Steps
to evaluating your Business Idea
Whether
you want to start an online or offline business,
the first thing you need to do is find out
whether your product or service will sell.
The first step to finding that out is to research
the supply and demand of the market. Ideally
you want a product or service with high demand
and low competition. There are many resources
with which you can accomplish that. But, before
we get to that, always remember that a business
idea is NOT a business opportunity until you
go through the evaluation procedure and judge
it to be feasible.
All
successful business start-ups begin with the
customer and the market in mind. Careful analysis
needs to be done to determine the industry
issues. What are the structure, size, growth
rate and capacity of the market you have targeted?
From a financial standpoint you need to look
at what market share you need to reach to
be profitable. You must develop a pricing
strategy. Budget for your opening and operating
costs to determine how long it will take to
breakeven.
Just as important, analyze any barriers that
may hinder your entry into the market.
To
help you do the above follow these suggestions:
• Consider the advantages/benefits of
your idea. Do they meet a need?
• Will your idea solve a specific problem
your proposed customer may have?
• Is your idea original, an improvement
on or a new combination of services or products?
• Who and what is your competition?
What do they offer? How do you compare?
• Make sure you market test your product
or service. Produce samples and ask for feedback.
Listen to your customers.
• Project your short, intermediate and
long range goals. What will your return-on-investment
be?
• I your pricing structure such that
customers can afford to buy it? What is the
lifecycle of the product or service?
• Have you given any consideration to
a customer service policy?
As
you can see there are many factors that come
into play when you are considering a new business
proposal or idea. The bulk of what is covered
here would be included in your business plan
and accompanying marketing plan. Both of which
are crucial to your success.
In
summary.
It
is not only customers, but competitors as
well, that will determine the success or failure
of your new business idea.
Securing
customers in today’s cluttered marketplace
is difficult and requires creativity and plenty
of hard work. Identifying your customer base
and attracting them to be potential customers
is first and foremost. As I mentioned earlier
there is a wealth of information available
on the Internet, albeit mostly theoretical,
but with persistence and common sense you
can develop a plan. The mere fact there is
competition in your chosen market means there
is a market for your product or service.
Douglas
Mackie
February 25, 2007
|
Keep
in mind the old axiom “People
don’t plan to fail. They fail
to
plan.”
|
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Free
Business Start-up
Guide
Starting
a business is one of the those life-altering
decisions because you are going to be living
it 24 hours a day, 365 days a year. And, like
any relationship, if you are to be successful,
you are going to have to work at it. You can
count on it having its share of ups and downs
and surprises. You must be certain that starting
a business is right for you.
This
guide, written in everyday language, will
lead you through the various steps and procedures
it takes to prepare a proper plan for your
business to prosper. It is formatted in a
workbook style where, after reading the informative
text, you are required to fill in the worksheets
to get a feel for the direction your individual
situation will lead. While some parts may
seem repetitious, they are designed to show
you how all the parts of the equation mesh
togrther.
Individual
segments cover the following subjects:
AM
I AN ENTREPRENEUR * EVALUATING
YOUR BUSINESS IDEA
BUSINESS
STRUCTURE CHOICES * ANALYZING THE MARKET
COMPETITIVE
ANALYSIS * RESEARCHING YOUR MARKET
FEASIBILITY
STUDY * ADVERTISING & PROMOTION
MARKETING
PLAN & STRATEGY * MANAGEMENT & SALES
WRITING
A BUSINESS PLAN
AS
A VALUED VISITOR TO OUR WEBSITE PLEASE DOWNLOAD
A FREE COPY
OF THE START-UP BUSINESS GUIDE
Start
Up Business Guide PDF
Competitive Analysis - no company exists in a vacuum online.
Knowing who your competitors are, as well as their strengths and weaknesses is an essential part of assessing the market for your product for your product or service. Most businesses have direct and indirect competitors.
What is competitive analysis?
A competitive analysis is a formal evaluation in which you review the businesses of one or more companies that compete, directly or indirectly, with your own.
Online, competitors have access to each other's company information and marketing materials that they might not be able to gather as easily in the offline world. This allows for even greater opportunities to benefit from competitive analysis data.
But how can companies improve by analyzing their competitors? And what is the best way to implement a thorough competitive analysis?
For a business to succeed, you need to know almost as much about your competitors as you do about your own company and customers. Unfortunately most business owners make the mistake of waiting until a competitor opens up shop across the street and is cutting into profits to find out who and what they are up against.
A Competitive analysis allows you to identify your competitors and evaluate their respective strengths and weaknesses. By knowing the actions of your competitors, you will have a better understanding of what products and services you should offer; how you can market them effectively; and how you can position your business.
Competitive analysis is an ongoing process. You should always be gathering information about your competitors. Look at their Web sites. Read their product literature and brochures. Get your hands on their products. See how they present themselves at trade shows. Read about them in your industry’s trade publications. Talk to your customers to see hoe they feel about competitive products or services.
What are the benefits of conducting a competitive analysis?
The benefits of conducting a competitive analysis include:
- You will identify WHO you are competing against. You will be able to assess the threat levels presented by other companies in your market.
