Knowing your competition
Understanding your competitors and potential competitors and their strengths and weaknesses is vital to making sure your business is successful. This is especially important to small- or medium-sized businesses as they have the ability and flexibility to adapt to changing economic and/or market conditions.
We outline some of the processes and issues that you should focus on while you identify, analyze, and determine the strengths and weaknesses of your competition.
The first step is to develop a basic profile of each of your primary competitors. Here are some suggested ways to gather information:
- Check out their websites and marketing materials. Most of the information you need about products, services, prices, and company objectives should be readily available. If that information is not available, you may have identified a weakness;
- Search the Internet for news, media releases, and other mentions of your competition. Search blogs and social media feeds (Twitter, LinkedIn, Instagram) as well as reviews and recommendations;
- Visit locations. This may be possible if the competitor is a retail business;
- Review of Annual Reports. This is only applicable if the competitors are public companies;
- Biographies of Staff and Company History. Understanding how your competitors got their start and learning the backgrounds of key staff usually reveal a lot about the company and their culture;
- Talk to your Competitors. Be friendly with your competitors, they are not your enemies. You all share things in common and it will be easy to talk shop. They may open up and provide information freely. As well, in the future, you may find that you can work together on projects or possibly decide to merge;
- Attend Trade Shows. Check which of your competitors are also participating in the shows. Look at their displays and observe how busy they are and who is visiting them; and
- Speak to your Customers and Suppliers. Staying close to your customers is always key for any business. Don’t be afraid to ask your customers who else they buy from, as this information will offer you insight on your customers and their business. You may be able to offer them the same service or product. Your suppliers might be supplying your competitors as well. They may be willing to share with you what some of the competitors are buying from them and their volumes. This way, you can estimate how your competitors’ sales are tracking against your own.
We caution you that the information that you gather may be anecdotal and some may be based on the opinions of a few people.
It’s tough to predict future competition. However, there are ways to anticipate when competition may follow you into a market. Other business owners may see the same opportunity you see. Think about your business and your industry, and if the following conditions exist, you may face competition down the road:
- The industry enjoys relatively high profit margins;
- Entering the market is relatively easy and inexpensive;
- Supply is low, and demand is high; and
- Very little competition exists today.
In general terms, if serving your market seems easy, you can safely assume competitors will enter your market.
After reviewing the information on your known and potential competitors, you should be able to understand the following:
- Competitors’ market share;
- Markets that are being targeted;
- Market conditions, i.e. growing or shrinking;
- What is your competitive advantage or your competitors’ weaknesses; and
- What you will do if competition enters the market
In the past, when we have consulted with business owners who needed to provide a business plan to their bankers or were getting ready to divest their business, it was appropriate to recommend in certain situations that a competitive analysis be performed by a third party. This practice removes any bias that the business owners may have of their competitors. In addition, it is good to have the competitive landscape validated by a neutral party as this possibly is one of the most important issues that investors look at closely. If a third party is used, it could become a bit expensive, but it may be warranted. Even if you do not ever plan to seek financing or bring in investors, you absolutely must know your competition to succeed in business
Understanding your competition, your own business’ strengths and weaknesses along with a willingness to adapt and change is critical for long term success.