How To Write A Competitive Analysis For Your Business Plan

The competitive analysis section of your market analysis in your business plan is essential. Knowing your competition is as important as knowing your product and your customer. Market gaps tell you where to develop your product and internal weaknesses tell you where you’re vulnerable to losing customers.

A solid competitive analysis is your way of showing that you know exactly where you stand among your fiercest competitors — and that you have a way to out-maneuver them. The best way to think of the argument you’re trying to articulate is:

“Here is where we can gain the most customers (offense) and here’s where we could potentially lose them (defense).”

 

Your competitive analysis should start with your SWOT Analysis — Strengths, Opportunities, Weaknesses and Threats — to borrow a grad school MBA’s favorite acronym.

Inside the Investor’s Mind

Your investor is probably thinking something like this:

So here’s what you can do to reassure them.

Strengths

Lead with your strengths. Talk about what aspects of your product are the best in class and why your customers will fall in love. Companies win based on their ability to win over customers.

You don’t eat at Wendy’s because it’s less terrible than McDonald’s. You eat there because you like their food a lot more. You also eat there because the Baconator cheeseburger is sooo good!

Talk about why customers love your Baconator. Talk about what you offer that just blows people’s minds. Be very descriptive and dig into how those strengths really stand out. Don’t assume for a moment that because you understand the strengths that anyone else does.

Examples:

The best way to present your strengths is to start with your number one greatest strength. If investors don’t think your greatest strength is interesting, you can be assured that your third greatest strength isn’t going to make up for that!

In each of these sections of the SWOT Analysis, begin with a few introductory sentences, like the examples above, and then offer a longer narrative explanation below. If the investor understands the point you’re making in just a couple sentences you don’t want to belabor their attention with a crazy novel of an explanation.

Opportunities

Your opportunities are all about expansion. You realize your competition is sleeping on the job and you’re ready to pounce on that opportunity to eat up some delicious market share.

Your opportunities typically come in three flavors:

1. Areas your competition is currently weak

2. Expansion of your customer’s current needs

3. Untapped markets

Ideally, you can tap into all three opportunity categories or you have some special flavors of your own. Your goal here isn’t to list every last opportunity; it’s to show that the market has obvious room for expansion that viable startup (like you) could build a real business in.

Areas of Weak Competition

This is one of the few times in life where it’s OK to pick on someone else! If you’ve made it this far into the plan, it’s because you’ve found a good reason that your would-be competition is dropping the ball.

When sizing up your competition it’s important to have a balanced assessment. You want to avoid the straw man argument. The straw man argument is one when you act like you’re refuting someone’s argument, but in reality that argument was never made by that person.

Instead, focus on how well you know the weakness exists. Show that you have done your homework and that you have a real inside track on why this weakness is legitimate.

The more convincing your research on competitor weakness the more excited investors will get. Don’t skimp here.

Expansion of Current Needs

It’s your job to not only paint a picture of what your customer needs now, but also of what your customer needs next. These needs may not be something you can fulfill now, and that’s fine. What’s important here is that you’re showing that you’re thinking further down the road.

Example:

Your expansion of current needs should start with obvious extensions of need and then include a few bigger picture potential areas that you may not even get to. It’s good to show what’s more probable and then what’s possible.

Untapped Markets

If you’re not expanding into current markets then you’re moving into the great unknown — untapped markets.

Untapped markets are equally exciting and terrifying to investors. On the one hand, it gets everyone pumped to think about a ton of low-hanging fruit that can be gobbled up easily. On the other hand, that fruit is often sitting in a grove that may or may not even exist.

Your challenge is to show that these untapped markets do in fact exist (read: show your research) and that you can tackle them quickly and efficiently before your competition does.

Example:

Don’t let the idea of untapped markets be a golden ticket to make wild claims. Untapped markets only exist if you can build a cogent case around them. The quality of your case is the difference between an investor nodding their head and shaking it.

Weaknesses

Demonstrating your weaknesses isn’t the same as saying “we’re so painfully vulnerable we’re not even viable!” Every business has weaknesses, especially in the startup phase. You can bet anyone leaning into your plan is going to jump on these immediately.

Your goal here isn’t to sugar coat the nature of your weaknesses – it’s to articulate them in exact detail to show that you know precisely where to build a defensible position. Articulating your weaknesses well allows you to talk about what you’re going to do about them.

Example:

In this example, we aren’t sugar-coating the concern. We’re highlighting the fact that Amazon will lose customers to Best Buy, but they’re working toward a strategy to curb that customer loss with a lower price. An investor reading that narrative would feel this is a balanced assessment of a weakness coupled with a viable counter-strategy.

Similar to the Strengths section, a great way to present this is with a few declarative scenarios where you’re most concerned, so that your readers get the gist. Thereafter, craft a more detailed description of why and how those weaknesses and threats are important.

Threats

Sooner or later (hopefully later) your competition is going to pose some serious threats to your business. In some cases, it may not even be your competition directly. It could be looming legal issues or governance that you’ll have to contend with.

Similar to weaknesses, founders get nervous about being bold about threats. They think “That will scare investors away!” when in fact being up front about how you identify and mitigate threats is the best way to make investors confident about potential issues.

Your best bet is to get in front of your threats first. Similar to your strengths, list the most painful threats first, then explain how you plan on using some Judo-style moves to take them down.

Example:

In this example, we’re pointing out (before our investors can) that an increase in delivery costs for a business that relies on delivery is a big deal. But we’re immediately supporting that concern by providing a credible mechanism to offset the threat.

Investors may still have concerns around what the mechanics of the deals with delivery providers may be, but at least now the conversation is about deal mechanics, not whether delivery as a whole will destroy Amazon.

Think of your presentation of threats in two columns — Threat and Mitigation. List your threat in detail, then list your mitigation strategy. In the best case scenario, you can show investors that you’ve thought of threats they haven’t even considered and already have a plan of attack waiting. It’s that type of presentation that builds much-needed trust during the formative stages of that relationship.

Competitors

Your competition can be represented as both “categories of competition” as well as “actual competition.”

Categories of Competition allow you to create groups of competitors that may share some of the same attributes such as “online retailers” or an emotional category such as “People who hate to shop in stores.” You may in fact have many different categories that you compete with and then a few specific competitors that you’re concerned about in each. The category approach works well if you have tons of competitors; for example, if you were an online retailer.

Action competition is more specific to who you can count on your fingers. In this case, you want to be very detailed about who they are, what about them is particularly challenging, and what you plan to do about it.

In each case, the goal is to be very clear about why each competitor has strengths and weaknesses that you’re concerned about. You’re better off listing fewer competitors that are a more direct threat and showing that you know how to compete than creating a giant list of every person that has a website that’s tangentially related to you.

The competitive analysis is just one part of your market analysis. Check out our guides to each section of your market analysis in order to create a document that will blow your investors away.