The competitive analysis section can be the most difficult section to compile when writing a business plan. Before you can analyze your competitors, you have to investigate them.
The first step of preparing your competitive analysis is to determine who your competitors are. This isn't the hard part. If you're planning to start a small business that's going to operate locally, you can identify your competitors just by driving around or looking in the local phone book. The main question for you will be one of range; if your business plan is centered around the idea of opening a bakery, how far will customers be willing to drive to get fresh buns or bread?
However, it may be that your local business will have also have non-local competitors. If I'm selling office supplies, for instance, I may also have to compete with big-box retailers within a driving distance of several hours, mail order companies, and companies that offer office supplies online. You want to make sure that you identify all your possible competitors at this stage.
Secondly, you need to gather the information about your competition that you need for the competitive analysis. This can be the hard part. While you can always approach your competitors directly, they may or may not be willing to tell you what you need to know to put together this section of your business plan.
You need to know:
What markets or market segments your competitors serve;
What benefits your competition offers;
Why customers buy from them;
And as much as possible about their products and/or services, pricing, and promotion.
Gathering Information On Competitors
A visit is still the most obvious starting point - either to the bricks and mortar store, or to the company's website. You can learn a lot about your competitor's products and services, pricing, and even promotion strategies by visiting their business site, and may even be able to deduce quite a bit about the benefits your competitor offers. Go there, once or several times, and look around. Watch how customers are treated. Check out the prices.
You can also learn a fair bit about your competitors from talking to their customers and/or clients - if you know who they are. With a bricks and mortar local competitor, you might be able to find out about the reasons customers buy from them by canvassing friends and acquaintances locally.
Other good "live" sources of information about competitors include a company's vendors or suppliers, and a company's employees. They may or may not be willing to talk to you, but it's worth seeking them out and asking.
And watch for trade shows that your competitors may be attending. Businesses are there to disseminate information about and sell their products or services; attending and visiting their booths may be a excellent way to find out about your competitors.
You'll also want to search for the publicly available information about your competitors. Newspapers, magazines, and online publications may all have information about the company you're investigating for your competitive analysis. Press releases may be particularly useful. 6 Ways to Find Out What Your Competition Is Up To provides even more tips for gathering the information you need.
Once you've compiled the information about your competitors, you're ready to analyze it. Tips and instructions for analyzing the competition are on the following page.
(The next section of the business plan is The Marketing Plan.)