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An idea for a new business is exciting. It's also a nerve-wracking journey you need to be prepared for. You need to be sure the idea is a good one and that there's a market for it. There are also legal aspects to navigate, plus capital and funding considerations. Pulling it all together into a comprehensive business plan with set goals is a great way to bring the idea to life. Here you'll find articles, guides and tools to take you through the journey.
Once you have established that a market exists for your new product or service, the next step is to analyze your competitors. You’ll do this by identifying similar businesses in your market, evaluating their strengths and weaknesses, and looking for opportunities to exploit their weaknesses or negate their strengths.
The two primary questions you are trying to answer in this section of your business plan are:
There will always be competition, both direct and indirect, for the customer’s dollar, so it is vital that you study your competitors prior to starting your new business. The goal is to differentiate your product or service so that the customer will choose you over established competitors.
The first step is to identify your direct competitors. Direct competitors are businesses that sell a product or service that is comparable to your proposed new product. These are the businesses that you will be competing against immediately if you decide to go ahead and start your new business. If you are going to be successful in your new business venture, you are going to have to woo their customers to choose you over their current suppliers. At the very least, you will need to know the following about each of your competitors:
Even if you know your intended market reasonably well, be wary of assuming you know who all your direct competitors are. Not every successful business has a large shop frontage or a high market profile, and you’ll need to dig deep if you want to find out how many direct competitors are out there.
Once you know who they are, researching your direct competitors might be easier than you think. All businesses (even those that take a low-key approach) are in the business of self-promotion—it’s how they attract customers—so there’s usually plenty of freely available information about them and their products and services.
The following are possible sources of information about your competitors:
Once you have accumulated as much information on your competition as you can, it’s time to group them for a deeper understanding of the market. There are two primary ways to group your competitors:
Once you know what competitors offer, you can compare your similarities and differences to identify your points of difference and then develop these into a compelling competitive advantage. Many consumers avoid change, continuing with what’s familiar instead of taking a chance on the new option. Answer these two questions to brainstorm strategic ideas for wooing customers away from your competition.
These are two of the key questions lenders and investors are likely to ask you. What makes your business different?
If you’re concerned about taking on larger or well-established businesses, remember that being a small business can be a distinct advantage in itself. You’re often better placed to:
These seemingly simple differences can actually make a significant difference to the customer.
Here’s a list of potential angles for enticing customers over to your business:
Your strengths can give you a competitive advantage. For example, you might have excellent product or technical knowledge, or be very well networked and respected in your intended industry sector.
Look for ways to minimize your weaknesses. For example, you might be competing against a business with several locations nationwide. But could you expand the market reach of your single location through a website? If your competitor has greater purchasing power (getting products more cheaply), can you form an alliance with similar businesses in different towns or regions to gain more buying leverage?
Try to anticipate how your competitors will react to you encroaching on their territory once you start operating. Don’t be surprised if they try to push you out of the market before you’re even established.
Both change and competition are facts of life in the marketplace. However, small businesses can band together with physical proximity or promotions such as seasonal shopping days. A retail store can benefit from being next to a restaurant and vice versa, each contributing to the area’s overall foot traffic. In other cases, proximity can damage prospects. Imagine what would happen to your business if someone set up shop alongside you. Would this boost or damage your trade?
To be sustainable long term, you must be able to defend your business and reduce the effects of competitors encroaching on your market. If your business flourishes, what’s to stop other people copying your idea? Copycats can significantly damage the viability of your business, so use some straightforward and relatively inexpensive ways to protect your business even before you start trading.
Try to create barriers against your competitors that will make it harder for them to compete. For example, could you secure an exclusive operating license or an exclusive deal or distributorship?
Unless you’ve invented something, you may not think you have any intellectual property (IP) to protect. However, even your business name and logo have potential value as they might be the very thing that gets you recognized in the marketplace.
Your business name and logo become a brand in the marketplace from the day you start business. Take steps to protect them. Before you design your logo, stationery and signage, check that no one else is using your trading name. Can you imagine discovering after you’ve got all your stationery printed that there’s already an established business with the same or a confusingly similar name? How much would it cost to re-design and re-print everything?
These steps will help you to protect your business name before you start your new business.
If you have a totally new product or service, being ‘first to market’ may give you an initial advantage, but if it’s profitable, it’s quite likely that others will eventually try to adapt or copy your idea.
Depending on the level of commercial sensitivity surrounding your product or service, it may pay to talk to a specialist IP lawyer. This is particularly important if you plan to run sample tests in the market, and while this may seem an unnecessary expense at the moment, failing to protect your idea could be a lot more costly in the long term.
As with any legal protection, it can pay to talk to a specialist lawyer.
Another way to create barriers for your competitors is to avoid being distracted by what they do. After all, you’re going into business to do business with your customers, not your competitors. Aim to maintain your customer focus and provide excellent service.
Aim to get your positioning right from the start. Even though you might know where you want to position yourself in relation to other businesses in the marketplace, the consumer will ultimately decide where they think you fit. Still, your position isn’t entirely out of your control. Exert as much influence as you can.
If you’re aiming for the high-quality end of the market, but you present an image that’s inconsistent with this, it will be hard to persuade people differently once they’ve made up their minds.
If it’s not feasible for you to position yourself where you need to be, such as a higher tier in the market, you might want to stop and revise your idea or put it on hold until you can find additional funding.
You have completed your analysis of competitors, learned how to differentiate yourself from established businesses, and explored ways to protect your business from competition. Congratulations! You are now in a better position to gauge the market share you can reasonably expect to acquire.
The next step in developing your business plan is to determine the start-up cost for your new business. Read our next article in this series: "How do you project your start-up costs?"
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