No business is an island. Competitive analysis is vital to the success of your small business. If you’re not able to read the competition, a lot of doors start closing. How can you find a niche, craft a strategy, compete on a global scale, or even understand your customers without understanding your competition?
The purpose of competitive analysis is to understand what makes your product or brand unique. Once you confirm that you’re meeting the needs of your target audience, competitive analysis will help you determine how to communicate with customers to get the message across. Achieving product-market fit is great and necessary, but you need to be able to say thing right things to get your customer to make a decision. That requires research.
In order to help you know yourself and know your competition, we’ll be covering both SWOT Analysis and Competitive Analysis. Today’s article was inspired partly by this one on Entrepreneur.com, which I used to help give this article shape and form.
Here is an outline of the topics we’ll go over:
Know Yourself: SWOT Analysis
Know Your Competition: Competitive Analysis
- Who are your competitors?
- What do your competitors sell?
- How much market share does each competitor hold?
- Don’t forget about substitutes!
- What are your competitors’ past strategies?
- What are your competitors’ current strategies?
- Which media are they using for marketing?
- What are each competitor’s strengths and weaknesses?
- What are their niches?
- Revisit your opportunities and threats.
Know Yourself: SWOT Analysis
What’s a SWOT Analysis?
Dating back to the 1960s, the SWOT Analysis technique has become a mainstay in strategic business planning. SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. It’s laid out in a two-by-two grid, shown below, and it helps you identify positive and negative considerations that lie both inside and outside your business.
At first glance, it may seem strange to start a discussion about competitive analysis with SWOT Analysis, which is inwardly focused. The simple fact is that it is difficult to know which competitors are even worth analyzing until you know where your small business stands. A SWOT Analysis is another way to analyze your own niche and identify areas for further investigation.
In the upper left quadrant, you list strengths. These are characteristics of your business that are uniquely beneficial. These are as diverse as businesses themselves, but let’s go over a few examples.
Your small business’s strengths could include uniquely competent staff, a great location, or efficient equipment. You could have financial resources such as grants or passive income. The processes your business uses may be uniquely cost-effective or productive. Die-hard fans could be backing you up no matter what. Your company may even have past experiences that provide unique institutional knowledge that no one else can replicate.
In the upper right quadrant, you list weaknesses. These are qualities of your business that will leave you at a disadvantage if left unchecked. Oftentimes, these are the flipside of the strengths.
Weaknesses include poor hires or a bad location. You may be tight on money right now, and not have any to spare for capital investment. You may be working with inefficient processes. The company you’re running may even have a bad reputation, who knows?
The bottom left quadrant of every SWOT Analysis is for opportunities – elements in the environment that your business can take advantage of. Opportunities are external to your business, usually stemming from your community or society at large. Some opportunities are open to all who are in your line of business, and some are uniquely yours to capitalize on.
Business opportunities are like buses, there’s always another one coming. Sometimes opportunities happen on a massive scale. The culture can change to where your entire industry becomes more popular. Alternatively, your niche itself might be more popular. The economy – local or national – may be booming and that gives people more disposable income. You may be able to access new funding sources.
Your target market may be growing larger because of changes in society’s age, race, and gender makeup. Likewise, your part of town could be in the middle of revitalization. You might stand to benefit from some loosened regulations around the products or services you provide. Indeed, you may even be able to pivot into creating another product entirely!
In the bottom right quadrant, write down threats. These are qualities of the environment that could create trouble for your business. Similarly to opportunities, threats are external to your business and come from your community or society at large. They may affect all who are in your industry, or you alone.
Threats often look like opportunities in reverse. For example, the culture of our world is changing in such a way where I wouldn’t want to run an oil or coal company right now. If the economy is headed for a recession, you’re probably going to feel it. Funding sources may dry up. Your target market may be aging, forcing you to lose sales or attract young people.
If your business is located in a struggling part of the country or the town, your business will likely suffer. If you’re a farmer and the river runs dry, you won’t be selling many crops. Likewise, new regulations might make your job harder. Changes occurring with your suppliers or service providers can also threaten your business. For example, every time Facebook changes their rules, social media marketers have to adapt.
Know Your Competition: Competitive Analysis
Who are your competitors?
At the beginning of any good competitive analysis, you need to list several competitors. Get out a piece of paper and start writing. Once you are no longer able to recall competitors, start looking them up on Google and Amazon and see who shows up at the top.
If you’re starting up a business for the first time, you don’t want to just focus on the biggest companies out there. If you’re making some kind of unique soft drink, then sure, you’re competing with Coca-Cola and Pepsi. However, your most pressing competition is probably indie soft drink companies that appeal to early adopters in that industry.
That’s why, when looking at competitors, I like to sort them into five categories:
- Giants – These are the big companies that run the industry. When people think of your industry, they think of these companies.
- Semi-Giants – There are many companies that are nowhere near the size of large organizations, but they nevertheless do very well among indie / early adopters in a certain niche. A good example of this would be Stonemaier Games. The biggest board game companies are ones like Hasbro and Wizards of the Coast, but this particular company has regularly been able to make millions of dollars in revenue with each release in an industry where many struggle to make $20,000 per product.
