Now that you believe in a certain small business idea, and are seriously interested in the nature of that business, it is time to evaluate your competition. Of course, as part of validating your idea, you would already have made note of who else is in this line of business, and is running it successfully (see article on Validate your Idea for more on that theme). Competitive analysis now takes you to the next level in your evaluation.

Step 1 of 5:

Note the top 10 list of competitors that you believe exist for your business. Look at:

• Businesses that are very similar to yours in your area (or on the Internet)
• Businesses that offer alternatives to your type of services (a business selling lawn mowers is an alternative to a business offering to mow your lawn)
• Businesses that compete for the same set of dollars (say lunch money, or entertainment money or educational money and so forth)
• Businesses in your industry

Step 2 of 5:

Pick the top 3 competitors overall (the best of the best) for your analysis. Limiting yourself to the best will give you the time to thoroughly analyze them without being distracted by techniques of less effective businesses. There will be time to analyze other businesses later, when you have gleaned all that you can from the top 3.

Step 3 of 5:

For each competitor, note

• What are the factors that are pulling in sales?
  • Brand Name?
  • Money back guarantee?
  • Meeting an actual need or creating an image of desirability?
  • Customer service?
  • Low Price?
  • Web Presence?
• Observe & Record
  • What allows them to turn a profit?
    • Low cost of material?
    • Technology to reduce cost of labor?
    • Larger Order sizes from suppliers?
    • Superior management of existing resources?
• What is their unique value proposition (or unique selling proposition)
  • What identifies them as singularly distinct from other competitors? Why would you do business with them

Step 4 of 5:

For each competitor, further

• Note how the store, office, web-site or primary method of contact (mail, telephone) is organized?
  • Is it focused around a single objective?
  • Does it offer any negatives along the order process? (i.e. any negative surprises? Eg. By the way, you have to pay $20 more for this service- which was not shown before)
  • Does it seem like they are trying too hard to sell?
  • Does the primary contact method inspire confidence in the business

Make a purchase and record your experience along the process. Using a competitor's services is among the best ways to know about how they operate.

Step 5 of 5:

Monitor each competitor's actions over time. Record how they react to seasonality,

• to sudden changes in buying and selling climate, and
• to changes in the economy.

Watching their ability to adapt will give you a sense of the tactics and strategies you need to have in place before your business can be a long term success.

Watching the three best companies in your industry will give you the time to really see how they operate and will allow you to pick some of their best ideas and incorporate them into your own plans. Success in business requires patience and observation, so you must fight the tendency to act too quickly. At the same time, once a decision has been made, you must be able to execute rapidly on it. Opportunity will knock, be patient and ready for it.

Competitive Analysis will then finally allow you to develop your own unique selling proposition (or unique value proposition) so that you may position yourself as distinct from the competition.