When you start a business you will find something annoying, but inevitable – and healthy – in a market economy: competition. Except in monopoly situations, undertaking also means competing. And one does not compete alone.
What is competition? It’s defined as a “situation of companies that compete in a market offering or demanding the same product or service”.
But my product is very original! You must think. Well, that’s why we analyze the competition, to test our humility.
Indeed, analyzing the competition is a way of testing your business idea before putting it into practice. How? Comparing. The popular proverb says that comparisons are odious, but without comparison, there is no improvement. If we analyze the competition it is to avoid falling into the error of repeating what others have already done. Especially, to avoid the mistakes that others have already made.
As in a market study (and the analysis of the competition is part of it), to study the competition you have to set yourself some objectives. Start by asking yourself these questions:
- Who is my competition? And this question includes how many competitors are you going to have.
- What is the size of the competition and its financial strength?
- What is your sales volume?
- What is the quality of the product or service they offer?
- What are your marketing and sales strategies?
Who is my competition?
Competing companies are those that operate in the same market or sector where you plan to implement your business idea. You have to identify them by their names and surnames.
When we talk about competition, we can establish three degrees depending on how they affect our business area:
- Direct competition: are those companies that operate in the same market. That is, they sell the same product or service and target the same customers (market segment).
- Indirect competition: they are companies that operate in your same market, target the same customers, but offer a substitute or alternative service or product. An example will help to understand it better: if your business idea is a coffee with an extraordinary aroma, your direct competition would be all the coffee producers, and the indirect one the producers of substitute hot drinks such as tea.
There is a tendency to underestimate indirect competition. Don’t let that tendency be yours. Do the following test with yourself: go to a coffee shop where they serve coffee and tea. Let’s say you’re an espresso addict and that cafe only serves American coffee. It is possible that you hate American coffee and opt for a tea, that is, for a product of indirect competition.
What aspects of the competition should I analyze?
Once you have identified your direct and indirect competitors, the next phase is to determine the elements you want to analyze.
But first, select those competitors that you think are most relevant. If you are going to operate in a market with many competitors, analyzing all of them can be a mistake, especially if they are insignificant competitors whose information cannot provide you much (although it is difficult to know a priori).
Once the sieve is done, look at the following aspects:
- Your products or services. Is the base. The essential. That is to say: what they sell. Study how they produce it, who their suppliers are (if they have any), what characteristics the product (or products) has that makes it so competitive (and vice versa: what makes it a disaster). Do not let your entire portfolio of products and services escape you.
- Your sales and marketing strategies. That is, how they sell it: what distribution channels they use, how many points of sale they have, how they market it, their advertising campaigns (online and offline advertising), content on web pages, social networks, forums, etc.
- Turnover. This way you can get an idea of the market share.
- Prices. This is where your promotional campaigns, rates and offers also enter.
- Resources and number of employees.
- Market positioning.
- Annual accounts.
How do I analyze the competition?
Observing. Observe the competition in all its manifestations. Once you have established the aspects that you want to analyze, the how is easier.
Why easier? The reason is simple, and jumps to your screen at the click of a button: internet. On the same website of the company you can find information as valuable as prices, rates, points of sale, services and products. Many companies also allow you to consult their annual report where you will find sales and billing data, as well as their expansion compared to previous years.
Research on other websites, forums and social networks. And don’t forget the press (both online and print) and specialized publications.
Many of the things you want to find out – like sales and marketing strategies – you won’t be able to find out in the open, unless some renegade competitor leaks them to you. Promotional or advertising campaigns are manifest. Observing them in the media and the internet you can infer what strategy your competitors follow.
Data such as annual accounts can be requested in the commercial registry. In addition, there are companies like eInforma that offer you company reports, freelancers, company valuations or sectoral reports.
Some recommend interviewing former employees of the competition. In our opinion, it is still a rather bizarre recommendation. Although channels like Linkedin allow you to find and contact former employees, going to one is still a risk that you can avoid. Among other things for professional ethics (yours and that of the former employee).
But also for logical reasons: being a former employee, he is no longer aware of current strategies, so any information he can offer you will be out of date or fall into what the Nobel writer Mario Vargas Llosa called rumorology.
The importance of analyzing the competition
Let’s illustrate it with a very familiar example in Spain, although it is very hackneyed: who has not observed in a street a great proliferation of tapas bars that offer practically the same thing. The reason, many times, is that the place where they are located is very touristy or it is the meeting point for the locals (a main square).
Lacking a business strategy and not having analyze the competition before, it is likely that after a year some of these bars will close (and, most unfortunate, that new ones will appear offering the same thing and making the same mistake).
Some will object that it is not a matter of placing the premises on a street where not even Christ passes by. Certain. But in a street saturated with businesses that offer the same thing, starting another business like it can be an invitation to failure. Unless, of course, you offer an innovative, different product or service that the competition did not offer.
And therein lies the importance of analyzing the competition, in discovering new business niches, new services and products that no one offered before or in a way that no one had done so far. The analysis of the competition is the way to put your ideas in front of the mirror and verify their defects and weaknesses, as well as their strengths and opportunities.
Finally, the analysis of the competition does not only end here, that is, where your business should start. Once implemented and fully operational, there is no need to get lost. Your competition can react to your irruption – or the irruption of others, because you are not the only one plotting something, dear entrepreneur, innovating with a service or product or a promotion or price strategy that turns the rest of the competitors upside down.
In the world of business and entrepreneurship, the worst thing is to stand still. Albert Einstein already pointed it out: “Life is like riding a bicycle. To keep your balance you must keep moving”.