Step 2 for Starting a Small Business

Step 2 for Starting a Small Business: Know Your Competition

You won't get all the customers or clients in your target audience. You will share them with your competitors. And this sharing explains the second step for starting a small business: you want to know your competition.

Partly, you want to know your competition, both the number and type of your competitors, so that can determine if the audience is big enough to support another business--yours.

You want to understand your competition for a couple of other reasons, however, too. Reason 1 is that understanding your competition will make you understand yourself better. If you know how your competitor operates, you'll have a better idea about how you should operate. If you understand your competitors' prices, you'll make smarter decisions about how you should price. All this makes sense, right?

A second really important reason exists for understanding your competition, too. You want to know enough about your competitors so you can explain how your firm differs. For example, maybe you will charge a lower price. That's an important difference--and one that will matter to some potential customers. If you understand the difference, accordingly, you can emphasize the difference and some customers (those shopping on price) will tend to select your firm.

By the way, you should know that while low-cost is a tried-and-true business strategy for competing, small new businesses often have better luck with what's called a "differentiation" strategy. Differentiation just means you do something to make your product or service different. In other words, you add something extra or special that will appeal to some customers. Sure. You do charge extra for the differentiation. But some customers want something extra or something special, will choose you if you provide it, and will then happily pay more.

That's maybe all I need to say about knowing your competition. The logic here is pretty straightforward, right?