When you are writing your business plan, you will need a section to analyze competition and locate your business in this competition.
A competitive analysis identifies you and your competitors’ strengths, weaknesses, as well as the strategies and tactics they use. Spotting these can help you increase your focus on specific aspects of the market to drive sales and cater for certain customer needs.
Competitive analysis helps you gain a larger view of the market and your competitors.
It’s important to have all the information needed before you start writing. This includes everything that was gathered during the market research.
Here are 5 steps to writing a competitive analysis:
1. Identify the competition landscape
From a broad point of view, the competition can be described as any service or product that a customer can use to fulfill the same need(s) as the company fulfills.
It is a killer mistake in a business plan to claim that there is no competition. This will frustrate the potential investors, since there is a broad description of competition as seen above. In order to be credible, management should show a real analysis of the competitive landscape and not gloss over it by saying there are none!
To identify the competition, have a clear look in your industry and similar industries and clearly describe where you stand.
2. List which competitors you would like to analyze in-depth
After identifying the competition, select the most relevant and similar companies to your company. Make a list of them and start analyzing them.
Keep in mind that there are direct competitors and also indirect competitors.
Direct competitors are other companies that sell the same services or products as you, for the same client needs within the same market. Examples of direct competitors are: McDonald’s and Burger King, Popeye’s and Chick-Fil-A, Domino’s Pizza and Papa Johns Pizza, Target and Walmart, Lowe’s Home Improvement and Home Depot.
An indirect competitor is someone who targets the same client need in the same market as you, but with different solutions that still satisfy the customer’s need. Example of indirect competition can be: a Mexican restaurant, an Italian restaurant, and a Japanese restaurant. Since these are three different types of food, technically they are indirect competitors. However, they all satisfy the customer’s need of eating dinner at a similar price point.
3. Analyze your competitors’ products/services, customers, financial numbers, businesses, strategies and tactics
Some of the indicators that you can look at in a competitor are as below:
- Name & Location
- Overview of the company
- Founding year – experience & expertise
- Number of employees
- Size of the company
- Market share
- Products or Services they have
- Patents & Copyrights
- Brand Recognition
- Customer Service
- Strategic Partnerships
- Human Resources
- Operational Systems
- Marketing Strategies
4. Summarize your competitive advantages and disadvantages in a SWOT analysis
SWOT is an acronym that stands for Strengths, Weaknesses, Opportunities, and Threats.
SWOT analysis is a strategic planning technique that enables you to assess your core strengths, weaknesses, opportunities, and threats.
Before starting, keep in mind: Strengths and Weaknesses are “internal” factors and depend on “your” existence and activities. They arise from situations inside your organization.
Opportunities and Threats are “external” factors which are independent from your existence and activities. They arise from situations outside your organization.
- List your business’s strengths against your competitors: Strengths are things that your organization does particularly well, or in a way that distinguishes you from your competitors. It can be price or cost advantages, location of your business, your product/service quality, employees, capital, credit, existing customers, distribution channels, etc.
- List your business’s weaknesses against your competitors: List things in your business that you consider to be weaknesses (that put your business at a disadvantage to others). Weaknesses can include increased costs, limited resources, absence of new products or clients, lack of expertise, lack of intellectual property, declining market share, poor location,etc.
- List potential opportunities that can be raised upon competitors: List possible external opportunities for your business. Define what opportunities are open to you and what trends you can take advantage of. Finally, discuss on how you can turn your strengths into opportunities.
- List potential threats from competitors: List possible external threats for your business. Describe what threats could harm you.
Now, you can use your strengths and minimize your weaknesses to take advantage of the opportunities and to overcome threats.
Try to overcome your weaknesses in order to take advantage of the opportunities.
Click here to download a free SWOT Analysis Template
5. Show where you fit in the competitive landscape and define your strategy
After completing these steps, define a clear Picture of where you stand in competition and what will your strategies and tactics be to carry you forward in competition.
The competitive landscape is one of the most important considerations when developing a business plan. It outlines the past and current competitors for your business and breaks down their relative strengths and weaknesses. Understanding the competition is crucial in terms of developing a strategy that will allow your company to stand out.