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When developing the competition section of your business plan, companies must define competition correctly, select the appropriate competitors to analyze, and explain its competitive advantages.

To start, companies must align their definition of competition with investors. Investors define competition as any service or product that a customer can use to fulfill the same need(s) as the company fulfills. This includes firms that offer similar products, substitute products and other customer options (such as performing the service or building the product themselves). Under this broad definition, any business plan that claims there are no competitors greatly undermines the credibility of the management team.

In identifying competitors, companies often find themselves in a difficult position. On one hand, they want to show that they are unique (even under the investors’ broad definition) and list no or few competitors. However, this has a negative connotation. If no or few companies are in a market space, it implies that there may not be a large enough customer need to support the company’s products and/or services.

Business plans must detail direct and, when applicable, indirect competitors. Direct competitors are those that serve the same target market with similar products and services. Indirect competitors are those that serve the same target market with different products and services, or a different target market with similar products and services.

After identifying competitors, the business plan must describe them. In doing so, the plan must also objectively analyze each competitor’s strengths and weaknesses and the key drivers of competitive differentiation in the marketplace.

Perhaps most importantly, the competition section must describe the company’s competitive advantages over the other firms, and ideally how the company’s business model creates barriers to entry. “Barriers to entry” are reasons why customers will not leave once acquired.

In summary, too many business plans want to show how unique their venture is and, as such, list no or few competitors. However, this often has a negative connotation. If no or few companies are in a market space, it implies that there may not be a large enough customer need to support the venture's products and/or services. In fact, when positioned properly, including successful and/or public companies in a competitive space can be a positive sign since it implies that the market size is big. It also gives investors the assurance that if management executes well, the venture has substantial profit and liquidity potential.

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How to leapfrog your competitors

Competition keeps you on your toes. To keep a step or two ahead means knowing precisely what rivals are up to. Few businesses systematically keep tabs on competitors yet such knowledge can give you a distinctive commercial edge. So start building a file on them, looking at everything from the customer's viewpoint. Ask suppliers and employees what they know about the competition.

Clearly business has put together a list of questions you should be asking about your rivals to ensure that you lead the pack rather than follow:

  • Who are they? Direct competitors are easy to identify - they offer a similar product or service in the same way to your target market. But you also have indirect competitors - people selling the same product in different ways, for example a business selling ferry tickets on the web instead of in a travel shop. Or they are selling alternative solutions to the same needs, such as offering train or air tickets?

  • What products and services do they offer? Do they overlap with yours and, if so, are your prices keen?

  • What customer needs and wants are they satisfying? Needs are different from wants: you may need a car but you may want a top of the range Mercedes.

  • Are their benefits powerful and attractive? What is their unique selling proposition? Do you have benefits and selling points in common?

  • How do they position themselves? Are they top drawer or bargain basement? What's their tone? Avuncular and learned or rough-and-ready and brash and with it? Is their mind-set corner-store, High Street franchise or old establishment? How do you position yourself in relation to them?

  • What are their pricing strategies? What is included and excluded from the price. Are they exclusive and high-priced or a dime-a-dozen? How does this affect you?

  • Are they as passionate and knowledgeable as you? Or are they more in it for the high volumes, loss leaders or portfolio fillers?

  • How do they market themselves? What buying habits are they trying to influence and how are the going about doing it? Where do they advertise? What sales channels do they use - retail, direct mail, Internet, wholesale? Pose as a prospect and get on their mailing list.

  • What is their sales literature like? How can you make yours stand out in comparison?

  • How much does geographical location matter? The right kind of competition in close proximity can be advantageous - it lures more prospects to the area. If they are thoroughly inconvenient to reach, but still do well, what is their secret?

  • How good is their staff? Are they recruiting? If so, for what positions? Who are they hiring and why? Should you be considering enticing them over to you?

  • What resources do they have in terms of finance and people? Are they growing, level pegging or declining? If so, why?

Use the Internet to get hold of credit reports on them. Find out how many employees they have, and what they do. For instance, do they have a maintenance department or do they outsource this?

Knowing your competitors' strengths and weaknesses and being realistic as to how you compare can be a real benefit when it comes to being the first choice for your customers. But you must also act on the information and ensure that your offering is the most attractive to your target market.

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10 Ways To Defeat Your Competition

  1. Offer free original content. It's important to give your visitors information they can't find anywhere else. If you're the only source, they'll visit your site.

  2. Give people free software. Most people like to find good deals on software for their computers. If the software is free, that is even better.

  3. Hold free contests or sweepstakes. Most people like to win things. If you can fulfill that need, people will stop by to visit.

  4. Provide a free web directory. Create a directory of web sites on a popular topic that will attract your target audience.

  5. Offer a free e-zine. Most people love to get free information that's e-mailed to them regularly. This saves them time and money.

  6. Make your web site look professional. You want to have your own domain name, easy navigation, attractive graphics, etc.

  7. Let people read your ad before they get to your freebie. When you use free stuff to lure people to your web site list it below your ad copy.

  8. Attract the target audience that would buy your product or service. A simple way to do this is to survey your existing customers.

  9. Test and improve your ad copy. There are many people who write an ad and never change it. Make sure you get the highest possible response rate.

  10. Give people an urgency so they buy now. Many people are interested in your product but they put off buying it until later and eventually forget about it.

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