Readers of your business plan may want to see an industry on a fast-growth track with few established competitors and great potential. Or they may be more interested in a big, if somewhat slower-growing, market with competitors who have lost touch with the market, leaving the door open for rivals.
Whatever the facts are, you’ll need to support them with a snapshot analysis of the state of your industry and any trends taking place. This can’t be mere off-the-cuff thinking. You need to support your opinions with market research that identifies specific competitors and outlines their weaknesses and strengths and any barriers to entry into the market. Finally, and perhaps most importantly, you’ll have to describe what makes you better and destined to succeed convincingly.
Here’s where you should place your focus:
Local markets
Over 90 percent of all businesses are local. Unless your business is set up to market to regional or more extensive markets, focus on customers in your immediate location. You can use your knowledge of the conditions and trends in the local economy to your advantage, enabling you to Identify and study direct and indirect competitors far more thoroughly. The better you know your market area, the better you will be able to serve it—and make a profit.
The state of the overall industry
When preparing the industry trends section, you’ll need to widen your focus from your own company to the outside world. Instead of looking at your business as a self-contained system, you’ll describe the whole industry in which you operate and point to your position in that universe. Then, you can start to zero in on your country, your state, and your local community, depending on how far your business stretches.
This part of your plan may take a little more legwork than other sections because you’ll be drawing together information from many outside sources. You may also be reporting on or even conducting your original research into industry affairs.
Your competitors
You’re not alone, even with a one-person, home-based business. You also have your competition to worry about. And your backers will worry about competition, too. Even if you truly are in the rare position of addressing a brand-new market where no competition exists, most experienced people reading your plan will have questions about companies they suspect may be competitors. For these reasons, you should devote a special section of your plan to identifying competitors.
You can develop a list of competitors by talking to customers and suppliers, checking with industry groups, and reading trade journals. But it’s not enough to name your competitors. You need to know their manner of operation and how they compete.
Your competitive advantage
You need to convince anyone considering joining your company, as an investor or in another way, that you offer something obviously different and better than what is already available. Typically, this is called your competitive advantage, but it’s not an overstatement to call it your company’s reason for being.
“One mistake many new businesses make is thinking that just because nobody else is doing exactly what they’re doing, their business is a sure thing,” says Tim Berry, founder of BPlans. “If you’re struggling to find competitors, the smart thing to do is ask yourself, “Why isn’t anyone else doing it?”
He continues, “Don’t think of competition as only other businesses that do exactly what you do. Think about what currently exists on the market that your product would displace.
It’s the difference between direct competition and indirect competition. When Henry Ford started successfully mass-producing automobiles in the U.S., he didn’t have other automakers to compete with. His competition was horse-and-buggy makers, bicycles, and railroads.”
Barriers to entry
An important part of analyzing your market is determining what the barriers to entry are and how high they stretch. If the barriers are high, you can be assured new competitors are likely to be slow in springing up. If the barriers are low, you have more opportunity to get into the game.
