100 CHAPTER 5 KNOW THE WORLD
The industry – what you are up against
Having considered your product, customers and target market, the next step is to take a
look at the industry in which you operate. This is the sum total of all sellers of the prod-
ucts – in other words, it is your competitors.
YOUR COMPETITORS
You and readers of your plan must understand what you are up against. You need to iden-
tify the major companies operating in your market sector, then assess their products and
services, pricing policies, market share, profitability and strategies. Sounds difficult? In
fact, you probably have a much better knowledge of this than you think.
In some cases most of this information is readily available. In others you can compile
it from sources such as those described above. The easiest competitors to describe are
those in existence today. Do not forget to assess the likelihood that other companies
might be planning to enter your market sector. There is also a growing possibility that
corporations from other regions or countries will enter your territory. You might touch on
this here, but you will also want to include it in the risk analysis.
If you find that there are many companies operating in your defined industry, you
might want to categorise your competitors. You need to find strategic categories, where
all the members will behave similarly or be affected in the same way by certain events.
Size is usually a good characteristic. A given sales situation might be too big for small
companies and too tiny for big companies. If you are competing in the middle group,
you have narrowed the competition for this particular opportunity. The box below shows
some characteristics that differentiate companies.
You don’t buy a Rolex to tell the time
The chairman of Rolex, when asked about the state of the watch business, replied
that he had no idea. He defined correctly that he was not a watchmaker, he was in
the luxury business. A classic example of getting it wrong is US railroad operators.
In the mid-1900s they thought that they were in the railway business. They failed
to notice that they were in the transport business, competing against airlines and
highways – and have never recovered from that fatal error.
You need to look very carefully at your business from your perspective and
from that of your customers. Make sure that you do not omit key competitors
from your analysis.
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THE INDUSTRY – WHAT YOU ARE UP AGAINST 101
For your business plan, you need to summarise your assessment of the industry, and
include a table listing your competitors and their market shares (see example in Figure 5.4
on page 106).
Government bodies and industry associations frequently publish estimates of total
sales in specific markets. You can work back from these or make estimates using similar
techniques to those described above. Figures published by your competitors – look in
their annual reports and press commentary – often reveal their own estimates of market
shares or give sales figures that enable you to deduce the proportions.
Indicate the reliability of the estimates. If you have to make educated guesses, say so.
There is no ignominy. This information can be hard to come by, and if you have been
studying it you ought to know about it more than most people.
Trends are important – look for technological developments that will lower costs and
increase demand, the availability of substitute products or services, changing patterns of
consumption, and so on. Remember to keep a note of opportunities and threats that you
uncover when reviewing competitors.
‘He gains wisdom in a happy way, who gains it by another’s experience.’
PLAUTUS
Ten questions to help you pigeon-hole your competitors
1 On what size sale do they focus?
2 On what market segments do they concentrate?
3 Are they market-led or product-driven?
4 Are they developing their own products or licensing from others?
5 Are they manufacturing or just re-selling?
6 Are they focused on price or product features?
7 Are they diversified or in single industries?
8 Are their products from specific generations of technology?
9 Do they have specific branding or generic products?
10 Do they have full product lines or single products?
102 CHAPTER 5 KNOW THE WORLD
Eight steps to understanding your competitors
1 Define your business and identify the firms that compete against you.
2 Segment your competitors into strategic groups (see box on page 101).
3 Assess their capabilities – follow the advice in Chapter 4, page 78, on each of them.
4 Assess their market positioning – based on their target customers and pricing
policies.
5 Assess their strategies – look at their mission statements, products, pricing,
advertising, public statements and so on.
6 Form a view about how they will behave and react in the market place in the
future – based on all of the foregoing.
7 Write a couple of paragraphs about each major competitor.
8 Keep this up to date.
Out of nowhere
Watch out for new competitors. The following are some of the trenches from which
they will suddenly emerge.
Other geographical areas – a competitor moving in from another
geographical area, often overseas, can take you totally by surprise.
Other product markets – a competitor with a completely different product
line might decide to use its technology or marketing skills, brand image or
some other competitive advantage to enter your market. Remember also
the example about the railroads waking up to find that they were fighting
against airlines – competitors might enter your market with a seemingly
totally different product.
Integration – customers or their suppliers sometimes decide that they can
do what you do, but better.
Corporate expansion – watch out for small companies that suddenly grow
very large because they have had an injection of funds (possibly as a result
of writing a business plan just like yours) from bankers or corporate mergers
and acquisitions.
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