Connect with us

How to Guides

How to Build a Business Plan for Investors

To secure funding, you need a business plan that meets financiers’ stringent requirements.

Entrepreneur

Published

on

Business-Plans-for-Investors-How to Write a Business Plan for Investors

Business Model

Make sure you are very specific when it comes to describing your typical customer, your product and exactly how you are going to market the product. “Too many business plans glibly talk about ‘mass media advertising’ without having the faintest idea about the costs.

Be precise about how you are going to get your message to the consumer,” says Martin Feinstein, programme director of the National Business LaunchPad.

It’s also imperative to assess other business models in your industry. “From this you need to extrapolate, devise and fine-tune a practical business model that will work for you,” André Diederichs, SMME specialist at Old Mutual advises.

“Individualise it with your own personal stamp that will differentiate it from others, while keeping in mind that it needs to be workable and not merely an impressive plan in theory.”

Financials

You can outsource your financials if you are not a numbers guru, but that doesn’t mean you can abdicate the responsibility you have to understand what they mean and to ensure that they are accurate and reflect a real, possible business path.

“The high incidence of business failure within the first year points to a serious lack of financial knowledge among most budding entrepreneurs,” says Diederichs. “Cash flow forecasts and financial planning are two key elements in business survival. In fact, most of your time and effort should be spent on the financial model for the business.

Entrepreneurs should understand their finances inside out – those who do may well hold the key to success and prosperity.

To give you a simple example: Take a coffee shop business. A basic calculation shows that is would need to sell 8 000 cups of coffee per month just to break even. In many instances this simple mathematical exercise is not done and the business fails as a result.”

Operational Plan

This is where most plans gloss over the nuts and bolts reality, according to Feinstein.

“Make sure you identify the five top operational success factors for the business (such as keeping spare parts in stock), and explain how you are going to handle each one on a practical level. Remember, things don’t happen by themselves.” Diederichs concurs.

“Your operational plan is merely a comprehensive monthly or daily plan of action that spells out what has to be done in terms of sourcing stock and selling it.”

For an operational plan to be successful, he adds, everyone in the business must know exactly what is expected of them. One way of ensuring this is to have a briefing session in the mornings and a debriefing session after the close of day.

Everything you need to know about an operational plan. Click Here

This will help you assess what worked on any given day and what didn’t. It is also an excellent way of getting staff together for motivation and training purposes.”

Marketing Plan

Your marketing plan should include a sales strategy, advertising strategy (pamphlets, signage, media advertising, PR), and a promotional strategy.

Marketing represents a client or customer’s holistic view of your business. It is therefore of paramount importance not to ignore your marketing processes.

“Because media advertising can be very expensive, entrepreneurs should plan carefully,” says Diederichs. “It will affect their business budget, or may prove to be a costly exercise if the wrong media is used. One way to overcome this is to at first only advertise in your local media which is cheaper than regional and national media. But ensure that you reach your target market. Don’t spend loads of money on something that doesn’t generate an income.”

Be different and come up with novel and cost effective ideas that will draw shoppers to your business, he adds. If you lack knowledge in this area, speak to an advertising agency or PR consultancy.

Feinstein advises against big ad campaigns, billboards and radio ads unless you have the money. “Think smart: leaflets, SMS marketing, direct selling. It’s all about getting the message to your prospects, not the entire population of the country.”

Soliciting Constructive Criticism

On asking for constructive criticism and making necessary adjustments, Feinstein is unequivocal: “Yes, yes, yes. A real entrepreneur will always be receptive to a better way of doing things.

Don’t be afraid to copy (legally), there’s nothing really new under the sun.” Discuss your business plans with your family and friends and listen to their advice. You don’t need to take it, but it’s always good to have a sounding board and a different perspective.

Involving a Mentor

A word of caution from Diederichs: “Mentors are great, but too many people use them as a crutch. No-one is going to make it all come together except you. And make sure your mentor has run their own business for at least 20 years before you take their advice.”

Dead in the Water: Don’t Do This…

A smart business plan demonstrates your ability to clearly communicate a unique business concept and growth strategies in a document that gives the funder confidence that you can easily sell this concept to your market. We spoke to two experts who advise that you avoid these common business plan blunders.

