No matter how unique your product or service may seem to you, you will have competition. Consumers have an unlimited need for things, consumers have a limited budget (the basis of economics). They also will regard your product or service as having competition even if the logic of it escapes you. People niche products into groups where items can be substituted for on another, complement one another, and are purchased only when they have income at a certain level. You will need to think like a consumer of your own goods in order to realize who your competitors actually are. This subject is worthy of its own post and so we will gloss it over for the moment by simply having you jot down who you think your competitors are.
You have your list of competitors ready. Now, think what they could do to hurt your business. Without thinking of any potential solutions, write down all the ways your competitions’ business strategies may hurt or cripple your own business plans. Be broad and general as well as specific and targeted. Depending on your type of business, you may be dealing with both the businesses down the street and the entire global business community on the internet.
Often the actions of other companies will be intended only to help themselves, but at other times their actions may be specifically targeted towards hurting you. What if your company site has a forum, feedback, or comments section and your competition starts posting negative feedback? If you can prove it, you have a way of fighting back (and potentially a lawsuit). If not, how will you deal with this negative feedback? What if the feedback is on other sites that you can’t control? If your competition is right down the street, what if they start cutting their prices to just below yours? Will you engage in a price war? What if a price war eliminates your profits? In general, how will you stay in business if your competition specifically targets putting you out of business? Address that and think of ways of dealing with that scenario so that you can both compete and profit.
Mostly, as stated before, the actions of your competitors will not be personal. They will be their own reactions to consumer behavior and competition in general. They will be motivated by nothing more than trying to increase or retain their profits and their share of the market. In your business plan you will need to discuss how the behavior of other businesses will change your business strategy. How will you deal with increased marketing efforts by your competitors? Will you increase your own marketing efforts? What if your competitors drop the prices on products or services similar to yours? What if a large and highly financed business steps into the arena as your competitor (or already numbers among your competition)? How will you respond?
Depending on your view of the companies involved, you may think of this example as belonging to either the former or the later category. In any case, a prime example of a company being both unprepared for and unable to ultimately respond to the behavior of a competitor would be the rather infamous Netscape Navigator vs Internet Explorer competition. Netscape was an early adopter of web technologies. They pretty much held the monopoly on advanced browsers. They could charge what they pleased and extend or limit the abilities of their browser at will. They had found a sweet spot in a niche market and were rolling in fame and glory (and one would assume money). To make a long story short, Microsoft put out Internet Explorer. Internet Explorer offered most of the features of Navigator. While web developers and designers regarded these products as being quite different (a tag war I won’t get into in this post), in the minds of most consumers these products were identical and interchangeable. The difference was that Navigator was priced at around $40 at that time and Internet Explorer was free. The consumer reaction to this price difference is obvious and the rest, as they say, is pretty much history.
In general, this exercise is to get you to acknowledge that your business will not exist in a vacuum. You will have competition. Your competition may or may not realize you are out there and may or may not regard you as competition. In any case, you must be ready, willing, and able to deal with and respond to the actions of other companies. You also need to acknowledge potential scenarios and how your business will adjust to these potential actions in your business plan.
Perhaps you have already noted that not all the issues you have address in this post (and in the previous one on worst-case scenarios) can be handled in a way that is both graceful and profitable. It has long been acknowledged that all business large and small have a point or points at which they cannot continue to function at a profit. Because of this, you must be ready to face the ultimate worst-case scenario: going out of business.
A business plan requires that you address potential problems bluntly and honestly. In this post I’ll address the fear of failure issues in regards to worst-case scenarios.
We all know the greatest fears of any business potential business owner. They tend to creep into your conscious mind every time you shell out large amounts of money towards starting your business or commit large amounts of time to pursuing your business plans. They can hit you like a rock if you take the plunge and quit your ‘day job” to start your business. So, here are the big questions: What if no one realizes you are in business? What if no one wants your product or service? What if you get some business, but not enough to turn a profit?
These are questions that no person wants to think about when they are planning a new business. But these are questions you must ask yourself in order to complete a proper business plan and to be properly prepared for the reality of business ownership. Take some time to think about the answers to the above questions. Take out a piece of paper and write down all of the things that could go wrong. Lack of customers, potential law suits, customers not paying for products, credit card chargebacks, investors withdrawing funds, negative reviews and feedback, and anything else that may apply to your type of business must be addressed. Allow yourself to be negative about what you are planning to do and face your worst fears of failure. If you have no fears of failure, find the most negative person you know and have them tell you all the ways they think your business could fail.
When you are done with that, mope about it all for a few minutes, and have a good cry if you need to. Now, dry your eyes and take out a fresh piece of paper and think of solutions to these potential problems. Pretend your business is already up and running and treat these issues as if they are happening at various stages of your business’s life and that you haven’t thought about them up to that point. How would you react in a pinch? Now, how would you react if you had had a view into the future and knew it was going to happen? That is the point in this exercise: creating a crystal ball view into your business future.
Since you won’t have to rely on a quick reaction to stay afloat, take the time to think of positive, proactive, and logical ways you will face potentially negative issues.
As many failure scenarios relate to customers and their spending habits, think about ways you may need to be ready to change your marketing strategy. If you don’t have the consumer base you need to stay afloat, how will you respond? Will you put more money into advertising? Offer coupons or discounts to either retain existing customers or create new ones? Back a worthwhile cause to increase your exposure to the community and gain customer loyalty and support? Write down anything you feel will help you win (or win back) customers.
Also, it is often necessary to think about the products and services you are offering. What if the market for your product or service just isn’t as large or even as existant as you think it is right now? Will you diversify or modify your product or service line? Can you change what your company is about at the drop of a pin to suit consumer demand? Would you be willing and able to “re-invent” yourself as is needed to stay in business?
The effects that other companies (aka the competition) can have on our own success needs to be addressed. For now, just think about some of the ways the competition can mess with your business strategy. I’ll leave an exercise on dealing with it in your business plan for another post.
To succeed in business, we must be prepared to fail.
In programming I’ve learned to accept that perfection seems nearly impossible. A simple program should be bug free, but as things get more complex, the probability that it will be bug free gets relatively closer to the odds of winning a few million dollars in the lottery. Errors are even more likely when multiple people work on a project. And a programmer can always rely on the end-user to do something that isn’t intended and cause all sorts of chaos to result. I’m a perfectionist and this concept of acceptable imperfection has always been a very hard thing for me to accept, but accept it I must if I am to succeed in my programming efforts.
Business is a lot like programming: there are many factors both within and outside of your control that can result in bugs or failures. A perfect business strategy must include the realization that the odds are heavily against things going as planned. This fact is the simple reason why business plans require the inclusion of worst-case scenarios, dealing with the competition, and exit strategies: you must be prepared to fail in order to succeed.
In follow-up posts, I will address these issues individually.