Factor Competition in Your Business Planning
The most underestimated variable I see in most business plans is the impact of competition. It is as if there is a presumption that all your competitors will just sit still while you implement your plan. In real life they will do their own planning to frustrate your efforts.
One of the most glaring blunders I see in feasibility studies is the research on unmet market demand. What usually are presented are figures showing growing demand that are presently unsatisfied. From this, data facilities are proposed to serve the unmet demands. This often leads to disaster since every other entrepreneur may have come to the same conclusion resulting in excess capacity and cutthroat competition.
Despite this, planning is essential; you just have to factor in competition in your planning. Here are several ways to accomplish this:
• Study the barriers to entry in the industry. Not every business has intense competition. There are industries that are difficult to get into for a variety of reasons. For retail establishments, there may no longer be suitable locations in your area. For certain service businesses, the attraction of the brand name of your business may deter competition. In manufacturing, you may be in possession of a patent that prevents others from making the same item.
• See if you have or can create a sustainable competitive edge. Since for the majority of businesses you will encounter opposition, look for ways to have an edge that is not easily copied. An effective way to do this is by differentiating your product or service and aligning your resources and efforts to support this strategy. For example, you may try to have a low cost advantage by making do with less manpower. If you can purchase expensive equipment that allows you to produce the same amount with less personnel this may be quickly imitated.
• Anticipate the consequences of your pricing strategy. One of the most common reasons a venture is started is the belief that you can under-price your competition and grab their market. This usually results in a price war which newcomers rarely win unless the incumbent was previously a monopoly with legacy overhead they cannot easily reduce.
• Have contingency plans. It is best to have contingency plans on how to operate in the event of competitors entering your market. One of the best strategies is to have reserve cash to give you more flexibility in pursuing options.
• Check if the company owner has an emotional attachment to the business. Sometimes you may be wondering why a particular establishment is still operating although it appears that it is barely making ends meet. It may be that this is the first venture or branch of a large group of companies and that the owner has a sentimental attachment to his/her first money maker. If this is the case then be prepared to co-exist with this business for an unlimited amount of time as the owner may not allow it to close.
• Have frequent reassessments. I know of a large pharmaceutical multinational company that does a reassessment of its plans every three months to see how their plans are working against the competition. When I asked someone from that company regarding this, he said that while it may seem better to do it monthly, there are two main reasons preventing them from doing so. First, there are the logistical problems. Among many other things, the length of time for marketing materials to be designed, printed, and distributed. Second, they want to give their present strategy enough time to work. However, smaller firms could and should be more nimble and I suggest earlier reassessments to be more competitive.
In a nutshell, what is needed to factor in the competition is to thoroughly study the strengths and weaknesses of present and potential competitors and see how this knowledge can help you craft more effective plans. Anticipating a vigorous response from the competition is a wiser and more realistic assumption in drawing up your plan.
*Originally published by the Manila Bulletin. Written by Ruben Anlacan, Jr. (President, BusinessCoach, Inc.) All rights reserved. May not be reproduced or copied without express written permission of the copyright holders.
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