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.
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:
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.
10 Ways To Defeat Your Competition
Great Businesses are planned that way.
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