Why You Need to Know Your Business’s Competition
Competition is a natural part of doing business. While it can often seem intimidating, it’s actually a vital component of doing business, that forces you to innovate and stay on top of current trends and tactics. In short, it can be a struggle to take on competitors but it makes your business the best it can be for your customers.
But how do you approach taking on the competition? What should you be looking for when conducting market research? And why do you really need to know your competition?
Let’s try to answer that by diving a bit further into why it’s important, what competition really is, and some methods to stay up-to-date on what your competitors are up to.
Why is it important to know your competition?
We briefly went over one reason why competitive analysis is important, but why else should you care? Here are a few ways knowing your competitors can help you run your business.
You’ll know your competitive advantage
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 exactly what differentiates your solution from theirs: product features, service quality, price, focus, and so on.
You’ll minimize risk
Additionally, 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. 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.
By starting with your competition, you can immediately identify if there is a need in the market, as well as an opportunity to enter. If you find that the barriers to entry are too great, you can pivot your business or try to adapt your product or service instead. But by knowing ahead of time, you can make these adjustments before launching.
You’ll avoid costly mistakes
If you are business planning or holding a strategic planning session, developing an understanding of the wider competitive landscape will help you compete effectively. It’s during these times, where you’ll want to take a good long look at what your competition is doing before making any large-scale business decisions.
Similar to identifying opportunities in the market, knowing what your competition is doing, or did, can better help you navigate similar decisions. Maybe you’re considering a premium product option, but know that your competition tried this years ago and couldn’t move units. By analyzing their launch, the product, and other elements that led to its failure, you can have an idea of what you need to avoid, or even if the venture is a solid investment.
You can’t really compete if you don’t know who you’re dealing with, and you’ll save money and time if you put in the work on the front end.
The definition of competition
Competition is defined as whenever two or more parties strive to meet a common goal that cannot technically be shared. For businesses, this goal is typically tied to sales to customers, but can also include brand awareness.
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 you significantly.
Instead, it is better to define the competitive landscape more broadly. Taking into consideration direct competitors, as well as any close substitutes which may be providing better solutions to the same target market. These two distinct competitive categories are known as:
- Direct competition: Someone who offers the same product or service and compete in the same market.
- Indirect competition: Someone who offers a different product or service and competes in the same market to satisfy similar customer needs.
What if there is no 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.
“When Henry Ford started successfully mass-producing automobiles in the U.S., he didn’t have other automakers 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 identify my competition?
There are a number of different ways to get a handle on your competition. Start with a simple Google search.
1. 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 want 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.
2. 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.
3. Conduct a competitive analysis
If you’re looking at your competitors because you’re writing 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, SWOT analysis, and explore Porter’s Five Forces.
Using a competitive matrix
A competitive matrix is a great tool for comparing specific features or perceived benefits between your business and the competition. It’s a simple table that allows you to check boxes regarding how customers are being served and who actually offers those solutions. Starting with this matrix can give you an idea of potential strengths and weaknesses and can help you kickstart the next analysis.
Conducting a SWOT analysis
Reviewing your competition easily fits into the SWOT analysis framework, where you’re looking at your strengths, weaknesses, threats, and opportunities. This is a simple method to quickly identify where you’re beating out or falling behind the competition and develop any strategic changes you need to make.
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.
4. 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.
5. Monitor 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.
Stay up-to-date on your competition
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 meetings—if not monthly, at least quarterly. The landscape can change quickly, especially if your business is a startup in an emerging or freshly disruptive industry.
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.
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.
Your business goals are best achieved by focusing on meeting the needs of your target audience better than anyone else does. Consistently innovating to ensure your proposition always stacks up favorably against the wider competition. Knowing your competition can help you identify how to develop this strategy.
Editor’s note: This article originally published in 2012. It was updated for 2021.