  • Be accurate, be thorough, be different

André Diederichs, SMME specialist at Old Mutual, sheds light on the areas where many entrepreneurs fall short.

Consider the role of a business plan. It serves as a window through which the entrepreneur allows interested parties a bird’s eye view of the prospective business.

The plan must therefore be an accurate and comprehensive reflection of the business – in fact, it must act as a blueprint of the operational mechanics. With this in mind, here are some of his don’ts:

  • Be long-winded and boring. A plan should reflect the energy, insight and excitement of the entrepreneur
  • Show limited financial forecasts. This may show a lack of, or limited understanding of the intended venture.
  • Give an unprofessional presentation.
  • This means you are paying no attention to detail which is necessary in business. For presentation purposes, you may need to employ a professional graphic designer for help.
  • Spend too little time on the promotional aspects for the business. In other words, you have little or no idea how you are going to advertise/promote or market your products and services. Your plan merely reflects what others have done in the past and shows no imagination. Your advertising/marketing plan has nothing new to offer and you are not thinking out of the box.
  • Display limited marketing intelligence. How can you expect to capture a particular market if you have no idea of what your competitors are doing? Perhaps a headline: What separates my business from the next and then list the differentiating factors showing a novel approach that will give you a competitive edge.
  • Show poor profiling of products and services. Your in-depth knowledge of your products should jump off the pages in your business plan.
  • Show disregard for your business plan. It should be a dynamic working document and a guideline to managing your business that is regularly revisited and updated
  • Don’t cut corners

Charmaine Groves of Old Mutual’s Masisizane Fund advises thoroughness:

  • Do the research as it helps you think through all the issues necessary for your business to be successful
  • Use a consultant to guide you if you need to, but insist on the consultant transferring skills to you, as you need to understand the key drivers in your business and potential funders will pick up that you do not have a good understanding of your business dynamics if the business plan is written by someone else without your input and understanding
  • Network with others in the same industry sector to learn about potential pitfalls
  • Find out what the requirements are of the funders that you want to target and ensure that you address those
  • Always be honest and transparent. Be clear about the funding the business requires and what it will be used for – don’t inflate the amount required, but don’t under-quote either
  • Include any non-financial support that your business will need (financial education, accessing new markets), especially if you are planning to apply to development financing institutions, as most of them provide additional services that you may not have to pay for and that can reduce your business expenses
  • Make use of government agencies like SEDA, which have been established to assist you
  • The Business Place also provides support and resources to help with business plans and are in most major centres.
  • The Terrible Top Ten

Martin Feinstein, programme director of the National Business LaunchPad, lists his worst mistakes that entrepreneurs should avoid when compiling  their business plan:

  1. Overestimating sales in the first year
  2. Underestimating costs and overheads in the first year
  3. Confusing the opportunity to sell with the reality of making sales
  4. Neglecting to accurately price inputs and raw materials
  5. Planning to buy assets (vehicles, equipment) instead of leasing
  6. Planning on being profitable in year 1 when in reality it will take longer
  7. Including too much unnecessary detail that will distract a funder from your core plan
  8. Not being specific about how much your margin is and where it is
  9. Going on about job creation and social upliftment when your first priority is to survive
  10. Spelling mistakes that tell the reader you are sloppy
  • Pitch Perfect: Do This…

Giving information is vital but the trick is to tempt possible investors with just enough of the ‘right stuff’ to whet their appetite without overdoing it.

  • Win them over with the right elevator pitch

An elevator pitch is a compelling overview of your business.

Five Mistakes to Avoid When Pitching Investors. Click Here

The pitch should be concise, carefully planned and well-thought out. It must be so clear that your grandmother would understand what the business is about in the time it takes to ride up an elevator (less than two minutes).

“What you are looking for is the essence of the business and importantly the link to why you would want to invest. This would include the link to your ‘fund mandate'”, explains Julia Fourie of HBD Venture Capital.

  • Executive summary is key

In the early stages, send a 1-2 page executive summary. The executive summary spells out the nature of the business with the high points only.

