Jamaicans love to start their own business. Now the frightening reality is that somewhere between 70 to 90 per cent of all new ventures will fail. But undaunted by that statistic, many of the optimists among us are willing to take the risk even without doing their “due diligence”.

SUCCESS ATTRACTS COMPETITION

Take the matter of competition. No matter who you are, or what type of business you are going into, you will, sooner or later, have some form of competition, whether direct or indirect. I always ask budding young entrepreneurs who their competitors are, or will be, and how will they treat with them. The response usually is that they had not given it much consideration.

Big mistake, and here’s why. Success, whether real or perceived, attracts competition. So if you are a pioneer you will soon have competitors. And if you are entering an established sector or industry, existing players with deep pockets can, for example, set their selling price below your costs, and in short order you may be out of business.

A WORD FROM PORTER

So let us agree that we must give serious attention to present and future competition; but are there any frameworks to guide us in doing so? And what really should we be looking for? Here’s an impeccable source.

“When a company chooses to enter a market, it also chooses its competitors. In the selection of new opportunities, therefore, it is important to realise that not all competitors are equally attractive. Just as markets can be attractive and a company’s strengths can fit those markets, so competitors can be attractive or unattractive.”

– Michael Porter (1985)

That was 1985; and it is even more important in 2017. So how do we go about choosing good competitors when sometimes we don’t even know who they are?

TYPES OF COMPETITORS

Porter speaks of competitive maturity and three competitive positions that may exist: balance, strength, and weakness. For convenience, let us consider the typical weak competitor first and then look at the balanced and strong competitors together as good competitors.

WEAK COMPETITORS

• Have clear weaknesses

• Have limited strategic scope and are therefore focused on the short term

• Can be very risk-averse

• Can have a very high-risk appetite

You may ask why would some competitors in the same industry be very risk-averse while some have a high-risk tolerance. Usually the answer lies in the reason why they are in business and whether entry and exit barriers are high or low.

Their weakness can suck you in. Be careful that you do not end up like them – going nowhere!

GOOD COMPETITORS

Have you ever heard the saying that someone is a Jack of all trades, but master of none? A good competitor isn’t like that. Instead he has a clear understanding of his own weaknesses and therefore leaves opportunities for others in the market. Here are four characteristics of good competitors. They:

• Understand the rules

• Make realistic assumptions

• Know industry costs and set reasonable ROI targets

• Generally support the industry structure

A good competitor can support industry structure if he invests in developing his own product, enhances quality differentiation and promotes market development rather than engaging in confrontational price-cutting or promotional strategies.

So why would you want to enter an industry where the competitors are good, nice and friendly? Nice and friendly they certainly are not. They are simply erecting higher entry and exit barriers to stabilise their industry so that only serious competitors who can enhance their industry will enter.

IS THERE AN UNMET NEED?

But you are determined to go into your own business, and nothing is going to stop you. Here is a word of caution. Since you wouldn’t move into a neighbourhood without knowing what it is like, neither should you start a business without first checking out the competition. So be sure to ask these two questions:

• Is there an unmet market need that you can fill?

• Do you have a concise, clearly defined value proposition that speaks to satisfying that unmet market need?

Not sure how to answer? Beware! You may be choosing bad competitors who may see you as a threat and seek to crush you.

Herman D Alvaranga, FCIM, MBA, is president of the Caribbean School of Sales & Marketing. For more insights on sales and marketing, please go to his blog at www.cssm.edu.jm.