You can learn a lot about your competitive advantage, market opportunity, and how to position your business by looking at the competition. Knowing who your competitors are, how they operate, and the necessary benchmarks you need to hit are crucial for your business to succeed. It’s also an analysis that investors will want to see within your business plan.
What if I don’t think my business has any competition?
Never suggest to an investor that you don’t have competition—not in your formal plan, not in your pitch, and not in any summary.
Most investors take that as an indicator of lack of experience. Every good business has competition. If it’s so new that it doesn’t have competition today, then it will have competition tomorrow. In that case, your competitive analysis should guess which big competitors will enter the market. Furthermore, if a business really has no competition, it may not really be a good business to enter.
How to identify your competition
If you think you don’t have competition, take a step back from your plan and look at the problem you solve. How are people solving it? What kinds of businesses are likely to jump in on it if you create a new market and become successful? That’s your competition.
In the early days of business plan software, when I first developed and sold templates to do business plan financials in the middle 1980s, I was the first to do that. But I never for a second thought I didn’t have competition. The competition back then wasn’t other spreadsheet templates, but books, classes, and blank spreadsheets that people could program. There is always competition.
How to write your competitive analysis
Your competitive analysis will help you define the competition section within your business plan. Here’s how to do it in a few simple steps.
1. Define your business use
For the competition section of your business plan, first, settle on which of these two business uses applies to your situation:
Internal management plan
In the management plan for business owners, a competition section serves as a vehicle for understanding competition and developing strategic positioning. You and your team look at comparative strengths and weaknesses. It leads you straight to strategy.
Formal business plan
In a business plan event situation, with a plan to be shown to potential investors or as part of a bank loan, you’re describing the competition mainly to reassure your target reader that you are aware of and understand the competition, and are positioned to take advantage of opportunities and avoid the pitfalls.
How do you know what you’ll use your plan for?
In the first case, your business goal is on the offensive and proactive. It’s about foreseeing problems and opportunities likely to arise in the near future. You are trying to generate ideas and responses. You want open discussions. What might happen? What should we worry about?
In the second case, your business goal is defensive and—unless you’re careful—reactive. You want to show that you know the territory, have your defenses set, and will be able to overcome the challenges.
The difference is nuanced and not overwhelmingly obvious. As you develop your competition section, keep your goals in mind. That will help you decide what’s important. How comprehensive do you have to be? If it’s just a management plan, you can skip the details and look for the high points. With the formal business plan, you will look unprepared if you’re missing details.
2. Establish your competitive position
You need to know how your business stacks up, in terms of the values it offers to its chosen target market. Key marketing tactics including pricing, messaging, and distribution, while others are about positioning your business against the background of the other offerings. How do you stack up against the others?
The goal is positioning (setting your business up against the background of other offerings), and making that positioning clear to the target market. How are you going to take advantage of your distinctive differences, in your customers’ eyes? What are you doing better? How do you work toward strengths and away from weaknesses? What do you want the world to think and say about you and how you compare to others?
Positioning map
I often refer to marketing expert Philip Kohler’s simple strategic positioning map of breakfast, shown here. You can easily draw your own map with any two factors of competition to see how a market stacks up. It’s a good reminder.
You’ll also see positioning maps set up with two axes, vertical and horizontal. It’s quite common to see the price on one axis and some important qualitative factor on the other, with the assumption that there should be a rough relationship between price and quality. For example, the illustration here of breakfast options:
Competitive matrix
Nowadays many businesses work up a competitive matrix showing how different competitors stack up according to significant factors. Compare your product or service in the light of those factors of competition. How do you stack up against the others? This is a good place to include the competitive matrix showing.
For the record, I’ve seen dozens of competitive matrices in plans and pitches, and yet I’ve never seen a single one that didn’t show that this company does more of what the market wants than all others. So maybe that tells you something about credibility and how to increase it. Still, the ones I see are all in the context of seeking investment, so maybe that’s the nature of the game.
3. Establish regular competitive review channels
Know your business needs. Use your competition section to guide decisions, if that’s what you need; or to support your pitch, if that’s your case. Like all of your business plan, you measure its value by the decisions it causes.
These days, with competitive information, it’s not a matter of finding a needle in a haystack; it’s figuring out which needles to choose from a mountain of needles. You can find an amazing wealth of information about competitors on the web and in mobile apps. The hard part, of course, is sorting through it and knowing what to emphasize.
Use online reviews
When it comes to finding and using information, I do suggest here that you stay flexible and pragmatic. Look for available information that will stand for what you want to show. For example, I might use stars and such in reviews, from Amazon or Yelp, as a surrogate for quality. That would be way more practical than conducting primary research, and it’s credible to the audience.
There was once a problem finding information on smaller privately owned competitors, compared to the wealth of financial information available for companies traded on one of the major stock markets. Nowadays, websites, social media, and reviews are widely available on lots of local businesses. Not having some way to rank and evaluate competitors is usually for lack of trying, not for lack of information. Here too, beware of having too much. Spare your readers proof of how good you are at gathering information, and give them only the information they need and will use.
Sourcing financial information
Don’t assume you can get financial information on companies that are privately held. Use a surrogate if you have to, like numbers of employees, rooms, tables, vehicles, or (here too) stars in reviews. If possible, you may want to take on the task of playing the role of the potential customer and gain information from that perspective.
Industry associations, industry publications, media coverage, information from the financial community, and their own marketing materials and websites may be good resources to identify these factors and “rate” the performance and position of each competitor.
Industry financial profiles are also available online; you can find statistics like average annual growth, the average number of employees, sales per employee, sales per square foot, average profits from sales, and similar benchmarks for sale from competing providers, for $100 or less for a single profile. Start with a Google search to find this information for your industry.
Additionally, LivePlan bundles these profiles broken by industry type and size of business as part of the web app license.
Always remember — You do have competition
There are only two reasons for real businesses being without competition even for a short time:
The first is that your business or product is so new, so innovative, that nobody else can duplicate it. The second is that there’s a fatal flaw that others know and you don’t. It’s not a good enough business to attract others.
Either way, you have competition. In the first case, your competition is waiting in the wings, getting ready to jump in, so you should be preparing for it. In the second case, get a clue.
Editor’s note: This article was originally published in 2016 and updated for 2021.
Tim Berry is the founder and chairman of Palo Alto Software and Bplans.com. Follow him on Twitter @Timberry.
