It’s a tough world out there for small businesses, and often it can seem like you’re drowning in a sea of competitors. If you don’t know how to swim, it’s going to be hard to keep your head above water. And the first step in learning how to swim is to dip your toes in that vast ocean of competition.
A competitive analysis will help you understand the market you’re competing in (or more importantly, which market you should be competing in), how to more effectively target potential customers, and how to improve your business model.
Over the next few weeks, we’ll bring you tips to help you size up your competition, starting with figuring out who exactly your competition is.
When you start listing out your competition, the first few will probably be direct competitors. If you’re a coffee shop, your direct competition might include the Starbucks and local coffee shops in your area. But you’re also competing against shops that may not specialize in coffee, like McDonald’s. Further, you’re competing against at-home coffee, like Keurig, or similar products, like tea and energy drinks.
Listing your direct competition is the easy part. Figuring out your indirect competition is a little trickier. People may be satisfying the need that your product solves by buying a product from a different category. For instance, if you’re selling greeting cards, you’re also competing against emails and phone calls.
Speaking of product categories, make sure you’re competing in the markets that make the most sense for your product. If you’re a small business in a market dominated by a few major players, your real competition may be in a different category all together. If you have a small shop that builds motorcycles, your competition probably isn’t Harley or Yamaha. Instead, it may be another product that your target consumer decides to spend this year’s tax refund on, like a new big-screen TV.
Making a list of both direct and indirect competitors is a crucial first step in knowing your competition, and stay tuned for more tips on how to beat your competition.