Running a business is about more than knowing your product and service. You need to know your competition. A properly conducted competitive analysis will provide the feedback necessary to give you an edge in your market.
By Amy Cates
If you own a business, you have competitors.
Knowing who and where they are is the first step in putting their good practices to work for you. A competitive analysis serves as a synopsis of your competitors’ strengths and weaknesses and can help you operate a more focused and successful business. Competitive analysis doesn’t take a lot of money or demand a great deal of your time. It is a simple, easy process that can be carried out when your time allows.
“A competitive analysis is really taking an honest look at who’s out there vying for the same dollar,” explains Freida Curry, director of the Small Business Development Center (SBDC) at the University of Illinois at Chicago. “Competitive analysis is crucial, and it needs to be inline with the overall strategic plan.”
Identify Your Competition
To assemble a competitive analysis, begin with a tool you already have: the phone book. Identify some of your competitors, where they are and what they advertise.
“[The number of businesses] can be discouraging, but it doesn’t need to be,” Curry says. Conduct an Internet search to further determine competing businesses within your market to gain a better idea of what other companies are doing. Identify things that other companies are doing that you would also like to do. Also consider whether there is a need not being met by other competitors within your industry.
Once you determine what you want to emulate in other businesses or have discovered an unfulfilled niche, it’s time to put the focus on your own business. Begin with a chart, Curry advises, and list where you are and where you want to go. As you formulate the chart, consider factors such as: What markets are you in? How many locations do you have? How many workers do you employ? What are your gross and net profit margins?
Review other business plans to determine the format that best meets your objectives. At www.bplans.com, you will find complete business plans that include competitive analyses in a variety of formats with a wide degree of information.
Discover What Competitors Are Really Selling
Deepen the analysis by determining what your competition is really selling. Every business has a target audience and delivers a specific product, service or experience. A coffee shop, for example, serves coffee, but it may also create a customer-friendly atmosphere where patrons linger to work or socialize. Or, a competing IT company provides a staff of qualified programmers, but it might also offer skilled software support to its clients.
After you have identified those companies that most closely sell the product or service you are selling, list those that you believe are your top two or three competitors. Describe their niche—it might be location, price, level of service, quality, selection, reputation or expertise. Organize this information in a table or chart.
A sample table can be found on the SCORE Counselors to America’s Small Business Web site. The site’s Business Toolbox is a treasure chest of valuable templates, links and business quizzes that can help firm up your business plan and develop a competitive analysis.
Create Your Niche
You can find out what customers value by asking them directly and by relying on word of mouth. Visit the competition when appropriate, talk to customers who patronize the business, and learn why they buy the service or product from that company.
“The whole point is not to see where you stand against the competition, but how to distinguish yourself from the crowd,” Curry says. Adjustments don’t have to be expensive—you might make a shift in your business’s personality, or decide to try a simple give-away to every customer or offer unique packaging. “Think about what’s going to set you apart,” explains Gerriann Fagan, president of The Prism Group, which provides executive coaching, training and career development services.
Fagan also suggests you include anecdotal information as part of your research. If you learn that a similar business didn’t do well at a certain location, for example, note this in your business plan. It can be a useful reminder when you refer back to your competitive analysis months or years from now. “Strike a balance between data and soft information and perceptions,” Fagan says.
The specific objective of your competitive analysis will determine how much time you should spend compiling data. If it is used as part of a business plan to secure a loan or attract investors, your research should be formal and comprehensive. If the information will serve only as an annual update to keep you on track, formulate the data to suit your purposes.
Make Competitive Analysis Part of Your Business Strategy
In all cases, the competitive analysis should be part of an ongoing process. “You should always have your antenna up,” Curry says. Market trends, technology and political factors can impact businesses of every size.
“It’s a good idea to revisit this analysis every year,” says Curry, who has one client who takes two weeks each year to re-evaluate her competitive analysis and strategic business plan.
Whether yours is a new or existing business, you can always learn from others. “Creating a competitive analysis is a good opportunity to make connections,” Fagan explains. The government provides a wealth of assistance through the U.S. Small Business Administration, and SCORE provides free consultations to small business owners through its volunteers, many of whom have written business plans for their own companies. Small Business Development Centers (SBDCs) can be found in most cities and offer a variety of services to small businesses. Many are funded through universities and work in cooperation with municipalities and other industries. Procurement Technical Assistance Centers (PTACs) help small businesses successfully compete for government contracts.
Chambers of commerce and economic development organizations typically provide information about their members free of charge. Join those that offer the greatest return. Your competitors are likely members as well.
“When people say they can’t find help,” Curry says, “it’s usually because they haven’t looked.”
Be cautious, however, about hiring someone else to compile your competitive analysis. “The business plan, the competitive analysis, the marketing plan are yours,” Curry says. Hire a professional if you need to, but remain closely involved, particularly if the plan is being written to secure funds.
And finally, don’t be afraid to talk to your competitors. Many are willing to share their experiences. View them as colleagues and teachers, and make them an integral part of your strategic plan. “To have a strong alliance is a very good thing,” Fagan says. “You can’t operate a business on your own. If you can make some friends in the process, you can build a database. We’re a global market, but business is done with people.”