The purpose of the competitive analysis is to determine the strengths and weaknesses of the competitors within a market, strategies that will provide an entrepreneur with a distinct advantage, the barriers that can be developed in order to prevent competition from entering the same market, and any weaknesses that can be exploited within the product development cycle. One of the most difficult, but essential, tasks that entrepreneurs face is to explain their competitive advantage. This results primarily from an inability or unwillingness to look honestly at the competitive environment. Secondly, by virtue of being successful one will create competition. You need to have a good plan for sustaining your competitive advantage, when new competitors appear.
The following are potential competitive advantages to consider:
- Strong competitive advantages: intellectual property, agreements with customers or suppliers, long-term contracts.
- Credible competitive advantages: control of costs, control of prices, control of channel, location, excellent management, expertise.
- Difficult competitive advantages: first to market, development lead-time, quality, brand, service, execution, relationships.
You should try to identify the venture’s resources. Think about the financial resources (access to capital, cash reserves, and government grants), physical assets (equipment, location, and working capital), human resources (employee knowledge, experience, accumulated wisdom, labour cost and skills), intangible resources (patents, trade secrets, know-how, copyrights, and databases), and organisational resources (contacts, policies, suppliers, and service providers).
Try to think about the barriers you can establish, that would restrict entry of new competitors. They could be in the form of intellectual property (patents, trade secrets, copyrights, and trademarks), customer loyalty, control of the distribution channel, agreements with customers, suppliers, strategic partners, or switching costs to the target market.