How to Write a Competitive Analysis for Your Business Plan

Tim Berry

9 min. read

Updated March 16, 2023

Female entrepreneur speaking to management team in board room about taking on competitors.

You can learn a lot about your competitive advantage, market opportunity, and how to position your business by looking at the competition. Knowing who your competitors are, how they operate, and the necessary benchmarks you need to hit are crucial for your business to succeed. It’s also an analysis that investors will want to see within your business plan.

How to identify your competition and conduct a competitive analysis

Your competitive analysis will help you define the competition section within your business plan. Here’s how to do it in a few simple steps.

1. Define your business use

For the competition section of your business plan, first, settle on which of these two business uses applies to your situation:

Internal management plan

In the management plan for business owners, a competition section serves as a vehicle for understanding competition and developing strategic positioning. You and your team look at comparative strengths and weaknesses. It leads you straight to strategy.

Formal business plan

In a business plan event situation, with a plan to be shown to potential investors or as part of a bank loan, you’re describing the competition mainly to reassure your target reader that you are aware of and understand the competition, and are positioned to take advantage of opportunities and avoid the pitfalls.

2. Establish your competitive position

You need to know how your business stacks up, in terms of the values it offers to its chosen target market. Key marketing tactics include pricing, messaging, and distribution, while others are about positioning your business against the background of the other offerings. How do you stack up against the others?

The goal is positioning (setting your business up against the background of other offerings), and making that positioning clear to the target market. How are you going to take advantage of your distinctive differences, in your customers’ eyes? What are you doing better? How do you work toward strengths and away from weaknesses? What do you want the world to think and say about you and how you compare to others?

Positioning map

I often refer to marketing expert Philip Kohler’s simple strategic positioning map of breakfast, shown here. You can easily draw your own map with any two factors of competition to see how a market stacks up. It’s a good reminder.

You’ll also see positioning maps set up with two axes, vertical and horizontal. It’s quite common to see the price on one axis and some important qualitative factor on the other, with the assumption that there should be a rough relationship between price and quality. For example, the illustration here of breakfast options:

Competitive matrix

Nowadays many businesses work up a competitive matrix showing how different competitors stack up according to significant factors. Compare your product or service in light of those factors of competition. How do you stack up against the others? This is a good place to include the competitive matrix showing.

For the record, I’ve seen dozens of competitive matrices in plans and pitches, and yet I’ve never seen a single one that didn’t show that this company does more of what the market wants than all others. So maybe that tells you something about credibility and how to increase it. Still, the ones I see are all in the context of seeking investment, so maybe that’s the nature of the game.

3. Establish regular competitive review channels

Know your business needs. Use your competition section to guide decisions, if that’s what you need; or to support your pitch, if that’s your case. Like the rest of your business plan, you measure its value by the decisions it causes.

These days, with competitive information, it’s not a matter of finding a needle in a haystack; it’s figuring out which needles to choose from a mountain of needles. You can find an amazing wealth of information about competitors on the web and in mobile apps. The hard part, of course, is sorting through it and knowing what to emphasize.

Use online reviews

When it comes to finding and using information, I do suggest here that you stay flexible and pragmatic. Look for available information that will stand for what you want to show. For example, I might use stars and such in reviews, from Amazon or Yelp, as a surrogate for quality. That would be way more practical than conducting primary research, and it’s credible to the audience.

There was once a problem finding information on smaller privately owned competitors, compared to the wealth of financial information available for companies traded on one of the major stock markets. Nowadays, websites, social media, and reviews are widely available on lots of local businesses. Not having some way to rank and evaluate competitors is usually for lack of trying, not for lack of information. Here too, beware of having too much. Spare your readers proof of how good you are at gathering information, and give them only the information they need and will use.

Sourcing financial information

Don’t assume you can get financial information on companies that are privately held. Use a surrogate if you have to, like numbers of employees, rooms, tables, vehicles, or (here too) stars in reviews. If possible, you may want to take on the task of playing the role of the potential customer and gain information from that perspective.

Industry associations, industry publications, media coverage, information from the financial community, and their own marketing materials and websites may be good resources to identify these factors and “rate” the performance and position of each competitor.

