October 8, 2010
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Investors believe in companies whose competition is robust enough to prove a large and growing market. Therefore, in your business plan and when speaking to investors, demonstrate your objective knowledge of the sector and industry in which your business competes. Then, clearly illustrate how your business will carve out a niche market for itself within your industry. This will go a long way in leading you naturally through a logical argument that ends in the obvious fact that funding your business is a wise investment.
Acknowledge the number and strength of the competition. This shows a level of sophistication on the part of you the entrepreneur. It proves you understand the challenges you are up against as you initiate, develop, and grow your business â€“ and that you are confident in your ability to overcome the challenges. Acknowledging the competition also goes a long way towards proving there is a large and growing market for your company’s product. Therefore do not attempt to downplay the competition when speaking to investors.
Define â€œcompetitionâ€ as any entity that could fill the same market need as your company fulfills. The competition can be for-profit or not-for-profit. For example, if your company sells bottled water, your competition would include the city water system.
Highlight your top competitors. Thoroughly research their product and target market, and communicate your intimate knowledge with their practices.
Distinguish direct competitors from indirect competitors. A direct competitor is one that offers the same product or service to the same target market as your company does. An indirect competitor is one that offers a different product or service to the same target market; or the same product or service to a different target market.
Use independent industry and market research data to paint a picture of the broader competitive landscape. Cite third-party research findings (preferably from not one but two competing market research firms) about general industry trends. Using your own subjective findings, or citing merely anecdotal research, is a fast track to getting underfunded or not funded at all.
Once you have clearly illustrated the competition, define their weaknesses and how you will exploit them. You may have a more uniquely qualified management team than the competition, a proprietary technology, or an emerging or underserved market which your product serves.
Also, prove â€œbarriers to entry,â€ or those features of your business by which you will keep your customers in your hands, and out of the competition’s hands. Your business may be the only place where your customers’ needs can be fulfilled; offer the best price due to your innovative operations strategies; and other barriers to entry.
The entrepreneur that fully acknowledges the strengths and weaknesses of the competition â€“ and shows how the business will grow in the competitive environment â€“ is an entrepreneur that is poised to get funding. Put these tips for addressing the competition to use when speaking to investors.
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