How to Identify Your Competitive Strengths for Your Business Plan
In their book Write Your Business Plan, the staff of Entrepreneur Media offer an in-depth understanding of what's essential to any business plan, what's appropriate for your venture, and what it takes to ensure success. In this edited excerpt, the authors explain just how important it is to identify what sets you apart and gives your business its competitive edge.
As a business owner, you're not alone, even if you own a one-person, homebased business. You also have your competition to worry about. And your financial backers will worry about your competition, too. Even if you truly are in the rare position of addressing a brand-new market where no competition exists, most experienced people reading your business plan will have questions about companies they suspect may be competitors. For these reasons, you should devote a special section of your business plan to identifying your competitors.
If you had to name two competitors in the athletic shoe market, you'd quickly come up with Nike and Reebok. But these by far aren't the only competitors in the sneaker business. They're just two of the main ones, and depending on the business you're in, the other ones may be more important. If you sell soccer shoes, for instance, Adidas is a bigger player than either of the two American firms. And smaller firms such as Etonic, New Balance and Saucony also have niches where they are comparatively powerful.
You can develop a list of competitors by talking to customers and suppliers, checking with industry groups and reading trade journals. But it's not enough to simply name your competitors—you need to know their manner of operation, how they compete.
Does a competitor stress a selective, low-volume, high-margin business, or do they emphasize sales growth at any cost, taking every job that comes along, whether or not it fits any coherent scheme or offers an attractive profit? Knowing this kind of information about competitors can help you identify their weaknesses as well as their names.
What makes you better?
This is one of the most important sections of your plan. You need to convince anyone thinking of joining with your company, as an investor or in another way, that you offer something obviously different and better than what's already available. Typically, this is called your competitive advantage, but it's not an overstatement to call it your company's reason for being.
Your competitive edge may lie in any of the your company's key distincitions, including cost, features, service, quality, distribution and so forth. Or it could be something totally different. The success of a retail convenience store located on an interstate highway, for instance, might depend almost entirely on how close it is to an exit ramp. Compare what you have to offer to that of your competitors, including your online competitors. Look for your competitive edge without knocking or denigrating your competition—your goal is not to say they aren't good but that you are a better choice—and explain why.
To figure out your competitive advantage, start by asking yourself these two critical questions:
1. Why do people buy from me instead of my competitors? Think about this question in terms of product characteristics. Ask your customers why they buy from you. Ask noncustomers why they don't. Ask suppliers, colleagues and anybody you can find why they're choosing you over a competitor. Use online surveys, read reviews on places like Yelp or Angie's List, and get a feel for what people like and don't like about the places that do what you do ... or are planning to do.
2. What makes me different and, I hope, better? Your competitive advantage isn't quite as important if your company is going to operate in the beginning stages of a new industry. When interest and sales in a new field are growing fast, you can survive and prosper even if you aren't clearly better than the rest. If, however, you plan to take market share away from established competitors in a mature industry, then competitive edge is all-important. Without a convincing case for being very different and much better than the rest, your business plan will have a hard time swaying anybody.
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