Why You Need to Know Your Business’s Competition

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competitive research

When you’re starting a business, it is important to get a handle on your competition, for some of the same reasons you need to hone in on your ideal customers.

Your business can only benefit from getting a sense of the resources your competitors have at their disposal, and the scope of their market share. It’ll also make putting together your unique value proposition (UVP) a lot easier—you’ll know what differentiates your solution from theirs: product features, service quality, price, focus, and so on.

Why does knowing your business’s competition matter?

You’ll save money and time if you put in the work on the front end. Part of being successful in business is identifying and mitigating risk. Knowing who also has a share of the market is part of that risk mitigation process. You can really compete if you don’t know who you’re dealing with.

If you are business planning or strategic planning, developing an understanding of the wider context will help you compete effectively. There is little sense in entering a market as an unknown brand with an inferior product that lacks a solid distribution channel—but that’s especially true if the space is already occupied by a behemoth with a brilliant product and ample marketing resources.

The definition of competition

Defining your competition is an important consideration, as you need to be careful not to define it too narrowly. If you fall into this trap, it is likely that competitive or substitute offerings can enter the market unexpectedly and disrupt it significantly, catching you off guard.

Instead, it is better to define the competitive landscape more broadly, taking into consideration close substitutes which may be providing better solutions to the same target market. (For a more in-depth look at this point, it is worth researching Theodore Levitt’s seminal 1960 Harvard Business Review paper, Marketing Myopia).

Think about direct and indirect competition. In this article on the idea of having no competition (spoiler alert: every business has competition), Noah Parsons suggests thinking outside the box if you don’t have any obvious direct competitors.

He says:

When Henry Ford started successfully mass-producing automobiles in the U.S., he didn’t have other auto makers to compete with. His competition was horse-and-buggy makers, bicycles, and railroads.”

That sort of competition is considered indirect. But just because it’s indirect doesn’t mean it isn’t powerful enough to disrupt your plans and your growth if you ignore it.

On the flip side, the absence of meaningful competition can also be a signal that the market is immature, or demand is weak. On the odd occasion, however, the lack of competition can be due to some significant innovation on the part of the entrepreneur, or when some true visionary sees opportunities before everyone else.

If that seems like it’s true for you, seek a lot of impartial, and independent feedback to ensure you are not about to trip over a huge blind spot. SCORE mentors can be helpful on this front, especially if you’re running your business solo to start.

How do I figure out who my competition is and monitor them?

There are a number of different ways to get a handle on your competition. Start with a simple Google search.

Keyword research

One simple way to get a good sense of your competition is to Google the three or four groups of keywords you would like to be found for.

Businesses in a wide range of industries wants to be the first thing searchers see when on queries related to their product or brand. So your competitors are more likely to have optimized their sites to give them a better chance of appearing high in the rankings.

For example, in the business planning software industry where Palo Alto Software (makers of LivePlan) participates, words we like to appear at the top of the rankings include: business plan, business planning, as well as product category words like business plan software and branded words like LivePlan.

PPC ads that appear in search results

When you do that sort of research, also take note of the PPC (pay-per-click) ads that appear at the beginning of the search results. They’re another clue.

A higher number of ads can indicate a stiffer competitive landscape. An absence of them might suggest an immature market with weak demand—but it also might mean that you need to do more research to understand how people search (or the words they use) when they look for information and products like yours.

Create a competitive matrix

If you’re looking at your competitors because you’re writing a the competition section of your business plan for a bank loan, angel investment, or venture capital, it’s a good idea to start with a competitive matrix that looks something like this:

You can read more about using a competitive matrix in this article on Bplans.

Industry research and benchmarks

You can also benefit from doing some industry analysis and leveraging some benchmarks. After all, industry benchmark data is all about your competition—and knowing what’s average in your industry can help guide your financial forecasts, or even inspire tweaks to your business model. Industry benchmarks are included in LivePlan, and there are other ways to access that data as well.

Revisit competition during monthly plan review meetings

But don’t just investigate your competition once in the early days and never think about it again. A good business plan is a lean, continuously revised plan. You should incorporate competitive analysis into your regular business plan review meetingsif not monthly, at least quarterly. The landscape can change quickly, especially if your business is a startup in an emerging or freshly disruptive industry.

Use a SWOT analysis

Reviewing your competition easily fits into the SWOT analysis framework, where you’re looking at your strengths, weaknesses, threats, and opportunities. You should do a SWOT matrix if you’re writing a business plan, but it’s wise to include a SWOT analysis in business plan review meetings, either monthly or quarterly.

SWOT template image

Learn about Porter’s Five Forces

The most well-known framework people use for strategic development (including competitive analysis) is Michael Porter’s Five Forces. This framework can help you map out the various competitive tensions at play, and assess the attractiveness (or otherwise) of the industry you are looking to compete in. Similarly, his generic strategies framework can help entrepreneurs assess which marketing strategy is worth focusing on as a basis for competing.

Listen on different platforms

Also, set up some continuous monitoring—there are some great suggestions in this article. Get on your competitor’s email list. Pay attention to where they’re spending their digital advertising dollars. Set up Google Alerts so you’ll hear about it if they announce anything newsworthy. Follow them on social media.

In summary

Keep in mind that “knowing your competition” does not equate to copying what they do. And there is a fine line between monitoring your competition, and obsessing to the point of strategic paralysis.

Don’t think of your competitive strategy as a reactive game. Try to be proactive. Don’t wait for them to pursue your target market with renewed aggression. Build your own strong campaigns in the meantime.

Your business goals are best achieved by focusing on meeting the needs of your target audience better than anyone else does, and consistently innovating so as to ensure your proposition always stacks up favorably against the wider competition.

Editor’s note: This article originally published in 2012. It was updated in 2019.

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Alan GleesonAlan Gleeson
Alan Gleeson
Alan Gleeson is the General Manager of Palo Alto Software Ltd, creators of LivePlan and Business Plan Pro. He holds an MBA from Oxford University and is a graduate of University College, Cork, Ireland. Follow him on Twitter @alangleeson
Posted in Business Plan Writing