Competition

It may be hard to believe, but competition is good for you. Itdrives innovation, inspires perseverance and builds team spirit.And that’s not all. Many times, the presence of competitionincreases the market for everyone. For instance, when a Wal-Martgoes up on the edge of a small town, not all local businesses gethurt. Nearby restaurants, gas stations, jewelers and personalservice providers such as hair salons benefit from added trafficand, often, higher sales than before.

Of course, competition isn’t all good. While using the presenceof threatening rivals to focus and motivate employees, you alsohave to make sure your competitors aren’t going to steal yourcustomers. Meanwhile, you’ll be doing everything you can to grabsales from your rivals. Step one in both of these processes is toidentify and know your competitors.

And not all businesses are your competitors. If you own abookstore, for instance, you don’t have to worry about the coffeebar next door siphoning off your sales. Quite the reverse, in fact,as book buyers may be lured by the scent of java, and coffee loversmay wander over for some reading material to peruse as they sip.Many other businesses are essentially irrelevant to your business.If your motorcycle dealership sits adjacent to a day-care center,the odds aren’t good that many of the day-care clientele–parentsor children–will turn out to be hot prospects for a bike.

Determining exactly who is your competition is pretty easy.Companies that offer the same or similar products as you do may becompetitors. If their geographical market areas overlaps with yoursand their price points also resemble yours, it’s almost a certaintythey’re competitors. But you may also be in competition withcompanies that offer products that are substitutes for yours. Lookat companies that sell accessories to your products–they may wantto begin offering a complete solution. In general, it’s safe to saythat anyone who sells anything that’s related to your offerings,either as an accessory or a replacement, is an actual or potentialcompetitor.

You can develop your own competitive monitoring system bytracking the flow of information about your business and yourmarket. The key question is “How do you make your money, and whatother profit opportunities exist in your field?”

Tracking information is largely a matter of networking. Talk tovendors, customers, consultants and others who do business withcompanies in and around your field to find out whether and when newcompetitors are likely to pop up.

Also look in related product markets. These are the marketswhose participants are most likely to understand your customers’needs. Companies whose products complement each other in this wayare more likely to become competitors than firms in unrelatedindustries.

In addition, scan the value chain for your product or service.Companies that occupy spots on your value chain often understandyour business and customers well enough to become rivals.

You should also suspect firms with related competencies.Carefully scrutinize companies that have mastered technologysimilar to yours, even if they appear to operate in distantsectors. Competencies can also concern nontechnological skills suchas management of retail outlets, new product development or evencustomer service.