Free enterprise is a double-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 as a new business owner 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.

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's competitors? Any other businesses (organisms) contending for the same clients (resources) as your business. Actually, the definition is even broader than that. Any person or business who may get one of your client's dollars instead of you is a competitor. If your clients 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.

Analyzing Competition

Every business or organism that may get a client's money instead of you is a competitor. However, many of these competitors aren't significant bullies. You won't have to worry about them stealing your lunch money. Even so, you need to consider who they are and what impact they have on your business plan.

Products and Services

To be competitors, businesses must offer products and/or services that offer clients a similar solution to a specific problem. In the example of a tax service, the client has many options. If your tax service will focus on busy middle-income families within a local area, you can begin analyzing and eliminating some of the businesses on your long list. Few prospective clients in this market will get their tax advice from a book or a free service for senior tax filers.

Pricing

In further analysis, you may discover that some competitors price their products or services significantly higher than your pricing structure. For example, a certified public accountant may charge two or three times what your tax service charges for the same preparation and filing. In addition, most middle-income families won't trust volunteer tax preparers to do the work.

Client Service

Two competitors in the tax example depend on technology for service: the online tax preparation service and the software program. These can be significant competitors to your business, depending on how comfortable your prospective clients are with using technology to prepare and file their taxes.

You can do your own competitive analysis. The best place to start is by becoming a client of your primary competitors. Find out, from the client's viewpoint, how they provide their services, what they charge, and how well they perform. Doing so can help you understand what opportunities your consulting service can provide to clients.

Make sure your business plan includes an analysis of significant competitors. By identifying and scrutinizing them, you will not only discover what they are doing to succeed, but you will also be able to plan ways of beating them in the race for clients.