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Bankruptcy InformationIn Business Planning, Competition is Good
by:
Dave Lavinsky
Once
developing the competition section of your business plan, companies must define competition correctly, choice the appropriate competitors to analyze, and explain its competitive advantages.
To start, companies must align their definition of competition with investors. Investors define competition as any service or product that a client can use to fulfill the same need(s) as the institution fulfills. This includes firms that offer similar products, substitute products and another client options (such as acting the service or building the product themselves). Under this broad definition, any business plan that claims there are no competitors greatly undermines the credibleness of the management team.
In distinguishing competitors, companies often find themselves in a difficult position. On one hand, they want to show that they are unique (even under the investors’ broad definition) and list no or few competitors. However, this has a negative connotation. If no or few companies are in a market space, it implies that there may not be a large enough client need to keep the company’s products and/or services.
Business plans must detail direct and, once
applicable, indirect competitors. Direct competitors are those that serve the same target market with similar products and services. Indirect competitors are those that serve the same target market with some products and services, or a some target market with similar products and services.
After distinguishing competitors, the business plan must describe them. In doing so, the plan must besides objectively analyze each competitor’s strengths and weaknesses and the key drivers of competitive differentiation in the marketplace.
Perhaps most importantly, the competition section must describe the company’s competitive advantages over the another firms, and ideally how the company’s business model creates barriers to entry. “Barriers to entry” are reasons why customers wish not leave once acquired.
In summary, too galore business plans want to show how unique their venture is and, as such, list no or few competitors. However, this often has a negative connotation. If no or few companies are in a market space, it implies that there may not be a large enough client need to keep the venture's products and/or services. In fact, once
positioned properly, including booming and/or public companies in a competitive space can be a positive sign since it implies that the market size is big. It besides gives investors the assurance that if management executes well, the venture has substantial profit and liquidity potential.
Just about the author:
GT Business Plans has developed over 200 business plans for clients that have jointly raised over $750 million in financing, launched many
new product and service lines and gained competitive advantage and market share. GT Business Plans is the sister site of GT Venture Capital
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