This should include your strategy, key competitors, markets you’re targeting, financial projections in summary and a brief description of management backgrounds.

If you’re comfortable, also list some of your customers because that is an important selling point. Investors are used to making decisions based on such information and you should give them no more than that until you’re comfortable with them.

  • What the investor wants to hear

Investors want to see your long-term thoughts, even if these are only educated guesses. A strategic plan is a test of your vision and your ability to plan ahead. You need facts to back up your claims.

List all existing and potential competition. Investors will probably know about your competition, so you might as well come clean. Focus on why you’re different, and why you are better than the competition. Outline what comes next.

Make sure you have something else on the drawing board to show continuity. Investors are also looking for passion, commitment, charisma and leadership skills.

  • Pitching and presenting the idea

Nothing impresses more than an entrepreneur who is focused and knows his or her business inside out.

Know your products, know your competitors, understand your customer profiles, know your financials – prepare well if you want to sell the strong points of your business to your audience.

Old Mutual’s SMME specialist André Diederichs advises the following:

  • Ask family members or friends to comment on your business plan
  • Implement any changes and ask a knowledgeable person to edit the copy Remember, nothing says unprofessional more than a business plan full of spelling errors
  • Consider using an accountant to help you to compile realistic financial forecasts. Remember, bank managers deal with applications daily and will easily be able to detect any attempts at guessing the financials
  • Making the layout clear

On the actual layout and presentation of the plan: “Keep it simple. White A4 paper, a simple 12-point font like Arial, numbered pages and as short as possible.

I have seen fantastic business plans that are all of five pages long, and terrible plans that are 50 pages long. Write it on a ‘need to know’ basis,” advises Martin Feinstein of the National Business LaunchPad.

“The biggest mistake people make is to oversell – they want to tell the whole story in the first meeting. Don’t. Tell just enough of the story to show that you know what you’re talking about and are going to make it work, with or without the investor.

When you’ve pitched enough to intrigue the listener, stop talking and let them think and ask questions. You want to be at an intersection, not going down a one-way street.”

  • Getting your plan in front of the right people

Neither financial institution nor private investors will consider investing in your business unless you have a business plan that has the potential of generating profits over long periods of time.

You need to identify these so-called “right people”, says Diederichs. “Perhaps it’s your own bank, as you may already have a relationship with them.

Other organisations that you may consider approaching include Business Partners. You may also approach wealthy people who are interested in new profitable ventures to join you as an equity partner.”

Feinstein offers a simple bit of advice: “Enter business plan competitions. Keep a copy in your briefcase at all times – you never know. Use Facebook and LinkedIn. Use your network. And when you present it, remember that the business is just a tool – they’re buying into you.”

  • Keep Your Cards Close to your Chest

Confidentiality agreements, or non-disclosure documents as they are also known, protect sensitive technical or commercial information from disclosure to others.

If information is revealed to another individual or company after a non-disclosure agreement has been signed, the injured party has cause to claim a breach of contract.

The type of information that can be included is virtually unlimited – data, know-how, prototypes, engineering drawings, computer software, test results, tools, and systems and specifications. The purpose of a confidentiality agreement is to protect the idea so the entrepreneur can patent it later; the agreement should cater for that.

Typical things to include in the confidentiality agreement would be the duration of the agreement – in other words, when it expires. Also spell out what a breach of the agreement would be, and what the consequences are – don’t forget to define the parties carefully.

Entrepreneur Magazine is South Africa's top read business publication with the highest readership per month according to AMPS. The title has won seven major publishing excellence awards since it's launch in 2006. Entrepreneur Magazine is the "how-to" handbook for growing companies. Find us on Google+ here.

Advertisement
Comments

How to Guides

5 Ways To Hack A Business Plan

Bullet points are your best friends, and other tips for not getting caught in the weeds of business-plan details.

Christopher Hawker

Published

on

business-plan-strategy

Whether you’re building gadgets, selling software or starting a nonprofit, your starting point is a vision, which gets turned into a plan of action.

In business, your plan is the road map that will help you pinpoint the answers to some of the most important questions pertaining to your venture:

  • What are you selling?
  • How will you make money?
  • Who will buy it?
  • How will you reach those customers?

