Many new entrepreneurs focus all their energy on building their product or service. They create detailed plans for what they’ll sell, how they’ll make it, and what their brand will look like. But when they launch, they’re surprised to find similar businesses already serving their target customers – often with established reputations and loyal followings. Why do so many new businesses struggle to differentiate themselves in crowded markets?

The answer often lies in skipping a critical step: competitive analysis. This essential research helps you identify who else operates in your market, what they offer, and how you can position your business to stand out. Without this information, you risk launching a business that blends in rather than stands out. You might also miss opportunities to fill gaps that your competitors have overlooked.

Take online course platforms as an example. A new platform might research how Udemy structures its pricing and how Coursera organizes its content. This research reveals that some platforms charge per course while others use subscription models. Armed with this knowledge, a new platform could create a hybrid model that stands out from both approaches. The information you gather through competitive analysis affects nearly every aspect of your business plan, from pricing and features to marketing messages and sales strategies.

Finding Your Competitors

To start your competitive research, you need to know who to analyze. Competitors fall into two groups:

Direct competitors sell almost identical products or services to the same customers you want to reach. If you plan to open a coffee shop downtown, other nearby coffee shops are direct competitors.

Indirect competitors satisfy the same customer needs but with different products. For your coffee shop, indirect competitors might include nearby fast food restaurants where people also go for a quick breakfast, or even gas stations that sell coffee to go. Don’t overlook these indirect competitors, as sometimes they reveal surprising insights about what customers truly value. For instance, if convenience stores are selling lots of coffee, speed and convenience might be more important to local customers than atmosphere or coffee quality.

Finding these competitors requires minimal investment but delivers valuable insights. Start with these practical methods:

• Search online using the terms your customers would use. For example, if you’re starting a pet grooming service, search “dog grooming” plus your city name.
• Visit local businesses in your area if you’re opening a physical location. Take notes on their hours, prices, and what customers seem to like about them.
• Check industry association directories. Industries like restaurants, retail, and professional services often have trade groups that list businesses.
• Look at business review sites like Yelp or Google Reviews. Read what customers say about other businesses like yours to spot what people want and don’t want.
• Ask potential customers where they currently buy similar products. Simple questions like “Where do you currently get your coffee?” can reveal competitors you hadn’t considered.

For a physical business like a bakery, create a simple spreadsheet noting the location, hours, pricing, and product selection of competitors. Take photos of their storefronts and menus. For online businesses, save screenshots of websites, pricing pages, and product descriptions.

Free tools can make this research easier. Google Maps helps identify local competitors. Google Alerts sends you emails when competitors are mentioned online, and every time you get a relevant alert, you just enter their business name and set up an alert. Social media platforms show how competitors present themselves and what customers say about them in comments.

Market Research Basics

Competitive analysis is one part of broader market research. This research helps you understand not just competitors, but also your target market and industry trends. Here’s how to expand your research:

Target Market Analysis: Identify exactly who will buy your product or service. Consider demographics (age, income, location), but also look deeper at their needs, preferences, and buying habits. A children’s clothing store might target parents ages 25-40 with above-average household incomes who value sustainable products.

Market Trends: Identify patterns and changes in your industry. Are customers shifting toward online shopping? Is there growing demand for eco-friendly options? For a fitness business, trends might include increased interest in home workouts or specialized classes like HIIT or barre.

Customer Reviews Analysis: Read online reviews of your competitors to understand what customers love and hate. Look for patterns and recurring complaints. For a hotel, you might discover that customers consistently mention slow WiFi or outdated bathrooms across several competing properties.

Basic market research doesn’t require expensive tools. Start with:

1. Google Trends to see if interest in your product or service is growing or declining
2. Industry publications and websites that track changes in your field
3. Local business news sources for regional market information
4. Social media listening to understand what customers are saying about competitors
5. Informal conversations with potential customers about their needs and preferences

Analyzing What You Find

After gathering information about competitors, organize it into categories that matter for your business decisions. Common areas to analyze include:

Products and Services: What exactly do they sell? How do their offerings compare to your planned products? A food truck might note that competitors offer mainly burgers and fries, suggesting an opportunity for healthier options.

Competitive Product Analysis: Look carefully at what competitors are selling. Compare features, quality, packaging, and presentation. For a skincare line, examine competitors’ ingredients, bottle designs, and how they describe benefits. Note gaps where you could offer something better or different.

Pricing Structure: How much do they charge? Do they offer discounts or packages? Note whether competitors use premium pricing, budget pricing, or something in between. A lawn care service might discover competitors charge by the hour rather than by lawn size.

Marketing Approach: How do they attract customers? What messages do they use? Note whether they emphasize quality, convenience, price, or something else. A personal trainer might find that competitors focus on weight loss rather than strength or overall wellness.

Customer Experience: How do customers interact with their business? What do reviews say about them? Look for patterns in negative reviews – these reveal pain points you could address. A small hotel might notice that competitors get complaints about outdated rooms or unfriendly staff.

Business Model: How do they make money? Do they have multiple revenue streams? A yoga studio might discover that competitors make money from classes, merchandise, and teacher training programs.