- Peers – This is exactly what it sounds like: organizations roughly the same size as yours.
- Hopefuls – These are companies that are trying to get started but haven’t released anything yet. Particularly, these are ones that look like they have a really good chance.
- Misfires – These are the companies that try, fail, and close. Pay attention to them, too. You won’t have to compete with a failed business, but you want to make sure you don’t repeat their mistakes.
What do your competitors sell?
When performing a competitive analysis, the next thing you will need to consider is your competitors’ products and services. Think about specifically what they sell. You’ll want to list out their products and services, and describe them while doing so. Make sure to make a note of which niche they are marketing to.
Having a list of what your competitors sell is handy in its own right. However, if you want to really perform a thorough competitive analysis, you need to go one step deeper. What needs are they meeting and which emotions are they catering to? What specific consumer behavior are they trying to evoke and how are they hoping consumers arrive at decisions?
When you start thinking on that level, consider whether their methods work or not. Are they successful in meeting emotional needs and convincing customers to make decisions? Are they meeting the same needs you’re trying to meet? If so, what makes your business different?
How much market share does each competitor hold?
It’s never a bad idea to figure out who’s the top dog in your business. You’ll clearly want to know who the biggest power players are and write down their market share, even if it’s only an approximation. At this point, be sure to revisit the five category model I’d listed above. You don’t just want to think about the top dogs. You need to consider the people operating at, slightly above, and below your level too.
The purpose of analyzing market share, especially when you’re just starting a small business, is to find an angle in. If you’re not sure exactly how to do that, find a semi-giant company that you can imagine turning yours into within a few years. Analyze their processes and mix that with a niche that you believe is currently unserved.
Don’t forget about substitutes!
When performing competitive analysis, it’s easy to commit the fallacy of believing only people who sell products or services like yours are your competition. Substitutes can be a real threat, too. Competition is based on market needs for a given demographic. Customers don’t care about products, they care about meeting needs through whatever means is most convenient. You might sell the highest quality cassette tapes in the land, but they’re not going to make me cancel my Spotify subscription!
What are your competitors’ past strategies?
When researching your competitors, make sure you look into their old marketing strategies. Consider how they were pitching themselves ten years ago, five years ago, or even a year ago. Once you figure out what has worked in the past, that leaves you with three distinct advantages.
First, once you know what used to work in your niche, you will have an increased understanding of the context and history of the business you’re in. That can tell you how some long-time customers formed their current beliefs. This can help you to understand schisms in the community you’re catering to.
Second, you have a chance to contrast what is currently working with what used to work. You can map out how needs have changed over time. By watching how strategies change to meet needs, you can potentially predict what customers will need in the future.
Last and most importantly, bigger companies change slowly. There are risks as well as organizational factors that prevent large companies from turning on a dime. Your small business is likely different. You have the opportunity to try a new marketing strategy while everyone else is sleeping!
What are your competitors’ current strategies?
Marketing is a fluid, dynamic discipline. It’s always changing. That’s why you want to pay attention to the marketing strategies your competition are currently using. This is one of the most important parts of competitive analysis. You can copy what works for others while dropping what doesn’t. Sometimes, there is no need to recreate the wheel.
When you see marketing strategies work for your competitors, ask yourself “why?” Which consumer needs are being addressed? How is this being communicated to customers? Analyze not only success and the degree to which your competitors achieve success. Analyze the reasons as well, and this will allow you to see which way the market is headed.
Which media are they using for marketing?
Naturally, marketers need to become adept in various forms of media. Consider online and offline media. Are your competitors using TV, billboards, and newspapers? Are they using Facebook, Twitter, Instagram, Snapchat, Periscope, and LinkedIn? Do some analysis to see where your competition has currently set up shop.
Once you figure out where your competition has established a presence, consider which media appear to be working. If your competitors have especially great engagement on Twitter, it’s worth asking why that may be the case. Which needs are each media channel addressing for customers? Which messages are resonating with your competitors’ audiences and why?
What are each competitor’s strengths and weaknesses?
Having completed your own SWOT Analysis, consider doing a partial one for your competitors too. All the research you have done so far by answering the questions above and thinking deeply about the underlying reasons should help a lot. How does your company compare to your competitors?
What are their niches?
Last but not least, it’s important to figure out exactly which niche your competitors are serving. The best way I know to do this is to become a customer yourself. This will allow you to see which specific needs they are meeting. You can analyze their strengths and weakness up close and look for opportunities for yourself.
Scanning your competitors’ media is a good way to analyze them, but you should take one step deeper if you really want to understand their niche. Try the following:
- Get on their mailing list.
- Follow their blog and social media.
- Browse their store – look for product recommendations.
- Buy something from them.
- Pay attention to the postpurchase experience.
Revisit your opportunities and threats.
Now that you’ve sized up your competition, revisit your own SWOT Analysis. You have likely uncovered new threats and opportunities that are worth listing.
Competitive analysis is an important part of seeing where your business fits in. By paying attention to what your competitors are doing, you can learn about your customers and find a unique way to serve their needs.
Who’s your biggest competitor? What are they doing right and wrong? Let me know in the comments below, I’d love to hear from you 🙂