Writing a business plan may sound daunting, but it doesn’t have to be. It can be fun! Throughout my career I have launched dozens of successful products – and each one began with some level of business plan. Because I have a lot going on, I never want to invest too much time in the actual writing of these plans, preferring to spend my time instead on the actual strategy.

Related: Business Plan Examples to Get You Going

So, how do I pen my own business plans? I hack them, and so should you. Here are my five business plan hacks:

1Start with a business model canvas

I strongly recommend that you begin with a business model canvas (Steve Blank’s blog is a great resource), especially if this is your first time writing a plan. It’s a tool for designing, inventing and thinking strategically about your company – all on one page.

The exercises will help you identify the resources you’re going to need and define the customers you need to approach. It’s a cool and effective way to brainstorm all of the key considerations when starting a business.

2Keep things simple, with bullet points

Once you’ve completed your business model canvas, you’ll have a much clearer vision of what you’re going to do, how you’re going to do it, and the people you’re going to serve. You then get to turn your canvas into the plan.

Business plans are more thorough and detailed. You will need one to share with investors if you want to raise money.

There is a section for each major area of consideration: Product description, target market, sales, marketing, operations, team, etc. You’ll want to address the who and how of each component of your business.

For example:

  • Who’s handling our marketing activities?
  • What channels will we use for getting the word out?
  • What activities will be performed in each channel?

Related: Keep it Simple: How to Write a One Page Business Plan

Thorough doesn’t need to be lengthy. Too often, entrepreneurs lose the forest for the trees, and get hung up trying to draft carefully worded prose.

Start by just getting your ideas down on paper in raw form as bullet points in each area. You can worry about making them sound good and organise them into paragraphs later.

After you write your ideas down, solicit feedback from your advisors, using a bullet-point form. This is will save you time integrating suggestions before you lock in careful wording.

3Focus on differentiation where it counts

business-plan-adviceAs you write your plan, think about what will make both your company and product or service distinct from your competitors’. You’ll want to capture your unique offering, and your business plan should emphasise this.

The good news is that while your offering should be different from your competitors’, many key elements of your business plan don’t have to be. You don’t have to reinvent the wheel or try to be different in every area.

For example: When it comes to your customer acquisition strategy or your logistics platform, you can do what everyone else is doing as long as there is no competitive advantage readily available.

Related: Free Business Plan Template Download

4Don’t overdo it on cash-flow projections

It’s easy to get caught in the weeds when you’re trying to create accurate cash flow projections.

The purpose of your cash flow and profitability projections isn’t necessarily to show exactly what’s going to happen; it’s to show how, within reasonable circumstances and success, your business is positioned to make money and can afford to keep the lights on.

Your projections’ purpose is to help you test your assumptions about profitability, not predict the future. So, you need to invest time in them, but you don’t need to go crazy trying to be perfect. Make your assumptions, declare them and proceed.

5Hire a writer

There are parts of your business plan that cannot be outsourced. Only you can decide what you’re going to do and the people you wish to serve. Thankfully, writing your business plan text isn’t something you need to do yourself.

Once you’ve completed your canvas and the high-level bullet points for the major sections of your plan, consider hiring a business writer if you’re short on time or hate writing.

Such people are relatively affordable and easy to find. I recommend checking out Upwork or Freelancer. You can then go back and forth with the one you hire, to get it just right. This can save a tremendous amount of effort.

The hacks I’ve detailed above are designed to help you save time and focus on what really matters, such as identifying your customer segments and understanding how your business will make money.

Related: Free SWOT Analysis Template

Once your business does start operations, things will likely shift anyway, so be efficient in spending your time on this task. If you treat the writing as a fun brainstorm on a living document rather than a daunting exercise, your effort will be inspiring!

This article was originally posted here on Entrepreneur.com.

Continue Reading

How to Guides

Keep It Simple: How To Write A One Page Business Plan

Lengthy business plans are a thing of the past and there are sound business principles for why.

Casandra Visser

Published

on

21-keep-it-simple-how-to-write-a-one-page-business-plan

Burn Your Business Plan

There was a time when business plans were anything from 75 to 100 pages but today 10 to 15 can be considered too long.

