Analysis of a competition is one of the key parts of any business plan. There are many who start as well as an end by saying,“We do not have competitors”. The investors make two meanings out of it, 1) your product has no market, or 2) you don’t have an understanding of competition and business.
Looking back in 1979, a Five Forces framework was proposed by Micheal E. Porter, fro analyzing the environment of competition which makes a lot of sense nowadays. It is important to size the products and services according to these five dimensions or forces.
The intensity of Competetive Rivalry: Most current business plans focuses on this dimension. These plans list a few important competitors in that area, compare quality considerations, feature richness, and pricing. This is only the beginning and is also an important first step.
The Threat of other Competitors Entry: There are startups that target growing and profitable markets with the high return should realize these may cause new entrants. It will decrease the profitability with time, as well as check your competitive advantage. Now, this leads to sunk costs, switching costs, brand equity, and the host of many other considerations, usually known as, “barriers to entering”.
The utility of Alternative Solutions: Of course, you are not the single alternative, hopefully, you are the best in utility, satisfaction, and price. If your vehicle costs too much, then people take the bus. At a level of function, price performance, and availability, customers will jump far away from you. Such elements are known as “barriers to exit”.
Bargaining Power of Customers: Bargaining power is the degree to which customers put your company under strong pressure, or leverage delivery, prices, quality (market of output), and features. The key is the advantage of alternatives. More competitors and small differentials give the customers high leverage.
Bargaining Power of Suppliers: The suppliers of raw material, labor, components, and services can be a powerful source of the ability to compete. You also need to find substitute inputs, employee solidarity, and supplier concentrations, which can limit you and give you the benefit.
Some years ago, Andrew Grove proposed another force in the marketplace, government, pressure group, and the public. This one adds the new concept of compliments, and also lead to the growth of partners. This causes the strategic alliance to level the competitive environment.
All these forces combine to make the mini-environment of a company, that affect the ability to serve the customers and gain profit. If any of them changes, you should have a clue to re-assess your marketplace. Startups need to consider all the core competencies, network, and business model, which are the core factors that allow your business to maintain a competitive advantage.
Try not to list the competitors, with their head start and advantages. This is an opportunity to emphasize and highlight the main advantages, whether they are the features, price, bargaining power, or the forces highlighted above.
On the other hand, the stake for startups is more than that for enterprises because they have different financial capital of their rivals. With the thorough understanding of at what position the power exist, you can take the benefits of strength position, avoid stepping into the pack of wolves and improve the situation of weakness.