Assess the Industry

Most industries have settled into a routine or certain ways of doing things as well as relationships and goals that most of the competitors are trying to achieve. There are two ways to think about this routine; first, you can do what everyone else is doing and think of it as tried and true methods to success, or you can think of how you might differentiate and innovate away from that routine in order to improve on what everyone else is doing. When assessing your industry, you should try your best to answer the following questions:

1) How many competitors are there, and what are their advantages?

2) Who are their typical customers, and are their underserved customers or people?

3) What are your competitors’ profit margins, and how can these be improved upon?

4) What are the industry’s best practices, and how can these be improved on?

5) How do businesses in the industry reach out to customers through sales channels, marketing, services, etc.? Is there a way you can improve upon this?


What’s the Competition Doing?

Understanding your competition is the first step in taking advantage not only of their weaknesses but of their strengths as well. When a strategy can’t do this, it should be designed to avoid directly competing in areas that you can’t win. Understanding your competitors requires gathering some basic intelligence on them.

Intelligence gathering:

Step 1: Determine who your competition is.

There are three types of competition. The first and most obvious is direct competition which is made up of those businesses which sell almost the exact same thing you do. The second type of competition is for the fulfillment of needs. People only need to eat so much; they only need so much light, etc. Once these needs are filled, anyone else trying to fill them is likely to fail. The third type of competition is for time. Even the richest person in the world can only be in one store at a time.

Competitors are anyone who replaces your product in the mind of the customers in one of these competitive areas. Porter’s model on threats to your strategy states that “…replacement products are one of the big seven dangers to any successful strategy.” For example, people read fewer newspapers because they spend more time online. They read less of the information in online portals because they go to Facebook more often. People stopped burning candles because of light bulbs, and people may start eating at fast-food restaurants less thanks to improved quality and decreasing costs of TV dinners. Because of this you could argue that a restaurant’s competition can include gourmet food stores and cooking classes not just other restaurants.
Things get a little more complex as you consider that people have a limited amount of money and time. People commuting to work take up time they could be spending in your store, as does Facebook, etc. I would argue that housing competes with almost every other job in the economy. Housing has taken up more time, more money, and works to supersede more needs than any other industry.

Step 2: Pick what you consider to be the biggest risks or the most crucial things you need to know based on your understanding of the business.

"Don't say, 'Find out everything you can about every competitor in the marketplace,' " says John Nolan, who spent 22 years as a military intelligence officer and is now a business consultant. It's far more productive to think of a specific question or problem that is crucial to your company's success. The goal of your intelligence operation will be to gather information to help address that one matter.

As with strategic planning in general, it’s important to get information quickly and in short, usable pieces. It’s impossible to know or track everything which means you must pick what to work on.

Step 3: Review your competitor’s mission statements if they are available.

Most of your competition will likely proudly display their mission or their vision somewhere. Think about what these missions and visions tell you about them and about the industry as a whole. Remember, good mission and vision statements tell you not only what a business is but the direction they are headed as well. The fact that Starbuck’s mission is to dominate anywhere that coffee is sold, for example, should let anyone who is going into this business know that Starbucks is thinking of new ways to compete with them wherever they’re selling their product.

Step 4: Think about your competitors’ brand image. How do they project themselves to customers?

Are they trying to position themselves as low-cost, as high-end, as a part of the local community? What is their personality like, and what are they really selling?

Step 5: Look at what your competitors are selling and what their price points are.

Step 6: Look at what competitors did in the past.

Your competitors’ past actions can give you important insight not only into how they think but into how consumers think as well. Did Pepsi Clear fail because not enough people were interested in buying it? Or perhaps if failed because Pepsi failed to differentiate it properly? If you’re creating a soda company, think about what this failure means. Notice that both Pepsi and Coke (New Coke) have had major and expensive failures changing their base formulas. They’ve also had real successes with changing formulas but only where it fulfilled a missing need such as with diet sodas or actual flavor changes such as cherry. Ask yourself what these failures mean about consumers. What do they mean about how your competitors will view the world in the future, and what strategies are they likely to try or avoid?

Step 7: Where are your competitors strong and where are they weak?

What are your competitors very good at and what are they bad at? Does being bad at something actually impact their business? McDonald’s, for example, has a very hard time projecting an image of health; however, they still enjoy healthy growth rates. Wal-Mart has had trouble projecting itself as a community business yet it’s also the largest retailer. Think about what this says about your customers.

Even when what a competitor is bad at doesn’t hinder their growth, it can help your own if you pick the right strategy. Subway, for example, chooses to focus on health and fresh food as a means of fueling its success against other fast food companies. Because it was different, both it and McDonald’s grew rapidly alongside each other. The fast food companies which suffered were the Me Too companies which followed McDonald’s strategy too closely (Burger King and Wendy’s).

