Now that we have detailed what we will sell and who we will sell it to, it is time to determine how competitive we will be. In order to do that, we need to understand our competition. Have you ever dreamed of being a private investigator? While we may not be that secret, we will be conducting surveillance. First, let’s outline our mission. What do we want to know? In short, we want to learn as much about our competitors as we can legally obtain. We want to understand their complete line of products and services and how they overlap with ours. We want to know their target customers and what their customers think of them. Research their pricing models and any other information you can obtain legally such as their suppliers, costs, sales, etc. How do you get this information? Here are a few suggestions:
- Employee – If you have the time and patience, go work for them. Learn the inner workings of the business. This not only helps you learn the business, it validates (or invalidates) your desire to open such a business. Don’t be dishonest, let them know that you have ambitions of being them some day.
- Secret shopper – Become a customer. Ask about their services, warranties, return policies, pricing, etc.
- Not-so-direct competitors – Call a business owner in a market you don’t plan to cover (e.g., another city or country). Explain that you have heard great things about their business and you want to learn how they succeeded and what challenges they faced during their startup. Never underestimate the power of an ego. While you may have to call a few before finding someone who is willing to share, you will be surprised how much people love to talk about their success!
Finally, you need to identify ways your products and/or services are different from your competition. This is the most important part of this exercise and it is essential that you are honest with yourself. In this stage, you should remove yourself from your window and be looking out the window of your customer. During this exercise, you should avoid differentiators such as better, faster, and/or cheaper. Have you ever heard your competition advertise that they are poorer quality, slower and/or more expensive? Those are not differentiators. Use your buyer persona created in the previous blog and identify how your products and/or services uniquely address their problems. Use a brainstorming process to get several ideas on the table and then validate them one-by-one, keeping only those that pass the test and are truly important to the buyer persona. Validate with impartial parties also. Impartial means don’t ask friends or family. Conduct some random surveys by stopping people in the mall, post a survey to your web site, send out email surveys, etc. Do some test marketing. A really true indicator of success is someone willing to spend their money on your idea!
Now that you have thoroughly defined your products and/or services, developed your customer profile / buyer persona, conducted your competitor analysis and documented your differentiators, you are ready for the test.
Do you have enough market capacity to be profitable? Are their enough customers for your products and/or services in your buyer persona to be profitable?
Are your differentiators so appealing to your buyer persona that you can steal enough customers from your competition to be profitable?
If the answers to these questions are YES, you are ready to move on to your marketing strategy. If not, revise your idea until the answers are YES! The process looks like this: