Free enterprise is a two-edged sword. It gives you the right to build a business and your competitors the right to take it away. That's the nature of business. Your job is to identify your competition and develop a plan for responding to their threats. Once your business is successful, you will continue to face the challenges of competitors. You need to have an action plan for competition, and your investors need to know what it is.
Many new businesses simply ignore their competitors. They don't identify, analyze, and attempt to defeat their competition. Then they wonder what happened to all of their customers. To be successful in business, you must know who your competitors are and what they are up to.
Competitors are two or more organisms vying for the same resource. Two runners striving for first place are competitors. So are five hungry puppies at feeding time. If they all want the same thing, they are competitors.
So who are your business’ competitors? Any other businesses (organisms) contending for the same customers (resources) as your business. Actually, the definition is even broader than that. Any person or business who may get one of your customer's dollars instead of you is a competitor. If your customers must decide whether to buy something from you or anything from someone else, you are in competition. The resource in this case is the dollar.
As you develop your business plan, begin a list of all potential competitors to your business concept. Once the list is complete, you will analyze it and eliminate those who are less significant. For now, fill up that list. JIT Tax Service, for example, may develop an initial competitor list like this:
Heather's Tax Service
Skylar Luedemann, CPA
Mega Online Tax Preparation Service
AARP Senior Tax-Aide Service
Do Your Own Taxes book
A prospective customer with a need that your business fills has several options. In the example, the customer can use another tax preparer, an accountant, a free or low-cost service, an online service, a software program, or the directions in a book. All of these are competitors to the hypothetical JIT Tax Service. Whether they are significant competitors will be determined later, in analysis.
How can I identify my business’ competitors?
Think like your prospective customers. If you needed your product or service, where would you go to buy it? Where else? What if costs were a forceful issue? What if they were not and you had a large budget for the purchase? Could you get it online? Is it available in a nearby town? Where else would you spend your discretionary income? To find your competitors, identify the need and follow the dollars.