Your LivePlan Small Business Plan – Performing a Competitive Analysis
In the last post in the Complete Guide to Creating a LivePlan, I addressed Defining and Understanding Your Target Market. I mentioned there that the biggest factor in determining how much of the market your small business can expect to capture is the competitive landscape. In this post I help you understand how to lay out your competitive landscape in your LivePlan.
Knowing who your competitors are is important for many reasons.
As I have already indicated, it can help you estimate how much of the market you can reasonably expect to capture.
It will also help you determine how to price your product or service.
And it will help you identify what is unique about your product or service and why your Company is better than the competition.
So how do you go about identifying and learning about your competitors and identifying your competitive advantages?
Read on to learn this and more about analyzing your competitive landscape.
Identifying Your Competitors
You probably already have an idea of who your biggest competitors are.
Maybe you’ve worked in the industry you are starting a business in for a while.
If not, I’m assuming you’ve learned a little about your industry and competitors before getting to this point in the planning process.
Regardless, now you should gain an even better understanding of, and document the competitive landscape in your LivePlan.
If you are offering a truly unique product or service you may have little to no direct competition at the outset.
If this is the case for you, use the “Current Alternatives” section of your LivePlan to describe your indirect competition and then detail any intellectual property or barriers to entry that exist that will protect you from competition in the future in separate sections of your LivePlan.
For a typical product or service, there will be direct competition.
Start documenting information about the competition by identifying what you already know about your direct competitors and expand your understanding from there.
If you are opening a brick and mortar business, you can identify your competition by simply doing an old school yellow pages search.
You can use these search engines to determine which of your competitors have the highest ratings, which can help you determine who your biggest competitors will be.
Websites like Yelp are a great, free resource for assisting with your competitive analysis.
If you want to take your competitive analysis a step further, tools offered by BizMiner will provide additional information on your competitors, including approximate sales volume, number of employees and, often, information about a competitor’s owner.
If your business will involve selling to a larger, more spread out population, it won’t be this simple.
For instance, your business may be online based or may involve selling and shipping products to customers all over the country or world.
In this case, you can refer to trade organizations in your industry or use online tools to identify major competitors.
Check out this article on the Kissmetrics blog highlighting 25 sneaky online tools for conducting online research on your competition.
You should also discuss competition with current or potential customers, suppliers and other stakeholders in your business to help identify and learn about your competition.
Once you have identified your major competitors you’ll want to learn as much as you can about them.
What You Need to Know
Simple, free methods for learning about your competition include staking out your competition, when possible and applicable, and documenting what you learn.
For instance, if you are opening a coffee shop, identify all of the competing shops within a 10 mile radius and spend some time at each of them.
Document what you learn and observe.
What products do they offer and at what price points?
Describe the typical customer.
Identify the busiest days of the week and times of day for them.
Are customers receiving good service?
Spend some time staking out your competition.
Even if you can’t stake out a brick and mortar competitor, you can become a customer of some of your competitors.
You can find out how good their customer service is, how they price their products, and what the overall customer experience is like by doing business with some of your competitors.
This could mean purchasing products or services online or, preferably, over the phone.
You should try to engage your competitors, whenever possible.
Of course, you’ll likely have to do this in the guise of a customer, not a competitor.
But if you can have some open discussions with some of your competitors you can learn a lot of valuable information.
TIP: One of the benefits of actually reaching out directly to competitors is that you may identify some good people in your industry. If your business allows for it, you may try securing some of these people as employees for your own business. And if it is not an option now, you can keep them in mind for future opportunities.
I recognize that this advice isn’t groundbreaking and probably sounds like common sense, but most people aren’t willing to do it.
If you are, it should help you gain a better understanding of the competitive landscape and will give you a leg up on the competition because you will be able to set reasonable goals accordingly.
So, now that you’ve identified who your competitors are, you need to identify what you do better than them.
It’s unreasonable to think you are better in all areas than your competitors and I’ve mentioned in previous posts that you can’t expect to be all things to all customers.
