One of the weakest portions of any feasibility analysis or business plan is the competitive analysis. This is because an entrepreneur typically looks only at what can easily be seen on the surface rather than digging for what is not so obvious. It is important for entrepreneurs to study competitors’ strengths, weaknesses, opportunities, and threats as thoroughly as they study their own. The idea is not to benchmark against a competitor but rather to find ways to create new and innovative value.

Identifying the Competitor

There are generally three types of competitors for a product or service: direct, indirect or substitute, and emerging. Identifying exactly who these companies are, including their strengths, weaknesses, and market share, will put a new venture in a better position to be a contender in the industry – and particularly in the target market.

Direct competitors are those businesses that supply similar products or services. Indirect competitors may not even be in the same industry as the new venture but do compete alongside it for customer dollars. For example, consumers may choose to spend their limited dollars at the movies rather than on an expensive restaurant. Or a business looking for videoconferencing capability may choose an Internet-based system delivered through an application service provider (ASP) rather than purchasing and maintaining equipment. Therefore it is important to look outside the immediate industry and market for alternatives. 

An entrepreneur also needs to look beyond existing competition to emerging competitors. In many industries today, technology and information have changed at such a rapid pace that the window of opportunity for successfully starting a new venture closes early and fast. Consequently, an entrepreneur must be vigilant in observing new trends and new technology, both in the industry in general and in the specific target market.

Finding Information About Competitors

Collecting information on competitors is one of the most difficult parts of researching the industry. It is easy to gain superficial information from the competitor’s advertising, website or facility, but the less obvious types of information, such as revenues and long-term strategies, is another matter. 

Information on publicly held competitors can be found in annual reports and other filings required by the Securities and Exchange Commission (SEC). Unfortunately, however, most start-up companies are competing against other private companies that will not be willing to divulge these sensitive data.

Here are some of the data that it is helpful to gather:

  • Current market strategies
  • Management style and culture
  • Pricing strategy
  • Customer mix
  • Promotional mix

The following are some suggestions on where to look for this information:

  • Visit competitors’ websites or other outlets where their products are sold.  Evaluate appearance, number of customers coming and going, where they buy, how much, and how often. Talk to customers and employees.
  • Buy competitors’ products to understand the differences in features and benefits and to learn much about how they treat their customers.
  • Use Internet search engines such as
  • Find information on public companies to serve as benchmark for the industry.
  • Search government websites.
  • Seek out trade associations and other industry organizations.

Looking For The Less Obvious

Sometimes the most threatening aspect of a competitor is not really visible in the typical facts that are reported, and often competitors come from outside the entrepreneur’s industry and market. For example, understanding a competitor’s real core competence helps to determine whether that competency can ever be shifted to the entrepreneur’s niche market. Suppose the entrepreneur’s business concept is a company that trains unskilled workers for well-paying jobs in industry. The entrepreneur looks at all the competitors in the training industry and decides that he can compete because he has created a unique niche in the market. What the entrepreneur has failed to do is to look outside his industry to companies that might have the core competency and might have the resources to shift to his niche very rapidly. Those companies are not always obvious. To make sure that they are not missing a potential threat, entrepreneurs should:

  • Determine what the competitor has to do to be successful in its own core business. Are there any core competencies that it must acquire?
  • Determine which of the competitor’s core competencies are transferable to the entrepreneur’s business.
  • Determine whether the competitor has a competency in the same area as that entrepreneur.

If the competitor is a large company, the entrepreneur may strategically position his company to be acquired, because most large companies acquire core competencies rather than developing them.

Employing a Niche Strategy to Compete

Entrepreneurs typically use a niche strategy to compete in their industry and market.  What this means is that the new venture focuses on a particular customer group, an unnerved need, or a specific geographic region not currently served effectively by other players in the industry. Niches can be created by focusing on any of the key elements of the business: customer, product design, price, service, packaging, geographic focus, and distribution.

Many a new venture has entered an established industry via a niche by finding a gap in the market that enables the company to compete without going head-to-head with major companies. Where competition is weak and exposed to substitute products is a minor issue, the niche strategy offers a safer route to establishing a foothold in the industry. 

The important thing to remember about niche creation is that it gives a new venture  to define and “own” a segment of the market. Working in a niche gives the company to develop, to become stronger and better able to compete against companies in the mainstream market. However, niche strategies can fail when the cost to serve the niche exceed the size of the market, so it is important to choose an appropriate niche. Niches, by their very nature, are small and usually serve to provide only an entry strategy, not a sustainable strategy for long-term viability.

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