If you’re hungry for your piece of the business pie but don’t exactly want to spend a couple months playing hit and miss with investors and potential customers then a one page business plan could be the answer you’ve been looking for.

Being able to simplify your business concept is a useful skill to have and it was Alexander Osterwalder and Eric Reis who decided that we should stop taking the long way around when it comes to business plans and product development.

Related: 10 Reasons Not to Write a Business Plan

“Founders go wrong when they start to believe their business plan will materialise as written. I advise entrepreneurs to burn their business plan – it’s simply too dangerous to the health of your business.” Alexander Osterwalder

The New Business Model Canvas Approach

alexander-osterwalder-business-model-canvas

Osterwalder created a model consisting of nine building blocks, which once put together give you an overall picture of your strengths, weaknesses and how your business functions. It can be used in your business plan as well as assist you with strategy and innovation in the future.

It consists of the following parts:

  1. Customer Segments: Who are your mass and niche markets?
  2. Value Proposition: What are you offering and why are you different?
  3. Channels: Look at the phases your product goes through. This is everything from awareness and distribution to after-sales service.
  4. Customer Relationships: How are you building relationships with customers and is it working?
  5. Revenue Streams: Look at what you are charging and if you could be charging more. How are you receiving your payments and does it contribute enough to overall revenue?
  6. Key Resources: What resources do you require to function? These can include physical, human, financial and intellectual.
  7. Key Activities: Ask yourself what activities need to take place in order to deliver on your value proposition?
  8. Key Partnerships: Write down who your key suppliers and partners are and how they contribute to your overall goals.
  9. Cost Structure: Look at fixed and variable costs so that you can see what can be improved upon.

If you feel that you would like to start planning your business using this method then Leanstack is a helpful tool.

The Lean Start-up

Three years after the business model canvas was developed, Eric Reis introduced the learn start-up concept and again, many were hesitant to try it out. However, after it proved successful time and time again it fast became a logical way to develop products in our ever-evolving and demanding society.

“Don’t be in a rush to get big, be in a rush to have a great product.” – Eric Reis

The idea behind the lean start-up is that instead of spending months developing a product/ business concept only for customers to reject it, entrepreneurs should instead focus on experimentation, innovation and feedback. The lean start-up simplifies the early stages of entrepreneurship by eliminating long development times and the need for large amounts of funding and instead building companies and launching products a lot quicker.

“The same products, services or technologies can fail or succeed depending on the business model you choose. Exploring the possibilities is critical to finding a successful business model. Settling on first ideas risks the possibility of missing potential that can only be discovered by prototyping and testing different alternatives.” Alexander Osterwalder

The below video will give you a good idea of what the lean start-up is all about.

Related: What is The Lean Start-Up Movement?

Why Experts are Advocating a One Page Business Plan

With simpler, to-the-point methods becoming the norm, many entrepreneurs have turned to 1 page business plans in order to get their businesses off the ground faster instead of opting for a detailed and time consuming approach. In case you had any doubts, here are the advantages of a one page business plan:

  • Since your ideas are changing all of the time, it’s easy to update
  • It provides clarity to whoever is reading it as important information sticks out
  • It’s a good way to generate interest around a business concept
  • It will assist you with your pitch
  • It offers a more affordable approach to product testing and development
  • It helps get your entire team onboard with the company vision and goals
  • With the plan having very specific goals you can create a straight forward strategy around each of them
  • It eliminates the need to find an excuse not to plan and grow.

“Once you understand business models you can then start prototyping business models just like you prototype products.” Alexander Osterwalder.

Related: Simple Money-Making Ideas for Entrepreneurs

How to Prepare a Business Plan

how-to-prepare-a-business-plan

There are many different ways to structure a business plan but the most common/effective sections to include are:

  1. Vision. Your vision should get you fired up and be short and to the point. Talk about what you are building.
  2. Mission Statement. Your mission statement will describe what you do, what your product/service is and who your customers are.
  3. Objectives. Next you can jot down your business goals for the next week, month or year.
  4. Strategies. Provide some insight into how you plan to achieve your objectives.
  5. Action Plan. Explain the steps you will take to action your strategies and remember to add dates to these items to give yourself a deadline.

