Competitive Analysis

The Competitive Analysis section of your Business Plan should reflect a great deal of research and analysis to convey that you have a total understanding of your company’s business and its competition. This should take a fair amount of time to prepare and in addition to detailing what you know, try to detail what you don’t know off the top of your head, like facts and figures based on solid research.

Venture Capital firms manage huge amounts of capital and have highly experienced management teams and advisory boards. They will likely put in just as much time, effort and expense researching the competition in your industry as your management team did to prepare the Competitive Analysis section. Probably more.

Investors will see a weak link in your Business Plan and presentation if you don’t have a good handle on your competition. It’s a good idea to start out with an industry overview. Show your knowledge of the industry. Also, be prepared for many questions from the investors.

Many Venture Capital firms have advisory boards with people who are industry experts in their field. Don’t be surprised if they do a conference call with you and one of their experts who will pepper you with questions. During this cross-examination you need to be prepared and confident. Have a list of some facts and statistics that don’t appear in the Competitive Analysis section of your Business Plan which might be good to reference during that conference call.

After leading off this section with an industry overview try doing an analysis of 2 or 3 key competitors. Don’t just analyze what they do and how they do it, but also show how your business is different than theirs, and better, and why. Your Business Plan contains more than just an Competitive Analysis section, so make sure the other sections flow well and there is good integration throughout.

Maybe your competitors follow a “build it and they will come” strategy, whereas your business model is based on becoming profitable quickly on a small scale and then ramping up after you have shown your business model works. Perhaps one of your competitors has general, selling and administrative (GS&A) expenses that are too high and they are barely profitable, whereas your GS&A will be about half of what theirs is currently running. But where would you find this information to draft a highly effective Competitive Analysis?

A good source for information is the Securities and Exchange Commission (SEC) website which lists Electronic Data Gathering and Retrieval System (EDGAR) filings of public companies. In fact, if any of your competitors are public companies you should research them carefully. Go to the EDGAR page of the SEC's website at www.sec.gov/edgar/searchedgar/companysearch.html and type in the name of the competitor you want to research.

There is a tremendous amount of information you will be able to find on EDGAR, and if you don’t do the research, the Venture Capital firms you are talking with will. You don’t want them to know more about your competitors than you do. The information you obtain should help you significantly when it comes to drafting your Competitive Analysis.