Competitive Analysis in Entrepreneurship

Competition in Business

Understanding the Competitive Landscape

  • In business, unlike games, there isn't usually just one winner; monopolies are rare.
  • Entrepreneurs need to assess their competitive position by observing competitors' actions.

Learning from Competitors

  • Entrepreneurs should act like scientists, observing their environment, including competitors, to refine their business ideas.
  • Competitors reveal market standards, potential customers, and market gaps.
  • Analyzing competitors isn't about unethical tactics but about improving one's own business.
  • Competitors can drive innovation.

Market Standards

  • Note competitors' pricing, marketing, and supplier relationships to understand industry standards.
  • Avoid directly copying but use information to inform decisions.
  • Pricing should be sufficient to sustain the business.
  • Monitor competitors for signs of economic changes (price cuts, new products, rebranding).

Identifying Potential Customers

  • Examine competitors' marketing and customer reviews to identify key demographics.
  • Gather direct information by visiting non-competing businesses in other areas.

Finding Gaps in the Market

  • Identify unmet needs or problems customers have with existing options.
  • Offer something unique and valuable to differentiate your product.

Direct vs. Indirect Competition

  • Direct competition: Similar products/services to the same customers (e.g., bookstores, Amazon).
  • Indirect competition: Different products/services to the same customer base (e.g., bookstores vs. movies).

Porter's 5 Forces

  • Michael Porter's framework assesses business competitiveness based on five factors. The lower these are, the better.
  • Supplier Power: How easily suppliers can raise prices.
    • High if few suppliers, rare product, large supplier, or expensive switching costs.
  • Buyer Power: Ability to control prices by attracting buyers.
    • High if few buyers, each buyer is important, or low switching costs for buyers.
  • Threat of Substitution: Availability of close alternatives.
    • High if customers can easily switch to alternatives.
  • Threat of New Entrants: Ease of new competitors entering the market.
    • High if there are no barriers like patents, regulations, or high startup costs.
  • Competitive Rivalry: Number and intensity of competitors.
    • High if slow industry growth, high exit barriers, high fixed costs, or aggressive competitors.

Applying Porter's 5 Forces (Rent-A-Swag Example)

  • Supplier Power: Low (Tom owns merchandise).
  • Buyer Power: Low (many interested kids, low rental fees).
  • Threat of Substitution: Low (rentals cheaper than buying).
  • Threat of New Entry: High (low barriers to entry).
  • Competitive Rivalry: Could be high (if rivals emerge).

Conclusion

  • Gather information from the competition to make informed decisions.
  • In business, multiple winners can exist.