Talking to small businesses and entrepreneurs writing business plans, I find that business owners often wish that they had no competition. Businesses usually are thinking that with no competition, the entire market for their product or service will be theirs. I don’t think that is the case – especially for newstartups that have truly innovative products and services. Here’s why:

  • Competition validates your idea
    You know you have a good idea when other people are coming up with similar products or services. Competition validates the market and the fact that there are most likely customers for your new product. This also means that the costs of marketing and educating your market goes down (see my next point).
  • Competition helps educate your target market
    Being first-to-market can be a huge advantage, but that also means that you will have to spend way more than the 2nd-to-market player to educate the market about your new widget, your new solution to a problem, your new approach to services. This is especially true for businesses that are extremely innovative. These first-to-market businesses will be facing customers that didn’t know that there was a solution to the their problem. These potential customers might not even know that they have a problem that can be solved in a better way. These first-to-market companies will have an uphill battle to educate consumers – an often expensive and time consuming process. The 2nd-to-market will enjoy all the benefits of an educated marketplace without the large marketing expense.
  • Competition pushes you
    Businesses that have little or no competition become stagnant. Customers have few alternatives to choose from, so there is no incentive to innovate. Constant competition ensures that your marketplace continues to evolve and thatstarbucks logo your product offering continues to evolve with it.
  • Competition forces focus & differentiation
    Without competition, it’s easy to lose focus on your core business and your core customers and start expanding into areas that don’t serve your best customers. Competition forces you and your business to figure out how to be different than your competition, how you can focus on your customers. In the long-term, competition will help you build a better business.

Focusing too much on your competition, however, is a bad thing.

  • It stifles creativity
    If all you do is track your competition and do endless competitive analysis, you won’t be able to come up with original ideas. You will end up looking and acting just like your competition. Instead, make a habit of NOT visiting your competition’s website, NOT going into their store, NOT calling their sales office. Focus instead on how you can provide the best service possible and spend your time talking to your customers and not your competition.
  • It keeps you from focusing on your customers
    Following your competition means that you aren’t focusing on your customers and what they want – you’re focusing on how your competition serves its customers. Instead of spending time figuring out how you can better serve the next person that walks in the door so that they become a lifetime customer, a reference, a referral source, you are becoming a copycat. When that happens, it won’t matter to a customer if they walk into your store or your competition’s because you will both be the same.

Every business has competition, even if it is not direct competition. There is always an alternative method to solve the problem you are solving, even if your idea and solution is revolutionary. For example, initial competition to the car was the horse and buggy (or plain old walking). Competition for the Mac’s initial foray into desktop publishing was not other computing systems, but manual cut & paste layout systems. It’s OK to have competition and in fact it is a good thing.

As you grow your business, it’s critical to understand how your customers currently solve the problem you are addressing. This will help you focus your marketing and really address your customers’ true needs.

Noah Parsons
COO, Palo Alto Software

AvatarNoah Parsons

Noah is currently the COO at Palo Alto Software, makers of the online business plan app LivePlan. You can follow Noah on Twitter.