After Identifying Competitors, The Business Plan Must Describe Them

Business.

In business planning, competition is good - when developing the competition section of your business plan, companies must define competition correctly, select the appropriate competitors to analyze, and explain its competitive advantages. Investors define competition as any service or product that a customer can use to fulfill the same need( s) as the company fulfills. To start, companies must align their definition of competition with investors.

This includes firms that offer similar products, substitute products and other customer options( such as performing the service or building the product themselves) . - in identifying competitors, companies often find themselves in a difficult position. Under this broad definition, any business plan that claims there are no competitors greatly undermines the credibility of the management team. On one hand, they want to show that they are unique( even under the investors' broad definition) and list no or few competitors. If no or few companies are in a market space, it implies that there may not be a large enough customers need to support the company' s products and/ or services. However, this has a negative connotation. Business plans must detail direct and, indirect competitors, when applicable.

Indirect competitors are those that serve the same target market with different products and services, or a different target market with similar products and services. - direct competitors are those that serve the same target market with similar products and services. After identifying competitors, the business plan must describe them. Perhaps most importantly, the competition section must describe the company' s competitive advantages over the other firms, and ideally how the company' s business model creates barriers to entry. In doing so, the plan must also objectively analyze each competitor' s strengths and weaknesses and the key drivers of competitive differentiation in the marketplace. Barriers to entry are reasons why customers will not leave once acquired. However, this often has a negative connotation.

In summary, too many business plans want to show how unique their venture is and, list no or, as such few competitors. - if no or few companies are in a market space, it implies that there may not be a large enough customers need to support the venture' s products and/ or services. It also gives investors the assurance that if management executes well, the venture has substantial profit and liquidity potential. In fact, including successful and, when positioned properly/ or public companies in a competitive space can be a positive sign since it implies that the market size is big.