So, being able to identify and effectively communicate what your core strengths are will help you in your mission of achieving your mid-term and long-term goals.
Competitive advantages will vary widely from business to business and industry to industry and you will know best what your business’s biggest advantages are.
Maybe you plan to offer the lowest prices in your industry?
Low prices will likely come at the expense of top-notch customer experience, but you may think this is the best way to succeed for your business.
I don’t recommend going into business as the cheapest game in town if it can be avoided.
You’ll have to do way more volume than a competitor who has developed another advantage and is succeeding by selling less at a higher price.
And you will likely end up spending an inordinate amount of time dealing with unhappy customers.
Being the cheapest game in town is more likely to bring with it unpleasant customers.
Additionally, it flies in the face of everything I discussed in my post on how you should Start With Why.
If you try to compete on price first, you will likely have little to no loyalty from your customers.
Instead, if you Start With Why and really work on identifying and defining the problem your customer is having in the first section of your plan and can solve it better than your competition, you can charge a premium by creating a well defined unique value proposition.
Unique Value Proposition – Statement describing what benefits your product or service offer that differ from your competitors.
Look to some of the bigger, premium brands out there and study what they are doing that allows them to charge a premium for their product.
A good example of a Company that has identified multiple competitive advantages and is able to charge a premium because of them is Apple.
Apple is the most valuable Company in America and charges a significant premium for their products.
Many cell phone companies offer free smart phones, I am not aware of a company that charges more than Apple for one, yet millions of people opt for the iPhone every year.
I’m pretty sure you can get a PC on Amazon for $200, but Apple still sells millions of Macs, which start around $1,000 and sell for up to several thousand dollars.
Why is Apple able to do this?
Most importantly, they Start With Why.
Apple’s most loyal customers believe that their values and beliefs are aligned with those of Apple.
They appreciate that Apple is in business to challenge the status quo.
This Start With Why mentality is the foundation for Apple and should be the foundation for you in your business.
This list of best-selling laptops on Best Buy’s website shows an Apple MacBook with a smaller screen than the other best-sellers selling for 2-5 times the price.
Apple has built on this foundation by making beautifully designed, high-quality products and they’ve created an ecosystem in which their products work seamlessly with each other.
So what will you do?
You don’t have to complicate things just for the sake of complicating them.
But if you are selling a commoditized product or service and have a lot of competitors or the barriers to entry are low, you do want to be able to identify what your advantage is.
If you’ve successfully identified a problem, are making a quality product or delivering a quality service, and offer a great customer experience at a reasonable price your chances of success are much greater than most who fail to really think this stuff through.
Couple this with a solid marketing plan and you could be on your way.
Just keep in mind, you have to actually offer a quality product or service and you have to actually offer excellent customer service if it is part of your plan.
You can’t just say this stuff in your plan and make it come true.
I think this is what a lot of businesses that ultimately fail do.
They say they have a quality product or service and will offer excellent customer service but their actions don’t match their words.
They get lazy and don’t put forth the effort it takes to actually provide a better product or service and a great customer experience.
I recognize that some industries are more price-sensitive than others.
You know your business better than I do.
Just be sure not to sell yourself short.
If you think you are offering a better product or service and are providing a better customer experience, don’t be afraid to charge a higher price.
Identify your competitive advantages and market your product or service accordingly.
At the end of the day, business is a competition.
Knowing who you are competing against and in what ways you are better is critical if you want to stay in the game.
Thinking through, documenting, and staying on top of your competitive landscape is an important part of the LivePlan process.
Get help with this section and the rest of your LivePlan by signing up for the next LivePlan Online Workshop here.
Then, move on to mapping out your Marketing and Sales Plan.
TheEmbarkment.com is on a mission to bring you as much quality, free advice and guidance as possible. In order to carry out our mission, we have partnered with several Companies who help support us financially. When you purchase certain products or services using links on TheEmbarkment.com, we may receive a small commission. You can read our full affiliate disclosure here.