MasterCard Small Business

Create an Advantage and Keep it—with Ongoing Competitive Analysis

In the ever-changing world of small business, it takes more than a yearly competitive analysis to stay ahead of the game. Learn how to make competitive analysis an ongoing part of your business.

By Mark Anderson

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Ask any number of small business owners if they know whom their biggest competitors may be, and they’ll probably be able to rattle off three or four names at the drop of a hat. But if you ask them what their biggest competitor’s next step may be in the marketplace, chances are all you will draw in return is a blank look.

That’s because, surprising as it may seem, most small business owners don’t really understand their competition beyond what they see and hear, often second-hand. And while they may think they know their competitors, oftentimes that knowledge may not go beyond the occasional news article or driving past their competitor’s store on a regular basis. Unfortunately, not understanding your competition on a deeper level can mean losing ground when it comes to the battle for market share, especially for small businesses.

The good news is that there is a useful tool available to help you understand your competition better: competitive analysis. As the name implies, competitive analysis is a process designed to gather critical and useful data on your competition. And while some business owners will undertake such an analysis once per year or every five years, the key is to integrate the process into how you run your business, and as a result, turn it into a competitive advantage that wins customers.

More Than One Way to Gain the Data
Just like there may be a wide range of competitors both inside and outside of your industry, there can be a wide range of ways to gather information on them. Most experts suggest starting with those pieces of information that are most easily available. “Look at the businesses that are already in the marketplace, and try to understand if any of them are missing a major trend or a specific market niche or a way to approach the business,” suggests Andy Birol, owner of Birol Growth Consulting, a Solon, Ohio-based consulting firm for small businesses.

Next, follow some common-sense steps, like becoming their customer or their supplier. If available, you can learn a lot from looking at their Web site, Birol says, or tapping into the kinds of support networks every industry or market has. “There’s probably a banker or a lawyer who works extensively in your industry,” he says. “Get to know that person, and understand what the issues are his customers are talking and thinking about.”

Ask an Outside Pro
Besides gathering data yourself, there’s also the possibility of asking for outside help. Jaynie Smith, president of Smart Advantage, a management and marketing company in Hollywood, Fla., and author of Creating Competitive Advantage, says there is a key advantage when you obtain information from outside third parties: objectivity.

“[Outside market research] is one of the ways business owners can get information in a way that’s much more sound than rumors or hearing it from the sales force,” Smith says. And by outside research, she’s referring to the kind of research that asks current or prospective customers about how they perceive your company and the services it delivers, through questionnaires, focus groups or direct one-on-one contact with your customers. Such research may cost in the short term, but it is likely to pay off in the long run with higher closing ratios or increased profit margins on individual sales.

Make Competitive Analysis an Everyday Task
But no matter how you go about gathering the kind of information needed to gain insight into your competition, what’s important is that you continue to do it, day in and day out, and integrate that information into the way you run your business.

“Competitive analysis is important from the day you first open to the day you sell the business,” says Birol. “It’s a dynamic, organic process because things change and move. Most small businesses need to reinvent some aspect of themselves every 18 months or so to stay competitive.” Otherwise, businesses can get stale and miss opportunities, he says.

Rita Gunther McGrath, associate professor at the Columbia Business School in New York City and the author of MarketBusters: 40 Strategic Moves that Drive Exceptional Business Growth (2005, Harvard Business School Press), offers a number of techniques to make competitive analysis an ongoing, organic part of your business.

For example, articulate with your team the few key things you would be worried about that a competitor might do. Then think of indicators that the competitor might be getting started, and assign someone to watch those indicators and report on them regularly.  Also, make each member of your management team responsible for being the information bank for one of your competitors—then at meetings, ask them to report out from the perspective of that competitor.  Often, small businesses have a lot of information about their competition but because no one is the central gathering point for the information, they don’t act on it.

As well, whenever there is a major leadership change at a competitor, create a profile of the new person’s background: Where did they come from? How have they behaved in the past? What is their personal or professional affiliation? Finally, McGrath suggests, you can do a role play in which different members of your team take on the role of various competitors to determine how they might react to your moves.  

Strategy, Not Fluff
The biggest mistake a small business owner can make when it comes to competitive analysis, however, is to assume it’s not important.
“Most businesses think this is a sales and marketing thing, and that they can come up with some fluffy words and that will cover it,” says Smith. “But this is more about making strategic decisions to have competitive advantages. And in order to do that, we have to know what the competition is doing.”

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