Those who read business plans on a regular basis begin to see certain patterns that immediately send up red flags. One of the most common that I see is a when the entrepreneur downplays, or even dismisses their competition. Sometimes it is due to lack of careful research, sometimes it is due to tunnel vision, sometimes it is arrogance, and sometimes it is due to denial. But whatever the cause, ignoring the competition is most often deadly for a new business.
Jack Trout offers some good tips on how to look at your competitive environment at Forbes.com.
1. Avoid a Competitor’s Strength and Exploit His Weakness
This reminds me of the classic entrepreneurial strategy from Peter Drucker: “Hit ’em where they ain’t.” If you notice weaknesses in your competitors your customers will likely see the same things. And if it is something that really matters to the customer, go after it and use it to your advantage.
2. Always Be a Little Bit Paranoid About Competition
If it feels like the competition is watching you, they probably are! They will adjust their strategy to counter moves you make. The start-up of a business is just that: the start. Competition is not a race to the starting line.
3. Competitors Will Usually Get Better, If Pushed
Just like in sports, competition will make your opponent better. That means you will also need to work at getting better at what you do and what you offer to the customer.
4. When Business Is Threatened, Competitors Aren’t Rational
Remember that the two responses of a threatened animal are fight or flight. In business, competitors rarely fly, so get ready for them to fight. The fighting response is not always well planned. It is usually instinctive and impulsive.
I recommend that business owners use a tool called a competitive matrix. It is really quite simple. Along the top of the matrix list the 3-6 primary criteria that customers use to choose either your product/service or your competitors. Think like your customer.
Then along the side of the matrix list each of the main competitors seeking the same customers as you. Again, keep the list to about 3-6 of the toughest competitors you will face.
Then inside each of the squares of the matrix describe how well each of the competitors addresses each of the needs of the customer. Be objective and be descriptive.
This should not be a one time exercise. It should become the way you continually monitor what each competitor is doing in the market and how your customers’ tastes and preferences are changing.
Never take your eye off the competition and never underestimate what they can accomplish.
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