Among the various barriers to entry or growth of a company, but not often considered at the outset, is how a new business’ competition will react to it. Today’s buzzword is “disrupt,” but despite a lot of advice regarding how to disrupt a market is available, not enough is said about how to respond to the natural protective reaction of those who had the market cornered before the new enterprise came in and blew up their world. While most business plans give some consideration to what the competition looks like, and what the competitive nature of the submarket for the goods or services a new business will supply is, most business plans give short shrift to such matters. Ignoring the deeper questions concerning competition is likely a by-product of the degree of confidence on one’s own abilities and product that is necessary to strike out and form a business.
However, really solid business planning requires thorough analysis of the level of competition that the new enterprise will face, and the history, tactics and anticompetitive behavior of the strongest of competitors within the field. While most business plans focus heavily on the amazing nature of the product, or the accomplishments of the principals; and many good business plans provide financial projections that are as accurate as they can be in light of the rose colored glasses that we all wear in the run up to the day we open our doors, a truly good business plan contains a thorough and realistic analysis of the competition, and a clear plan to protect and grow the new enterprise.
Do the research on the competition. Scour news reports on the internet by searching the names of the largest competitors in the field of the new enterprise. How many stories involve the companies’ reactions to a new player who, like Icarus, may have flown too close to the sun, grown too quickly or too large? How did the larger companies react to the Icarus company? How many lawsuits were filed? What was the perceived impact of this Icarus on the established companies’ business?
If lawsuits were filed and technology was involved, there is a good chance that the lawsuits found their way into federal court. Spend time reviewing the court records on PACER. Which strategies were successful and which strategies failed for the newer enterprises? How about for the established enterprise? Be mindful of the fact that large companies operate in a lot of spaces. When doing this research, the field or submarket is not important, since the goal is only to understand behavior.
Obviously, there is much more to consider, and many other sources of information; however, when approaching someone related to funding, whether a VC or a bank, a thorough analysis and plan for dealing with the competition will take one of the biggest concerns off of the table, and more importantly, when combined with a solid credible financial plan, will earn an entrepreneur a lot of trust.
The concern of anticompetitive behavior, strategies and tactics, becomes larger when choosing to operate outside of the United States. The laws are different in each country and regional treaties or other pacts may impact how a company may compete. Protection of local businesses or a desire to cultivate a local version of your business may permeate government policy. The competition may have the ear of the relevant governmental officials and bureaucrats. Additionally, protections available for intellectual property are quite different from our own, and may even penalize you for activities you have already taken. Further, competition research can be substantially more difficult. It is highly important to engage solid counsel and have connections on the ground during the planning process.
In short, while market definition, market research and research on one’s competitors is often tedious, time consuming and mundane, it is one of the most important aspects of planning that can be undertaken in developing an initial business plan or revising a business plan. Expansion planning related to entering emerging or developing markets absolutely cannot be done without a thorough investigation of competitors and time spent with local connections. This type of research and planning can save a business and its managers and owners a significant amount of stress, anxiety and time in the long run. If a larger player in the field attacks, and the new enterprise has a plan in place, implementing the plan and running your playbook will come naturally.