Professional sports teams never go into a ball game without knowing the opposing team’s strengths and weaknesses inside out. And successful entrepreneurs don’t go into business until they know what kind of competition they’re up against.
Evaluating your competition is a key part of honing your business strategy. To start, find out who the competitors are in the industry you are considering entering. You can find this information in industry trade magazines, on industry Web sites, and through trade associations. You need to know who the competitors are both on a national level and in your local area.
Once you know who the competition is, read as much as you can about them. Look for newspaper articles and stories in industry trade publications. If your competitors are publicly traded companies, read their annual reports; these usually have information about their future plans. What are their growth strategies? What regions are they expanding to? What new products or services are they adding? Are their sales increasing or decreasing? How are they doing relative to others in the industry? A lot of competition in an industry isn’t necessarily a bad thing; on the contrary, it often indicates a thriving industry. By the same token, the fact that there are few competitors doesn’t necessarily mean you’ve picked a good field to enter; it could mean your chosen industry is in decline.
Next, do some in-person market research on the competition. Visit your local competitors’ stores or restaurants, or shop at their Web sites. Check out their ad campaigns and marketing materials. If you were a customer, how would you feel about this company? What are its strong points and weak points? Is the service outstanding or lackluster? Is the Web site easy to use? Are the products worth the price? Take note of the company’s customer service, price points, atmosphere, quality, and the types of promotions or marketing tactics it uses. Are the locations crowded and bustling, or deserted except for two bored sales clerks? When you call the company, is the phone answered quickly by a friendly receptionist, or do you get sent into voicemail limbo?
So far, we’ve only talked about direct competitors. But indirect competitors are just as important. An indirect competitor is a company that, while not in the same industry, is competing for the same dollars that you are. Suppose you’re considering starting a restaurant that would appeal to families. Your competition isn’t just other restaurants; it’s any leisure establishment that competes for families’ discretionary entertainment dollars. For example, indirect competitors for a family restaurant could include bowling alleys, arcades, ice cream shops, children’s bookstores, movie theaters, miniature golf courses, fast-food chains—you get the picture.
Indirect competitors play a more complex role because they can also be complementary to your business. For instance, if your research shows that lots of family entertainment venues are launching in your area, it may indicate growing demand for this type of business. That would be promising news for your family restaurant idea. Locating your restaurant near these complementary businesses could help drive customers to your place, because the area will be full of families with money to spend. However, your marketing message will still need to be strong enough to get them to spend with you, not with the company next door.
In all of the research you do on competitors, your ultimate goal is to assess their strengths and weaknesses. Create a chart listing each competitor’s strong and weak points. As you do this, it will become clearer where the opportunities lie for your business. If your competitors’ weak points are horrible customer service, you can shine by offering outstanding service. If their weak point is failure to market adequately, a strong marketing campaign can differentiate you.
Knowing your competition is an ongoing process. Even after your business launches, it’s crucial to keep up to date on what your competitors are doing, so you can respond and keep your competitive edge.
Karen Axelton is Chief Content Officer at GrowBiz Media (www.growbizmedia.com), a content and consulting company that helps entrepreneurs start and grow their businesses.