So, you’ve decided to sell your business and are now being courted by a number of prospective buyers. Then, during a management presentation, one buyer asks you this: "Who are your major competitors?"
Picture how that buyer would feel if you said, "We have very few competitors that offer the level of service and quality that we can deliver." In my experience, most buyers would be skeptical about this comment and would think that a) the seller does not have a deep understanding of their competitive environment or b) the absence of competitors means the industry is in decline. Either way, this is not an impressive answer to the question.
Now imagine that instead of answering, you reached into your briefcase and provided a detailed list of all your competitors with information on their strategies, executives, financial information and product suite or service offering. Would that be impressive to a potential buyer? Would that differentiate you from other targets that the buyer might have already looked at purchasing? Do you think this information might even help you manage your own business more effectively? If you haven’t figured it out, the answer to all of these questions is "yes."
When you are preparing a competitor analysis strategy, the goal is to develop a dedicated process to regularly monitor significant competitors and new entrants into your market. Here are some practical tips to help you get there.
Compile a List of Your Competitors
This might sound like a simple task, but many companies do not have a detailed list of their competitors. When compiling your list, put competitors into three categories:
- Companies that you regularly encounter when fighting for sales
- Companies in your current market that you would like to emulate
- Companies in potential future markets that you are likely to run into when it comes time to sell
So, how do you find out exactly who your competitors are? Here are some ideas:
- Look at How You Generate Sales
If you bid for it, get information on other companies that are bidding against you. If you generate sales primarily through referrals, ask your referral sources who else is offering a product or service that's similar to yours.
- Try to Purchase Your Own Service
Figure out the keywords people use to search for your goods or services, then perform an Internet search for the services you provide and see who else shows up in that search.
- Ask Your Trusted Partners
This should include your closest customers and suppliers. Also ask your employees about any companies they would consider to be competitors.
Prepare a Competitor Profile
Once you have identified your competitors, gather as much information on them as you can. With all of the information that's available on the Internet, cyber stalking ... ahem ... competitor profiling is easy. A competitor profile will typically include a detailed description of each of the following:
- The Competitor
This should include general information about the company, including a description, ownership information, website, headquarter address, number of employees and geographical coverage.
- The Strategy
This should include all publicly available information on the company’s direction, including tag line, values and vision, mission statement, core competencies or competitive advantage, mergers and acquisitions, joint ventures and alliances, growth plans, divestiture plans, or future investment strategy.
Aim to compile a record of any financial information that you can find on your competitors. Information is difficult to find for privately-held companies, but at minimum, try to estimate the revenue that your competitors generate. You can estimate this by applying a similar revenue-per-employee metric as the one that applies to your own company.
- Services or Products
You should also list your competitor’s entire product suite or service offering. This will help to benchmark your own products by performing direct comparisons across a number of criteria. Identify the brand perception associated with each service or product offering as well.
Companies love to post client testimonials on their websites. This can be used to provide insight into the profile of companies they work with and also why their customers like doing business with them.
Evaluate your competitor on a number of criteria including size, strength of brand and market perception, among other items.
In addition to reviewing your competitors' corporate websites, review their blogs, Twitter, Facebook and LinkedIn accounts. Also check the social media accounts of your competitors’ leaders and employees. Review any shared corporate documents or presentations on sites like SlideShare or Scribd, and look at their Web traffic on sites like Alexa. Compare all of these things to your own company. Overall, this information should help you get some ideas on how you can gain a competitive advantage over your closest competitors.
Define Your Value Proposition
The primary purpose of a competitive analysis is to determine how you are different from your competitors and to define your value proposition. It is also important to identify areas where you can get better and develop action plans to address any noted weaknesses.
Surprisingly, this exercise is one that many mid-market businesses fail to do well - if they do it at all. If you can do a good job of this, you will undoubtedly impress potential buyers when it's time to sell your business. More importantly, you will have a blueprint to crush your competitors in the meantime!