofManufacturers, available in bound volumes, on CD-ROM, and alsoover the Internet (http://www.thomasregister.com).All three directories are available at most public libraries.Asking your potential customers who they're currently buyingfrom 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 theirmoney. Many businesses, therefore, also face indirect competitionfor customer dollars.

Fulton says he discovered this when he owned his own travelagency. "I thought my competitors would just be other travelagencies," he says. "But I found I wasn't just losingbusiness to other travel agencies, but also to the local jewelrystore and appliance store. I realized I had to worry just as muchabout my indirect competition."

Indirect competition can be particularly important if you'reintroducing a totally new product or service concept. To succeed,you'll have to convince consumers to spend their hard-earnedmoney on your product instead of on something else. You mustdetermine which customer spending habits you'll need toinfluence 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 yourkey competitors inside and out. A thorough competitive analysisshould include data from as many different sources as possible.

Begin at a large public or university library. Ask the referencelibrarian to direct you to business publications, directories anddatabases. Check back issues of your community newspaper fortidbits on local competitors. Where and how do they advertise? Arethey hiring? Do their owners participate in local communityassociations? Even a seemingly trivial news item might provide animportant clue about your competitor's strategies andplans.

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

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

Although sources like these can give you facts and figures, themost important step is to look at your competitors from thecustomer's point of view. The best way to do this is to goright to the source. If you can, identify your competitors'current and former customers through market research and informalcontacts. Ask them about their experiences. Visit your rivals'stores or, as Rice does, place a phone order with them. Evaluatetheir customer service, product quality, marketing materials, andpricing 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 evenprofessionals such as bankers, accountants and lawyers.

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

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

Your Competitive Strategy

The final step of competitive analysis is taking the datayou've collected and using it to develop a strategy that putsyour business ahead of the competition. For each of your maincompetitors, list "strengths" and "weaknesses."You should be able to list at least five things that each of yourcompetitors does well and five things that they do poorly. Try toremain objective. Look at your rival's strengths and weaknessesfrom the customer's point of view. Do they excel at customerservice? Is their pricing too high? Are their employeeswell-trained? Is their product of inferior quality?

Entrepreneurs sometimes find it easier to identify weaknesses intheir competitors than to identify strengths, but it'simportant to make a realistic assessment of both. Yourcompetitors' strengths can be an important bench-marking toolfor you to use in planning your new business, while weaknesses canbe a signal of opportunities on which you might be able tocapitalize.

Next, compile a list of strengths and weaknesses for your ownbusiness. Will these attributes be enough to set your businessapart in your customers' minds? Are you giving them reasonenough to switch from your competitors? If you are introducing anentirely new product or service, what will entice consumers tochange their buying habits? You may find it necessary to changeyour strategy or to target a different market based on theinformation you uncover about your competitors.

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

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

Also, bear in mind that competition can have positiveconnotations. "When I saw products that were similar to mine,I used to be afraid they were going to take away mycustomers," says Rice. "Then I realized that what itreally meant was that there's a market out there for myproduct. 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 exceedthem?

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, CA94611, (510) 530-5474.

International Brownie, 602 Middle St., Weymouth, WA02189, (800) 230-1588.

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