Industry financial profiles are also available online; you can find statistics like average annual growth, the average number of employees, sales per employee, sales per square foot, average profits from sales, and similar benchmarks for sale from competing providers, for $100 or less for a single profile. Start with a Google search to find this information for your industry.

Why competition is a good thing

Business owners often wish that they had no competition. Businesses usually are thinking that with no competition, the entire market for their product or service will be theirs. That is simply not the case—especially for new startups that have truly innovative products and services. Here’s why:

Competition verifies your idea

You know you have a good idea when other people are coming up with similar products or services. Competition validates the market and the fact that there are most likely customers for your new product. This also means that the costs of marketing and educating your market goes down (see my next point).

Competition helps educate your target market

Being first-to-market can be a huge advantage, but that also means that you will have to spend way more than the 2nd-to-market player to educate the market about your new widget, your new solution to a problem, and your new approach to services. This is especially true for businesses that are extremely innovative. These first-to-market businesses will be facing customers that didn’t know that there was a solution to their problem. These potential customers might not even know that they have a problem that can be solved in a better way. These first-to-market companies will have an uphill battle to educate consumers – an often expensive and time-consuming process. The 2nd-to-market will enjoy all the benefits of an educated marketplace without the large marketing expense.

Competition pushes you

Businesses that have little or no competition become stagnant. Customers have few alternatives to choose from, so there is no incentive to innovate. Constant competition ensures that your marketplace continues to evolve and that your product offering continues to evolve with it.

Competition forces focus & differentiation

Without competition, it’s easy to lose focus on your core business and your core customers and start expanding into areas that don’t serve your best customers. Competition forces you and your business to figure out how to be different than your competition, and how you can focus on your customers. In the long term, competition will help you build a better business.

What if there is no competition?

One mistake many new businesses make is thinking that just because nobody else is doing exactly what they’re doing, their business is a sure thing. If you’re struggling to find competitors, ask yourself these questions.

Is there a good reason why no one else is doing it?

The smart thing to do is ask yourself,  “Why isn’t anyone else doing it?”

It’s possible that nobody’s selling cod-liver frozen yogurt in your area because there’s simply no market for it. Ask around, talk to people, and do your market research. If you determine that you’ve got customers out there, you’re in good shape.

But that still doesn’t mean there’s no competition.

How are customers getting their needs met?

There may not be another cod-liver frozen yogurt shop within 500 miles. But maybe an online distributor sells cod-liver oil to do-it-yourselfers who make their own fro-yo at home. Or maybe your potential customers are eating frozen salmon pops right now.

Are there any businesses that are indirect competitors?

Don’t think of competition as only other businesses that do exactly what you do. Think about what currently exists on the market that your product would displace.

It’s the difference between direct competition and indirect competition. When Henry Ford started successfully mass-producing automobiles in the U.S., he didn’t have other automakers to compete with. His competition was horse-and-buggy makers, bicycles, and railroads.

Don’t focus too much on the competition

While it’s important that you know the competition, don’t get too caught up in the research. It can lead to several negative effects that hinder your business instead of helping. Things like:

It stifles creativity

If all you do is track your competition and do endless competitive analyses, you won’t be able to come up with original ideas. You will end up looking and acting just like your competition. Instead, make a habit of NOT visiting your competition’s website, NOT going into their store, and NOT calling their sales office. Focus instead on how you can provide the best service possible and spend your time talking to your customers and not your competition.

It keeps you from focusing on your customers

Following your competition means that you aren’t focusing on your customers and what they want – you’re focusing on how your competition serves its customers. Instead of spending time figuring out how you can better serve the next person that walks in the door so that they become a lifetime customer, a reference, or a referral source, you are becoming a copycat. When that happens, it won’t matter to a customer if they walk into your store or the competition’s because you will both be the same.

Content Author: Tim Berry

Tim Berry

Tim Berry is the founder and chairman of Palo Alto Software , a co-founder of Borland International, and a recognized expert in business planning. He has an MBA from Stanford and degrees with honors from the University of Oregon and the University of Notre Dame. Today, Tim dedicates most of his time to blogging, teaching and evangelizing for business planning.