Business Plan Example

Download this business plan sample to see exactly how you would layout and word your own plan. 

Test-drive Your Business Plan Hypotheses

Now that you have your business plan, here are three simple ways that you can use it:

  • Use this simplified plan to pitch investors. It goes hand in hand with your elevator pitch.
  • Test drive your thinking. Get out in front of as many potential clients, partners and suppliers as possible. In presenting and discussing your offering with them you will receive immediate feedback. This kind of first-hand market research will be invaluable as an early indicator as to whether or not your business plan is on track to becoming a profitable enterprise.
  • Review your plan on a monthly basis to see if you are still on track and revise if need be. It’s also easy to change things up if you decide a certain product or process is no longer relevant to or working for your business.
  • Share the business plan with your management team so that you’re all working towards the same goals

Useful Tips

  • Find out more about the investor you are pitching to make sure that they don’t prefer more detail in a plan
  • Do enough research to validate your objectives and strategies. You need to be able to answer any questions about your idea, your market and your finances.
  • Pair your business plan with your business model canvas to give investors and your team a better idea of how the business will work
  • Use the plan to build yourself and your team a to-do list
  • Consider the lean start-up model if you are developing a new product or service offering and are unsure about whether it’s what your customers are looking for.

Related: 5 Reasons to Start Your Business Today

Feel the Need to Elaborate?

If you feel that a the business plan is not enough to get your business started then there is the option of writing a longer, more detailed business plan without drowning in countless pages.

You can download the business model canvas worksheet here and start building your own or if you want more information on this model you can watch the below video.

Click here to view the format of a full length business plan.

Click here to download a business plan template.

Continue Reading

How to Guides

How To Research And Analyse Competitors

Who are your five most significant competitors? What is their point of differentiation? Some critical questions to ask to stay ahead.

Greg Fisher

Published

on

business-competitors-south-africa

Traditional competitor intelligence (CI) theory suggests that an investigation into a competitor business will analyse four aspects of its behaviour:

  • Goals
  • Management assumptions
  • Strategies and tactics
  • Capabilities

My experience is that to make this exercise more meaningful and valuable for small to medium size businesses, you need to be very specific about the kind of information you are looking for. Here is my checklist of the top ten things you need to find out about your competitors. The items on this list are more clearly defined and more understandable than in traditional CI theory.

These items can therefore empower you, the business owner, to know what to look for when you embark on this exercise.

Related: SWOT Analysis Template

This list is fairly extensive and most small to medium sized businesses do not have the resources to vigilantly track each of these areas explicitly for up to five competitors. You need to ask yourself which of these items is most central to competitive advantage in your industry. Select the three to five that are core, and proactively monitor those areas.

You can be more reactive when it comes to the other items – assessing them as and when you become aware of new information.

1Customer Perceptions

What do customers think of competitors relative to what they think of you?

Customers are the most important source of marketing for any business – there is nothing more powerful than word of mouth. If customers are raving about what your competitors are doing, there is good reason for you to find out why. On a recent business trip to Cape Town I stayed at a particular B&B for the first time. Over breakfast the owner and I got chatting. He asked:

  1. Did I travel to Cape Town often?
  2. Where did I usually stay?
  3. Why had I switched on this trip?
  4. What did I think of the other places I had stayed at?

It was not vindictive or intrusive, but it was a very clever gathering of competitive intelligence. I compliment him for it.

2Product Launches

What new products or services have your competitors launched or are planning to launch into the marketplace? How do these compare with your offering?

New products and services are potential sources of competitive advantage for competitor firms. To respond to new competitive advantages you need to first be aware of them and then assess how great a threat they are. To assess the danger, observe customer responses to the new product or service, take cognisance of what the media is saying and potentially try the product or service yourself. Some of the first people to buy an iPad were Amazon employees who were responsible for the Kindle.

3New Distribution Channels

distribution-channels

What new distribution channels are your competitors using to get their product or service to customers? Will these new channels open new markets? Or will they steal your customers?

