How to evaluate competition before launching your business
When you think about starting out a business, one of the first things you do is market research. Then, naturally, in the process you start to wonder about the “competition” your business will face if you entered that market.
All to often we don’t know what we should look for to evaluate competition and even when we know what to look for, we don’t know how to get those informations. Let me share my method with you…
Who are the top 5 businesses leading your market ?
At first, you need to concentrate only on mapping the top 5 leaders of your market. Remember the 80/20 rule : 20% of businesses get 80% of the customers. They are the most important to understand your market.
You have to put yourself in the shoes of one of your potential customers :
What would he do if he was trying to find a solution to his problem ?
Most people in western countries would make a search on google.
So that’s where you should start too.
Open a text or excel file and right down all the potential keywords your potential customers would use. If you fall short on keywords ideas their’s two wonderfull tools you can use :
The built-in suggest feature of Google.
Enter the first letters of potential keywords and see what appears.
Right it down on your text file.
To gather more keywords, use Übersuggest, copy/paste all the keywords you already have on their website and collect the new ones.
Then remove duplicates from your list with an online tool (http://www.textfixer.com/tools/remove-duplicate-lines.php) or a script.
Once you got a big list of keywords, you need to sort them to find out what are the most used keywords. Use Google Keywords Planner.
Enter all the keywords you gathered and keep only the the 10 most searched. (you can keep others for later use.)
Go back to google and search those 10 keywords.
Look at the first page of each search. Approx. 71.33% to 94% of clicks occur in the first page of google searches, what you’re seeing is what the vast majority of potential customers see when they search a solution to their problem. You can now right down the top 5 competitors you see the most ahead.
NOTE : This method works for most startups & markets, but their is exceptions. If your primary target customer lives in China, keep in mind they don’t use Google as they primary search engine. Same applies, if you target older generations who may not use computers as their main channel to find solutions to their problems or buy stuff. Be adaptable.
How much traffic do they get ?
Knowing how much traffic they get let you know the potential reach of your startup but also gives you a rough estimate of your competitors market share. So, how do you get this information ?
Use one of those tools :
Similarweb.com (said to be the most accurate)
Alexa.com (the most well-known)
Compete.com
Quantcast.com
(take a look at reviews and comparison of those tools on Google)
Enter your top 5 competitors websites urls and see what’s up.
Where do there traffic come from ?
Using the tools mentioned earlier, you can know how competitors acquire customers (similarweb, etc).
This is key data to understand how they work. From this analysis you can draw patterns about your market, and maybe think about new ways to reach a customer segment.
Which customer segments are they targeting ?
Using the tools mentioned in earlier, you can get information about who are their visitors such as gender, device, age, country…
What is their Unique Value Proposition ? & How do they make money (i.e revenue model) ?
These two last questions can only be answered by you.
I suggest you to fill a Business Model Canvas for your competitors businesses.
It’ll help make yourself an idea of where they stand and what you could do better than they do. It can prove particularly useful if you want to do copycat.
What people do think about competitors ?
Try to intercept your competitors customers whenever they are and conduct live interviews with them. Do a lot of it. Do 1000 interviews if you can.
Search forums for posts about competitors, that’s where people go on rants,
you can learn a lot about what’s good and what’s bad about your competitors.
Pro tip : If your competitors got a lot of customers, but they’re is a lot of complaints, it’s an indicator of a good market.
How much money do they make ?
Are their businesses profitable or are they gulfs ?
If you are in a niche that does not have competition making good money, it is risky to enter. If you have lots of competition, that’s a good thing because that proves that you can make money at it.
You need to find out company revenue so you don’t end up wasting a bunch of time on a company that looks nice but doesn’t actually make the kind of money you aspire to make.
Their’s two ways to get an estimation.
The first one involves calculating probable revenue stream and costs and then making an estimation based on how much traffic they get on their website.
Let’s say we’re talking about a startup who sells robots.
You want to make a startup who sells robot too so you know more or less how much a robot costs to make : engineers, parts…
You saw on SimilarWeb most of their traffic is acquiered throught paid advertising on Google and using Google Keywords / Ads Planner you know roughly how much it cost. (You could also use SEMrush to know which keywords they brought if you want to be precise…)
Anyways, you know more or less how much they spend to acquire 1 customer. You saw their prices of their website and you now know how much traffic they get. Let’s say they do 20% conversion (it means 20% of people visiting their website buy). You now have an estimate of how much they make.
Traffic x Revenue - Costs / Conversion Rate = Net income
Let’s talk about the second method, which is more straight forward.
1. Go to my competitor’s website
2. I look for exact spelling of their business name including LLC and Corporation tags
3. I google that exact spelling
4. I look for results on Google that show me variations of that spelling, other business names associated with that company, and any other information that will help me ensure that I am looking up the correct company(ies)
5. I go to http://www.hoovers.com/company-information/company-search.html and enter the company name
6. I do additional searches for each potential business name spelling
7. I add up all the “sales” and that tells me about how much my competitor is making. You can then subtract costs to get net income.
You can search public and private companies this way. The reason this works is because most companies file taxes. They report to the government how much they make and that data become publicly available. You could go down to the local court house and find this information, but this is much easier.
More…
Those information are rough estimations. Don’t take them too seriously.
Don’t trust press as reliable source to evaluate competitors. Entrepreneurs are professional storytellers and journalists, by nature, tend to like what is sensational.
Become a customer of your competitors yourself and make yourself an opinion first-hand.
Try social-engineering key actors to get information (suppliers, former employees…). I will not go too in depth about it.
I’ll just say it proved very effective for me. Be creative.
If you’re already in business, you should take a more comparative & in depth, approach such as SEO / SEM analysis (PPC, Backlinks…) :
Try out, SEMrush and MajesticSEO.
