What Can You Learn from Your Competition?: Crash Course Business Entrepreneurship #4
TLDRThis business video introduces Porter's 5 Forces model for evaluating the competitiveness of a company or industry. It explains how entrepreneurs can study competitors to set standards, identify target customers, and find gaps in the market. Rather than cutthroat tactics, the host advocates observing competitors scientifically to learn and innovate better products. The 5 dimensions cover factors like supplier power, buyer power, threat of substitution, barriers to entry, and number of rivals. By researching the competition, entrepreneurs make informed decisions to balance these forces and succeed.
Takeaways
- 😊 Instead of corporate espionage, entrepreneurs should observe competitors to learn industry standards, identify customers, and find market gaps.
- 😀 There can be multiple winners in business markets, not just one monopoly.
- 📈 Paying attention to competitors can reveal economic changes and what customers currently want.
- 👥 Analyzing competitors can identify potential target customers.
- ✅ Competitors reveal gaps in the market that new businesses can fill.
- 🔍 Understanding direct vs indirect competition allows better differentiation.
- 🤝 Supplier power, buyer power, threat of substitution, threat of new entrants & competitive rivalry measure how competitive a business is.
- 📊 More competitors often means lower prices across a market.
- 💡 Entrepreneurs should be aware of weaknesses and have a plan to address high rivalry and threat of new entry.
- 🧠 With more information, entrepreneurs can make better decisions.
Q & A
What are some key things entrepreneurs can learn from competitors?
-Entrepreneurs can learn industry standards for pricing, marketing, contracting suppliers, and more. They can also discover who potential customers are by looking at competitors' demographics and reviews. Finally, observing gaps in competitors' offerings reveals opportunities.
What are the two main types of competition?
-The two main types of competition are direct competition - businesses offering similar products/services to the same customers, and indirect competition - businesses offering different products/services to the same customer base.
What are Porter's 5 Forces and how do they relate to competition?
-Porter's 5 Forces are 5 factors that determine the level of competition in a market: supplier power, buyer power, threat of substitution, threat of new entrants, and competitive rivalry. Analyzing these forces helps assess how competitive a business is.
What can create high supplier power?
-Supplier power tends to be higher when there are few suppliers, suppliers are large, products are rare, or switching costs are high.
What factors can lead to high competitive rivalry?
-Slow industry growth, high fixed costs, low switching costs for buyers, a large number of competitors, and competitors that are aggressive or don't require rest.
Why is learning about competitors important rather than seeing them as enemies?
-There are rarely true monopolies today, so multiple businesses can be profitable in a market by appealing to different customer preferences. Competitors also reveal valuable information rather than needing to be defeated.
What can barriers like patents and regulations do?
-Barriers like patents, regulations, distribution control, and high startup costs can prevent new competitors from easily entering a market.
How does threat of substitution relate to customer loyalty?
-When there are many close substitute products, customers are more likely to switch if prices increase. So threat of substitution makes customer loyalty weaker.
What is an example of an indirect competitor for bookstores?
-Indirect competitors for bookstores are other entertainment/enrichment options like movies, TV, video games, and board games that compete for people's leisure time.
Why does Tom from Rent-A-Swag face a high threat of new entrants?
-Tom has low startup costs and there are few barriers preventing others from starting the same kind of business, making it easy for new competitors to enter the market.
Outlines
😃 Introducing the concept of competition in business
This paragraph introduces the concept of competition in business, explaining that unlike competitions with one clear winner, in business there are often multiple winners as markets have many buyers and sellers. It encourages entrepreneurs to study the competition to answer the question: 'how competitive am I?', emphasizing that competitors provide valuable information on standards, potential customers, and gaps in the market we could fill.
😃 Learning from competitors by understanding market standards and identifying target customers
This paragraph elaborates on what we can learn from competitors. It explains we can discern industry standards for pricing, marketing, partnerships etc. to work smarter. We can also identify target customers by examining competitors' marketing and reviews to understand customer needs, pains, and gains. It distinguishes between direct competition (businesses offering similar products/services) and indirect competition (different products/services offered to the same customers).
😃 Analyzing the five competitive forces and applying them to a business example
This paragraph summarizes Michael Porter's five competitive forces that determine how competitive a business is: 1) supplier power 2) buyer power 3) threat of substitution 4) threat of new entrants 5) rivalry. It explains what factors make each force stronger or weaker. It then provides an example applying these five forces to analyze the competitiveness of a fictional luxury clothing rental business for teens called Rent-A-Swag.
Mindmap
Keywords
💡Competition
💡Market
💡Differentiation
💡Supplier
💡Buyer
💡Substitution
💡New entrants
💡Rivalry
💡Gaps
💡Standards
Highlights
We want to learn all we can so we have the best chance of being profitable
Competitors and customers are both important players in our market
From competitors, we can learn standards for doing business in our market
Pricing is especially tricky. It’s common to underprice products when you’re starting out, but hey, you need to make enough to keep doing business
Besides what customers want, our competition can also tell us who potential customers are
When we talk to customers to understand their jobs, pains, and gains, we need to understand what they’re currently buying to make sure our business isn’t more of the same
We want to offer something valuable and unique that meets customer needs. In other words, we want to differentiate our product
Direct competition is when different businesses offer similar products or services to a wide variety of customers
Indirect competition is when a variety of products and services are offered to the same customer base
Supplier power is high if there aren’t very many suppliers in the market, the product you need is rare, the supplier is large and you’re one of thousands of clients, or switching suppliers is too expensive
Buyer power is high if there aren’t very many buyers in the market, each buyer is very important to your business, or there’s a low cost for the buyer to hop between you and your competition
Threat of substitution is high if changing loyalties appeals to your customers’ wallets
The threat of new entrants is high if such barriers don’t exist
Rivalry is high if growth is slow across an industry, getting out is hard, there are high fixed costs that drive price cutting, or if you have competitors that don’t seem to sleep -- or literally don’t need to, like A.I.
With more information, entrepreneurs can make better decisions. Learn everything you can from the competition, and remember, in business there can be more than one winner
Transcripts
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