Using competitors to your advantage

Building a competitive strategy into your business model from the beginning is an important step to entering the market.

Dado Galdieri/AP/File
Competing food vendors sell hot dogs and hamburgers to customers in La Paz, Bolivia Tuesday July 13. New business plans should include a strategy to survive in a competitive marketplace.

Is the fact that there is competition a reason not to start a new business? Not if you build a realistic competitive strategy into your business model from the beginning.

One of the fatal flaws we see in business plans is when the entrepreneur is in denial about the fact that they will face competition. Every new business faces some form of competition.
I always chuckle whenever I read a business plan that, while admitting there are competitors out there, will dismiss them as incompetent or irrelevant. Remember - they are already up and running and have customers, so they have must have something going for them!
Keep in mind that competition can be beneficial to your start-up business. The competition has already built awareness about your product or service with customers. That means you won't have to spend marketing money educating your customers about the benefits of what you are offering them.
The competition has already spent money learning what customers really want. You can learn from their successes and their shortcomings as you craft your business model.
A competitive strategy should always start with the customers. Learn how your customers make the decision on where to buy the product. Determine the key decision making criteria they will use to choose your product over your competitors'. It does not matter what you think they should consider in the decision - all that matters is what the customer thinks and how they actually make their choice.
How do you gather information about what your potential customers prefer? You need to get out and talk to them, observe them, or do whatever it takes to learn how to think like they do.
Also gather information about how well your competitors are satisfying these customers. You can gather this information by talking to customers, visiting your competitors' businesses, interviewing suppliers, and by meeting with others in the industry. All of this information should shape your business model and define how you will attract customers.
Understanding the relationship that already exists between your potential customers and the existing competition helps to determine how you should enter the market.
If your competition is strongly entrenched it may not be wise to try to compete with them directly, no matter how good you think your product is. Think of your own buying habits. We all get in patterns of where we like to buy things. Changing those patterns can become quite difficult, especially if the competition has a good relationship with the customer.
Instead, it is usually better to find a niche of customers in the market. Find a group of customers whose needs are not being met by the competition and tailor your business model to satisfy them. They will be the easiest and least expensive to attract.
This strategy gives you the best chance of building your initial sales, while avoiding a head-on confrontation with well-established competitors that may have a much healthier bank account than your start-up business.

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