- You will identify your own weaknesses. Companies who do not pay attention to their competitors may not understand just what they are doing wrong because they have no frame of reference. Studying your competitors offers you a perfect opportunity to find out how you can better serve your customers.
- Once you've identified those weaknesses, you'll be able to improve your business in a number of ways. The order in which those improvements should be implemented will often be dictated by the analyses of your competitors. For example, if all of the other companies sharing your target market have a certain feature considered essential to that market, this will be one of the first things you will want to remedy.
- You will also identify your strengths. By comparing your own online presence to those of your direct competitors, you will discover what sets your business apart from theirs. These qualities can then be emphasized in your marketing efforts.
- Additionally, you will be able to identify or confirm your Unique Value Proposition (UVP). Your UVP is the single most important element of your business that sets you apart from your competitors. Do you have the largest catalog of products? The lowest prices? The (quantifiably) best customer service? Competitive analysis will help you develop your UVP and test the validity of the claims you make about your business.
- You will be able to determine what factors drive success in your market space. These may vary greatly from market to market, and may not be what you originally expected
You will identify what specific actions you need to take in order to improve your competitive position.
Identify your competition
Every business has competitors; you need to find out who your customers can approach to get a product or service that fills the same need as yours does. Even if your product or service is truly innovative, you need to look at what else your customers would purchase.
Begin looking at your primary competitors. These are the market leaders, the companies who currently dominate your market.
Next, look at your secondary and indirect competitors. These are the businesses who may not go head-to-head with you, but who are targeting the same general market.
Finally, look at potential competitors. These are companies who might be moving into your market and who need to prepare to compete against.
Analyze strengths and weaknesses
After you have figured out who your competitors are, determine their strengths and find out what their vulnerabilities are. Why do customers buy from them? Is it price? Value? Service? Convenience? Reputation? Focus on as many “perceived” strengths and weaknesses as you do on actual ones.
Tabulate the strengths and weaknesses in a table format (template attached). This will allow you to see, at a glance, where each competitor stands.
Look at opportunities and threats
Strengths and weaknesses are often factors that are under a company’s control. But when you’re looking at your competition, you also need to examine how well prepared they are to deal with factors outside their control. These are called opportunities and threats.
Opportunities and threats fall into a wide range of categories, such as technology, regulatory and economic.
You should consider the following guidelines when conducting competitive analyses.
- Utilize a multitude of resources to identify your competitors. Who else is bidding on your PPC terms? What sites come up as natural search results for your terms? Check trade association memberships and business registries. Use your referrer data to identify what sites your visitors are coming from. Don't overlook word-of-mouth information from your customers and investors
These sources should yield a number of direct and indirect competitors. Narrow the scope of your analysis if necessary, but the most effective competitive analysis will compare at least three to five leading companies in your market.
- Identify key success factors (KSFs) for your industry and rate yourself and others on each of them. One useful tool is the "strategic group map", which is part of a supporting Word document available for download
http://www.meclabs.com/CompetitiveAnalysisSupplement.doc
- Identify the competitive strengths of each company in the analysis, including your own. What makes each company unique? Do they own patents or copyrights that give them a competitive edge? Is there a dominant company with market share at or near "critical mass" level?
- Identify the revenue models of your competitors. How do your competitors make money? Are you overlooking potential sources of revenue?
- Do your competitors utilize partnerships, outsourcing, or other strategic relationships? Could your own company benefit from such relationships?
- KEY POINT: In the course of your analyses, make note of unique or creative elements or approaches your competitors may use. Often, the greatest insights will come from where your competitors depart from convention.
- Utilize search engines to discover the sources of your competitors' incoming links. These sites may be potential link partners for you as well. For more on linking strategies, see our research brief on that topic:
http://meclabs.com/cgi-bin/pl/pl.cgi?mls
- If practical, make purchases from your competitors. How is their customer service? Are they utilizing drop-shipping or other forms of outsourcing? What can you learn from watching how they do business?
- Monitor your competitors over time. Sign up for their email lists and analyze their marketing messages. How strong are your competitors' brands?
- Analyze your competitors' Google, Overture, and other PPC ads. Knowing the best keywords for your market, it shouldn't be hard to locate your competitors' ads. These may give you ideas about how to modify your own campaigns.
- Analyze your competitors' ratings and rankings on a number of platforms, including Google PageRank, Alexa, BizRate, comparison engines, and incoming links from other websites. The following spreadsheet may be useful in helping you track this analysis:
http://www.meclabs.com/CompetitiveAnalysis.xls
Once you have compiled this data, you should be able to use it to gauge the effectiveness of your competitors' marketing efforts compared to your own.
- Depending on entry and exit barriers for your industry, your competitive environment will change over time. Competitors will enter and leave and the most resilient among them will learn and evolve. Continue to analyze your competitors as time progresses. Consider performing a competitive analysis update on an annual or semi-annual basis
No company exists in a vacuum online. If you ignore your competition, you will lose the opportunity to discover your own strengths and weaknesses. Effective competitive analysis gives you the information you need to "remove the blinders" and see your company as your customers and investors do, and to tune your marketing and business strategies for success.
Douglas Mackie - Consultant and Business Planner
