In Business Planning, Competition is Good
To start, companies must align their definition of competition with investors. Investors define competition as any service or product that a customer can use to fulfill the same need(s) as the company fulfills. This includes firms that offer similar products, substitute products and other customer options (such as performing the service or building the product themselves). Under this broad definition, any business plan that claims there are no competitors greatly undermines the credibility of the management team.
In identifying competitors, companies often find themselves in a difficult position. On one hand, business plan writers sometimes want to show that the business is unique unique (even under the investors' broad definition) and list no or few competitors. However, this has a negative connotation. If no or few companies are in a market space, it implies that there may not be a large enough customer need to support the company's products and/or services.
Business plan consultants must detail direct and, when applicable, indirect competitors. Direct competitors are those that serve the same target market with similar products and services. Indirect competitors are those that serve the same target market with different products and services, or a different target market with similar products and services.
After identifying competitors, the business plan must describe them. In doing so, the plan must also objectively analyze each competitor's strengths and weaknesses and the key drivers of competitive differentiation in the marketplace.
Perhaps most importantly, the competition section must describe the company's competitive advantages over the other firms, and ideally how the company's business model creates barriers to entry. "Barriers to entry" are reasons why customers will not leave once acquired.
In summary, too many business plans want to show how unique their venture is and, as such, list no or few competitors. However, this often has a negative connotation. If no or few companies are in a market space, it implies that there may not be a large enough customer need to support the venture's products and/or services. In fact, when positioned properly, including successful and/or public companies in a competitive space can be a positive sign since it implies that the market size is big. It also gives investors the assurance that if management executes well, the venture has substantial profit and liquidity potential.
Special Announcement:We regularly receive requests from entrepreneurs who want to hire Growthink but cannot afford our consulting fees. For this reason, we have developed a business plan template that allows entrepreneurs to quickly and cost-effectively develop professional plans.
Call To Request a Business Plan Quote
Or, complete the form below and a Growthink professional will contact you shortly.
Important: Growthink will never share or sell your personal information and we will keep all business information completely confidential.