Starting a small business? First understand your competition

Can you imagine a world in which your business has no competition? Neither can I, yet I Market Researchhave reviewed more business plans than I care to admit in which entrepreneurs boldly declare those four words:  “I have no competition.”

To get a clearer understanding of your competition, it is helpful to know that there are three types:  Direct, indirect and non-consumption.

  • Direct competition is what typically comes to mind when one thinks of competition. These are the competitors that do the same thing as your business in the same way.
  • Indirect competition fulfills the same need as your business, but in a different way. The consumer only has to have their need satisfied by one competitor or the other.
  • Non-consumption competition is what most of us think about the least and is probably the hardest to quantify. It represents the number of people who fit the profile of consumers in your target market, but still choose not to buy your product from you or your competitors.

The practical example I use most with my small business clients is that of family entertainment. My family has a set budget every week for entertainment. I have several options to choose from to meet my entertainment needs.

  • If we decide we want to go bowling and there are two bowling establishments close to our home; these two businesses are in direct competition for our spending. The need I have identified is bowling. We have already earmarked family entertainment budget for this, so now we need to choose which alley we want to go to. We are going to choose based on price and features.
  • When the money in our household was budgeted, bowling wasn’t the identified need—family entertainment was. So that budget represented opportunity for various family entertainment venues. Suddenly the bowling alleys, movie theatres, mini putt parks and climbing gyms were all in indirect competition. If we go to mini putt this week, the opportunity is gone for the bowling alley to win my business.
  • We could decide that while the money was originally intended for family entertainment, we would rather put this week’s entertainment budget in the bank for a future family vacation or a new big screen television. Or, if money is tight, we might reallocate the funds. My family may have represented a qualified buyer in the identified target market of these entertainment venues, but I’m still not spending my money on them. This is an example of non-consumption.

Assessing your competition is an important part of your market research and business planning. Look at what your competition is doing well—you might be able to learn from them. Look at what your competition is doing poorly—this might be something for you to avoid. Find out where there is a place for you to position your business among your competition and then set your business up for success.

For more information, check out our 2015 seminar listing for market research and business planning sessions.

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This entry was posted in Economic Development, Halton Small Business Centre, Small Business Advice, Tips and Advice and tagged , , , , , , , , . Bookmark the permalink.

One Response to Starting a small business? First understand your competition

  1. Brilliant post- I couldn’t agree more, it is most definitely all about understanding competition. Without understanding competition you can’t better your business, you won’t know what it takes to stand out of the crowd, how differently you can offer your products and services, what kinds of attitudes, knowledge levels and sales styles that customers are taking too. Understanding your competition can help you to better understand yourself.

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