Step 8: See who your competitors are hiring.

The types of jobs companies are hiring for, the expertise they are requesting, how much they are willing to pay, and how many people they are hiring says a lot about the direction they are headed. Some of these signals are clear. For example, when a series of companies recently started hiring touch screen interface designers, it was apparent that they were at least interested in touch screen technology. A restaurant that suddenly needs to hire a lot of servers has likely either had a lot of servers quit (which might signal that they have poor employment policies), or it could signal that they are getting ready to expand or have been expanding. Simply walking into their restaurant and ordering food would let you know if they have enough servers or not allowing you to make a fairly good guess as to the direction they are going.

Step 10: Review Competitor’s leadership.

Run a Google/Bing search of your competitors to determine what they’ve done in the past, and use other legal means to learn about them to see if they have any specific thoughts that would provide information on the direction they’re going.

Step 11: Go to their store, website, etc.

Shopping at a competitors’ store can give you a lot of information about them; how they handle customer service, what they are choosing to stock a lot of, if they have enough employees.

Step 12: Determine where your competitors might be headed given the above information.

There are three things that a company’s past can tell you about what they might do in the future. First, good companies learn from their mistakes and are going to be leery of repeating them. Second, companies and people often work within detectable patterns. There are things they like to do and don’t like to do. Third, good companies focus on the areas that they are strong. Review each of these to guess multiple directions that your competitors may go in.


Step 13: Think about how the competition is going to react to your strategy.

The moment you hit the radar, your competitors have the opportunity to react to what you’re doing. This is why it can be dangerous to sell low without some way of reducing costs because the competition only needs to cut prices to match your strategy. If you target a new market, your competitors might realize that they can target the same market as well. You need to guess how they might react and figure out how you’re going to deal with it. Some of the ways competitors’ reactions have been dealt with in the past include; simply being better than your competitors, getting them to wait to react until it’s too late for them to do so. Having your plan be such that reaction is essentially impossible, or being ready to adjust your strategy when they do react.


What’s Happening in Society and the World?
The world is changing at such a dizzying pace its difficult for many people to keep up with it. This is why your strategy needs to be extremely fluid. Big band music defined a generation changing the way people thought and acted as well as the structure of a number of businesses. Then, all at once, it vanished to be replaced by new ideas. Almost no one has control over what happens in society (a few companies like Apple do manage to control society, but if you run a restaurant, etc., odds are your impact will be limited). This means you must control how you react to society. There are three major types of changes; macro, micro, and migratory. Understanding what’s happening at each of these levels can help you make better judgments about your future.

Micro-changes occur when small groups of existing customers change their spending habits in a way that makes them easier for businesses to target or causes them to stop shopping at your store. Hipsters and hippies would be examples of these trends. They made up only a small percentage of society although they did make a lot of noise which caused a lot of businesses to try to target them. Macro-movements are large, social changes that impact a huge portion of the population. Macro-movements tend to be less extreme than micro-movements, but they often have more permanent impacts, and they involve more people. The movement towards being thrifty, online spending, or purchases of smart phones are macro-trends.

The last of these social changes involves migration patterns. Such patterns include both immigration to the United States and within it. One of the biggest social changes as far as businesses are concerned was the movement of Americans to the suburbs. Without this movement there would be no inner city poverty, and small, inner city businesses wouldn’t have gone out of business. At the same time, it would have been more difficult for large retailers like Wal-Mart to have grown as large as they did if most of their customers had lived in the middle of major cities. It’s interesting to note, however, that, at the moment, urban renewal is occurring in many places because people are moving back into the cities.

Society has been changing at a dizzying pace for hundreds of years, but now these changes are being exacerbated by a number of other changes that are coming ever more rapidly. Any successful strategy must not only take into account these changes as they occur; they must seek to take advantage of these changes. To a certain extent this means that you must invest and innovate around specific trends as much as you do around your core.


Study Other Industries

Many companies in industries other than your own have already dealt with issues very similar to the ones you’re dealing with. Whether they have similar customers, deal with similar social changes, or have to integrate with new technology, companies that may seem unrelated to yours may have found ways of doing things better than anyone in your industry has. Just as importantly, they may have tried a strategy or strategies which didn’t work allowing you to avoid making the same mistakes.


Where are you?

Although the purpose of a strategy is to help you get to where you want to be, you have to begin every strategy with where you are at the moment. Be honest in your evaluation of yourself. List what you’re good at doing and what you’re not good at doing compared to your competition. What are you efficient at; what makes your company special? When doing this, many businesses make the mistake of focusing on their customer relationship, their message, service, etc. While this is extremely important, it’s also important to consider your ability to manage projects, your costs to do business per product, the speed at which you can get things done, etc.