A simple way to organize this information is with a SWOT analysis, which stands for Strengths, Weaknesses, Opportunities, and Threats. Here’s how to apply it:

• Strengths: What do they do well? A coffee shop might have great pastries or a prime location.
• Weaknesses: Where do they fall short? Maybe they close early or have limited seating.
• Opportunities: What needs aren’t they meeting? Perhaps there’s no coffee shop offering workspace for remote workers.
• Threats: How might they respond when you enter the market? An established coffee shop might lower prices or extend hours to compete with you.

For example, if you analyze a local electronics repair shop, you might find that their strength is fast service, but their weakness is high pricing. This creates an opportunity for a new shop offering moderate pricing with reasonable turnaround times.

Avoid trying to beat competitors on every front. Instead, look for gaps in the market where you can excel. If all local restaurants offer dinner but close early, perhaps a late-night option would fill an unmet need.

Gathering Competitive Intelligence

Competitive intelligence means collecting and analyzing information about competitors to make better business decisions. While it sounds like corporate espionage, ethical competitive intelligence uses publicly available information. Here’s how to gather it:

Monitor Social Media: Follow competitors on social media to see what they promote, how they interact with customers, and what new products they launch. A bakery might notice a competitor posting about new gluten-free options.

Sign Up for Newsletters: Subscribe to competitors’ email lists to see how they communicate with customers and what promotions they run. A fitness studio could learn about a competitor’s pricing strategy through their promotional emails.

Visit Their Locations: If competitors have physical locations, visit as a customer. Note the experience, how staff treats you, and the overall atmosphere. A boutique owner might observe that a competing store has helpful staff but disorganized merchandise.

Check Job Postings: Review competitors’ job listings to understand their growth areas and potential new offerings. A tech startup might notice a competitor hiring several developers with specific skills, suggesting new product development.

Track Advertising: Pay attention to competitors’ advertisements online, in print, and elsewhere. Note what benefits they emphasize and who they seem to target. A dental practice might see that competitors primarily advertise family services, leaving an opening for adult-focused care.

Review Annual Reports: For larger competitors, publicly available annual reports and financial statements reveal business strategies and performance. A small coffee roaster could learn that a larger competitor is focusing on wholesale rather than retail sales.

Organize this intelligence in a simple document or spreadsheet that you update regularly. Include the date of each observation so you can track changes over time.

Taking Action

The insights from your analysis only matter if they shape your business decisions. Use what you’ve learned to:

Find Your Competitive Advantage: Identify what will make your business stand out. This could be better service, lower prices, higher quality, or serving an overlooked customer segment. A pet store might discover that no competitors offer pet-sitting services, creating an opportunity to stand out. Your competitive advantage should be something that:

• Customers truly value
• You can actually deliver well
• Is difficult for competitors to copy quickly

Refine Your Offering: Adjust your products or services based on what’s already available and what’s missing in the market. A clothing boutique might focus on sizes that other local shops don’t carry.

Set Strategic Pricing: Determine prices that position you correctly against competitors while supporting your business model. If all local coffee shops charge $5 for a basic latte, pricing yours at $4.50 might attract price-sensitive customers.

Develop a Marketing Strategy: Create a plan for how you’ll reach customers based on gaps in competitors’ approaches. If competitors rely heavily on social media but neglect email marketing, that might be your opportunity. A marketing strategy should include:

• Your key messages (what makes you different)
• The channels you’ll use (social media, email, print, etc.)
• Your content plan (what information you’ll share)
• Your promotional calendar (when you’ll run special offers)

Plan for Responses: Prepare for how competitors might react when you launch. If you open a discount furniture store, existing furniture retailers might hold sales to compete. Plan how you’ll respond.

Here’s a practical example: If your analysis reveals that local fitness centers all charge monthly memberships and require long contracts, you might plan a pay-per-visit model with no commitments. Your marketing could highlight “No contracts, no monthly fees – just pay when you visit.”

Turn your competitive analysis into action with these practical steps:

1. Create a one-page document listing your top three competitors and how you’ll differentiate from each one.
2. Write down three specific changes you’ll make to your business plan based on what you learned about competitors.
3. Adjust your pricing strategy to account for what competitors charge – decide if you’ll charge more, less, or the same, and why.
4. Develop at least three marketing messages that directly address competitor weaknesses or highlight gaps in their offerings.
5. Create a simple monitoring system to keep track of competitors after you launch. This could be as simple as a monthly review of their websites and social media.

Competitive analysis isn’t a one-time task. Markets change, new competitors emerge, and existing businesses evolve. Set a calendar reminder to review your competitive landscape quarterly during your first year and semi-annually after that.

Put Your Research to Work

Competitive analysis isn’t about copying what others do; it’s about making smarter decisions for your own business. By investigating who else serves your market and how they operate, you gain insights that help you find gaps, set appropriate prices, and create marketing that resonates with customers. This research transforms your business from just another option into one that deliberately meets needs that competitors have overlooked.

As you move forward with your business plan, revisit your competitive findings regularly. Markets evolve, competitors change strategies, and new players enter the field. The entrepreneurs who stay aware of these shifts can adapt quickly and maintain their competitive edge long after launch day.