The Competitive Analysis is one of the sections of your company’s business plan.
Prepare this important section carefully – it not only identifies your competition and their strengths and weaknesses, it describes how you will overcome your competitors.
Many companies incorrectly believe that because their products or services are somewhat unique, they have no true competition. Unfortunately, these companies fail to understand that investors typically define competition as any product, service or action that serves the same needs of customers that the company they’re considering serves.
This means a company’s management team looks na├»ve when the company claims it has no competition. In addition, stating a lack of competition implies that the company’s industry sector is of insufficient size to support the tremendous profits that investors always seek. The end result is a failure to get funding.
The opposite situation is also problematic. A company with too much competition in its sector might seem unable to capture a substantial market share. Once again, the result is no funding.
The juxtaposition of these two contrasting situations is often called the “competition dilemma,” and it’s tricky to address. Instead of dealing with it in your Competitive Analysis section, address it in the Customer Analysis section of your business plan.
Why? Because in addition to customer demographics, profiles and psychographics (which must all be as detailed as possible), the Customer Analysis portion of your business plan sets forth your customers’ needs.
The very essence of competition is need. Your company’s products or services must fulfill a customer need to the extent that people are willing to buy them.
So, resolve the competition dilemma definitively. In your Customer Analysis describe research that provides hard data on factors such as the following:
- The number of customers that have purchased a product or service similar to yours;
- The number of customers projected to purchase a product or service similar to yours; and
- The implications of those numbers.
Use the Customer Analysis to first prove you know your market. Then, in the Competitive Analysis, describe your direct and indirect competitors, and how your company will serve customers’ needs better than your competition.