Small business strategy question: Who are your indirect competitors?

Businesses face stiff competition and entrepreneurs must bring to bear all of the tools and strategies and resources they possibly can in order to compete. One activity worth spending time on is to go through my list of 100 small business strategy questions to analyze what your business is like, where the opportunities are, and how you can compete more effectively.

In today’s blog post, I want to go a little deeper into one of the questions: Who are your indirect competitors?

When you think of competition, you probably think of your direct competitors — the companies that sell the same product or service that you do. It’s well worth thinking about them… and it’s worth your time to consider why someone would buy from you instead of your competition.

But one area where a lot of entrepreneurs get blindsided is by not thinking about their indirect competitors — the products and services that aren’t similar to yours but which your potential customers buy instead of yours.

Here’s a simple example: A pencil manufacturer’s direct competitors are other pencil manufacturers. But that’s not the only competitor. A pencil manufacturer also has indirect competitors…

  • Pen manufacturers
  • Among artists: Other drawing media like charcoal, pastel, watercolor, oil paints, etc.
  • Mobile phones and sound recorders (and other electronic devices used to jot notes
  • Remembering! (Okay, that’s not a product or service but it’s an alternate choice that the potential buy can take instead of using a pencil to write down their shopping list or whatever

Here’s a well-known example: Coca-Cola holds a pretty significant marketshare among its soft drink rivals (its direct competitors) but its “share of throat” — an industry term used by the beverage industry to describe overall beverage competition against direct and indirect competitors — is much smaller.

Coca-Cola’s direct competitors are soft drink manufacturers. Coca-Cola’s indirect competitors are alcoholic beverage manufacturers, water bottlers, coffee and tea makers… and even the utility company that sends water to your tap.

As a business owner, you need to not only know who else in town is selling the same stuff as you; you ALSO need to know who else in town is selling something that your potential buyers might use an an alternate or substitute.

This is a tricky challenge because it’s easy for insiders to develop blinders to the way the outside world views your solution. One way to overcome this is to spend time talking to your customers — in person; on social media; wherever! — and try to find out the following two things…

  • Who would you buy from if my business wasn’t around?
  • What problem does my product or service solve/what need does my product/service fulfill?

The answer to these two questions SHOULD hint at who your direct and indirect competitors are.

And once you know, it can completely transform how you market your business and how you package your products and services… and it can even reveal new ways to position yourself in the industry.

Aaron Hoos

Aaron Hoos is a writer, strategist, and investor who builds and optimizes profitable sales funnels. He is the author of The Sales Funnel Bible and he's a real estate investor and a copywriter for real estate investors.

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