Two essential driving factors of determining business valuation area company’s growth potential and its competitive landscape. Both of these elements are detrimental to the preparation of your company for sale — whether you are ready to sell now or simply want to prepare for the future. One of the best ways to obtain this information is to prepare a competitor analysis.
A competitor analysis is the study of your direct competitors in order to determine their strengths and weaknesses when compared to your own business’s products or services, as well as industry standards and norms. Preparing a competitor analysis can be beneficial for multiple areas of your business: it can spotlight industry trends, uncover opportunities your competitors may be missing, and highlight areas of improvement and adjustment for your own company.
How Do You Create a Competitor Analysis?
When creating a competitor analysis, it is important to choose three to five formidable companies that compete directly with your products or services. This does not necessarily mean that you should pick the largest companies in your industry — do not forget the power of small. It’s the smaller, privately owned businesses that can quickly and quietly rise in the rankings, unnoticed.
Once you have selected your competitors, it is important to evaluate key information about each. This can include (but is not limited to):
- Pricing – Knowing how your competitors are pricing their products and services can tell you a lot about where your own products or services rank: are your prices competitive? Are your prices low in comparison, or are they just low enough to give you a competitive advantage?
- Process – What sort of strategies do your competitors utilize to manage successful consumer relations? How do they advertise their products and services? What is the key to their success?
- Products/Services – What exactly are your competitors selling? How does their products or services relate to yours?
- Technology – How are your competitors utilizing software and digital technology to acquire consumers and market themselves as an authority in the industry?
- Reputation – How is your competitor viewed by consumers, third-party distributors, and current/former employees? Does the company provide further value to their community besides the commodities it sells? Is the company respected within its industry?
- Sales Revenue – A company’s revenue is directly related to its overall success. Sales revenue indicates how much of a profit a company is making from its products and services, which directly correlates to growth potential.
- Strengths – What is your competitor doing well? What are they doing that places them ahead of the competition, and what makes them strong in their consumers’ eyes?
- Weaknesses – Where is your competitor lacking, and how can your company benefit from your competitor’s weakness?
Acquiring this data will only help to make you more knowledgeable about where you stand within your industry. It helps to compare and contrast all of these details in a chart form.
There are many ways to obtain this information about your competitors. The first is to utilize the people at your disposal. Your employees frequently interact with people within your market, and are exposed to growing trends within your industry— especially your sales people. Talk to them about their observations, and see what they know about your selected group of competitors.
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Another way to collect information is through your clientele. It is not wrong to ask potential customers about other rates they may have received. In a business I co-owned, I once offered to beat the price of any competitor as long as the customer would send us over the competitor’s quote. We landed over 400 quotes from all over the country and used this information to determine regional pricing strategies and to add strong clauses into our own quotes that we gave to customers.
In addition to firsthand sources, it may sometimes be necessary to look for outside resources. For instance, your company can pay to acquire data through a specialized service such as Dun & Bradstreet or InfoUSA. These companies specialize in collecting and analyzing industry data and trends.
Businesses should also look to the web for additional data. Company websites are a great place to start when looking for information. Utilize search engines and keywords: you can perform a comprehensive website analysis: where are your competitors ranking, and which keywords should you optimize your website for?
Having a competitor analysis on file will help you to understand how the ideal client views your competition. Remember, rising above your competition is not about outshining them, or about adapting the same policies and strategies. Utilizing information on your competitor analysis to implement new strategies and initiatives can help your company to stand apart from its competition — differences sell, similarities don’t.
The results of a competitor analysis can ultimately help your business to maximize its value through the eyes of a potential acquirer, whether it be a financial buyer or a strategic one. Comparing your company to specific standards and benchmarks will only help to improve its reputation and business valuation. Also, collecting information about your competitors in the market will only make you a stronger force to reckon with.