Over the years, finding new distribution channels has often been a way of opening up new markets. Amazon transformed the book industry by using the Web as a distribution channel; Tupperware was successful because it found an untapped distribution channel through parties in people’s homes. Only by being aware of how competitors are utilising new distribution channels can you respond adequately.

Related: Competitor Analysis Example

4Recent Investments

What property, plant or equipment have your competitors acquired and how are they planning to use it? Will this provide them with new competitive advantages?

The acquisition of large-scale assets is often a sign of things to come. By monitoring what competitors are buying, you can pick up signals that they are expanding capacity, changing processes or potentially going to launch a new product or service.

5Promotional Efforts

How are your competitors promoting their offering? Has it changed? How are potential customers responding?

Promotional efforts are one of the easiest competitor elements to observe because they are usually in the public eye. When I worked at a large accounting firm one of the other big accounting companies started promoting their brand on TV during rugby matches. This was unheard of in the industry and created a stir in the organisation.

The marketing people responded very sensibly. Instead of looking at what sport they could sponsor, they did an extensive survey to assess the impact of the advertising; they discovered that rugby sponsorship had almost no impact on their clients’ decisions about which accountant or auditor they would hire.

It did, however, have an impact on the decisions of accounting students about which firm they would join. As a consequence, they were able to put processes in place to counter this threat. By observing the change, interrogating its effect and responding appropriately they made some very wise and effective tactical moves.

6Price Adjustments

How have your competitors adjusted their prices? How are customers responding?

Price is both an important and a tricky component of the competitive equation. It is therefore vital to always be aware when your key competitors change their price. When you observe a price change consider whether it is sustainable, ask what signal this is sending to customers and carefully interrogate what effect price has in your sector of the market.

In a commoditised market lower prices may offer some sort of competitive advantage, but most small and medium sized businesses are not competing on price; instead, they compete on customer experience and/or product differentiation. Therefore, by entering into a price war with competitors you may be going down a slippery slope, sucking the entire margin out of your business without ever really setting yourself apart.

7Acquisitions and Partnerships

Have your competitors acquired a stake in another company or entered into a partnership with another enterprise? What might come of this acquisition or partnership?

When Google acquired YouTube, it was a signal that the organisation was getting serious about online video. When a publishing company partners with a software firm, this means it’s probably getting serious about online delivery and ebooks.

Acquisitions and partnerships are a quick way to acquire skills and technologies for major strategic moves. Keep track of where and when they are happening. Many acquisitions are reported in the local business media. You may also hear about them via the industry grapevine, which can serve as a key source of information on competitor acquisitions and partnerships.

8Financial Performance

financial-performance

Are your competitors experiencing improving or declining revenue and profitability?

In the case of private companies, specific information on financial performance can be difficult to obtain. Private firms have no requirement to report their results to the public. Yet, general information on trends in revenue and profitability is often more readily available. A CEO will allude to the fact that a firm is doing well in a local media report; if a firm is laying off workers, that’s a sign that cash flow and profitability are under strain. Although you often can’t obtain specific revenue and profitability numbers, you can infer enough from public sources of data to keep adequate tabs on your competition.

9People Movements

Have your competitors recently hired or lost talented people? What roles do these people perform? What is this likely to mean for their business?

In a small and medium sized business, one person can make a huge difference. An advertising agency which hires a respected new creative director can acquire new competitive advantage in winning clients. When a law firm loses its litigation specialist, this may signal that the firm will no longer effectively compete for litigation work.

People equal advantage and, therefore, being aware of people movements is critical. These movements are also quite transparent; people can’t hide where they work and the industry grapevine is often effective at spreading the news quickly. As a vigilant business owner you just need to be conscious of when this news is of relevance to you and consider what it means for your business.

10Process Improvements

How have your competitors changed their key processes? What effect is this having on their customers’ experience and their profitability?

Process improvements can change a customer’s experience. They can result in on-time deliveries, answered telephone calls, shorter queues and more effective products. Many times process improvements will be preceded by new investments and succeeded by changing customer perceptions, but understanding the link between the investment and the change in perception can help you assess why a competitor is gaining the upper hand and how you should respond.

