Every business plan includes a competitive analysis: Analyzing your competition -- both current and potential -- to understand their strengths and weaknesses, their market share, their marketing strategies, and their target customers.
But don't stop there. View the competition as a tool you can use to improve your startup. It'll tell you what you shouldn't do, what you should do, and most importantly, what you can improve.
After all, your idea for a startup is only a great idea when it significantly improves on a currently available solution. Not just slightly improved, though-- massively improve. Much faster. Much better. Much cheaper. Much more reliable.
If your solution isn't significantly better, why should customers switch to you? Why should customers entering the market choose you?
Which makes it sound like the competitive analysis should come before developing a product or service, since knowing the competition will help inform what you create.
But it doesn't have to.
My idea for LogoMix came from the simple realization that building a brand is difficult. Creating a logo is one of the first steps in building a small business brand, but for most entrepreneurs, and especially first-time entrepreneurs, the process seemed daunting.
That was the idea: Make it easy and inexpensive for small business owners to create a brand identity.
I could have then researched the market and the competition to determine their strengths and weaknesses. Instead, I worked to build a product that would actually benefit customers: I started LogoMix at my dining room table as a side project, working on it before and after work and on weekends.
Then I had something real I could compare to the competition: What it did, how it worked, how I would market it, how much it would cost. which let me turn what could have been a largely theoretical exercise into a real-world, side-by-side comparison of my product (however minimally viable) and the competition's product.
And whenever possible, so should you. In order to understand your competition:
1. First, evaluate your own business (or idea, or minimal viable product).
What problem do you actually solve? What customer need do you actually meet? Who are those customers? How will you reach them?
It's impossible to compare unless you have something to compare to.
2. Determine who actually solves the problem you will solve.
With LogoMix, plenty of companies provided logos, branded products, and marketing materials. But none of them made the process easy and inexpensive.
That may also be the case for your startup. But you may find a few competitors that do solve the problem you solve.
3. Look beyond "cheaper."
It's easy to assume your competitive advantage will be price. If you've truly found a much more efficient way to deliver a product or service-- great. But rarely will an incrementally lower price entice customers to switch, especially if a product or service is in any way considered a commodity.
Customers will pay a higher price for greater value. Customers will buy more when the cost is reasonable and the value is high. In most cases, your goal isn't to be the low-cost provider; your goal is to provide the greatest value for the price.
Which means ensuring that you provide much greater value -- quality, service, efficiency, ease of use, etc. -- than your competition.
Customers will buy your product once if the price is great. But customers will buy your product over and over again if the value is great.
4. Know their customers, because someday they will be your customers.
Spend time getting feedback from your competition's customers: Review sites, user forums, etc. See what customers like. See what customers don't like. Use that data to help you decide what you should copy and more importantly, what you can improve.
While you won't incorporate every complaint or suggestion, you will gain a better understanding of the problems potential customers hope you solve.
Because every business starts, and ends, with its customers.