Related: The Cheat’s Guide to SWOT Analysis Examples

Intelligence Gathering

In the past 20 years, information has become more ubiquitous. The process of finding data is easier but also potentially more confusing. Try these effective and inexpensive ways of gathering competitive intelligence:

News Sources

With Google News (news.google.com), news stories on competitors have become very easy to track. You can simply search past news stories and sign up for alerts about news stories related to your competitors as they break. Another secret about following competitors is that some of the best news sources are often local newspapers that cover local companies – they often get rich data and report it in great detail because of the local interest element.

Websites

Nowadays almost every company has an online presence. Just by regularly checking competitors’ websites, you can track developments in the organisation. Often there are other companies reporting on your competitors – for example, many customer experiences in South Africa, good and bad, are reported on customer service site Hellopeter.com.

Finally, just by doing a Google or Bing search on your competitors, you can see which other sites refer to your competitors, reveal key alliances, networks, suppliers and customers.

Mystery Shopping

If you operate in a consumer-orientated industry, there is no harm in becoming a customer of your competitor to figure out what they are doing and how you can differentiate yourself. Shop in their store, attend their public seminars, call them for a quote or eat at their restaurant.

When I work with business owners I am often surprised by how few of them do this. It is such an easy way of getting to grips with what competitors do well and what they do badly, yet very few people take advantage of it.

Asking Customers

Earlier, I referred to a casual conversation I had with a B&B owner in Cape Town in which he subtly assessed why I had not stayed with him in the past, what I thought of the other places I had stayed at, and what he did well or badly relative to his competitors. Easy conversations with new and old customers can tell you so much about how you are perceived compared to competitors.

Checking with employees

Frontline employees often see, hear and experience things about competitors that people back in the office would never know. Are you giving your salespeople, customer service reps and account managers the chance to share, contrast and consolidate their insights about competitors?

A simple monthly meeting in which employees are encouraged to provide insights about competitors from their frontline interactions can be a gold mine of competitive intelligence.

How Do You Use This Information When You Have It?

Information about competitors should not drive your strategy. It should merely be one of the data points that you consider when setting your strategic goals. It can also affect your day-to-day tactics in implementing those goals. The best way to explain this is by example: let’s assume you have some IT skills and you want to set up an IT business.

You assess the market and see that there is no one providing quality IT services to mid-sized manufacturing businesses in a particular area. Your competitive intelligence helps you discover that there are many one-man operations serving small companies on a relationship basis, as well as a few large players looking for annual contracts that run into the millions.

The big players sometimes sell to the medium sized firms, but they offer them limited personalised attention and ongoing support.

By gathering this competitive intelligence, you discover a gap in the market for a company with a team of customer-orientated technical professionals offering personalised IT services to medium sized manufacturing businesses. You will distinguish your business on the level of service and the scope of projects that you take on. Over time, a few of the one-man operations join together to replicate what you have done. You pick this up by scanning the news, talking to customers, and gathering data from your frontline IT professionals.

This influences your strategy & tactics:

  • On a tactical level, you encourage your account managers to spend more time with customers and incentivise them to renew their contracts with existing clients.
  • On a strategic level, you decide to embark on a
  • Project to create new mini software programmes for your clients.

Because you have been close to them over the past few years you have understood their software needs and you can create programmes to fill the gaps where there are no off-the-shelf solutions to deliver what they require. By creating these programmes you can charge them more for services and retain them as clients. The recently formed new firm of consolidated one-man operations has no similar software to fill gaps for clients.

Your competitive intelligence told you that your current point of differentiation was being challenged, so you decided first to reinforce what you currently have by renewing contracts, and then to build a new point of differentiation. This is how successful companies compete – using competitive intelligence to inform the process.

You Need to Know This – Very Important Advice: A SWOT analysis is important, but it’s not enough. You should also run a Market Analysis:

Continue Reading
Advertisement

SPOTLIGHT

Advertisement

Follow Us

Advertisement

Trending

FREE E-BOOK: How to Build an Entrepreneurial Mindset

Sign up now for Entrepreneur's Daily Newsletters to Download​​