Entrepreneurs Understand the Competition -- number eight in a series taken from: How to Evaluate and Profit from a Business Opportunity - The Entrepreneur's Guide One of the best ways to evaluate an opportunity is to find out what competitive businesses are doing as compared with the business you are considering. Many areas have local business publications that rank the businesses within an industry; the top twenty-five contractors, or office supply stores, or landscapers, etc. The criterion is usually annual sales, but the information also includes number of employees, contacts and addresses and sometimes even largest clients. Chances are the business you are considering may not be on the list for its industry -- that's okay, if it were it probably wouldn't be for sale. To determine how the business you are considering is doing you should attempt to do business with Number One. See how you are treated, what additional products or services it offers. Ask about warranties and their return or credit policy. See how free they are about giving you the names of satisfied customers. Call some and ask why they especially like about doing business with Number One. I remember when I when I first got into the business of renting warehouse space. It happened at the same time I moved across the country so I had to learn all the local ins and outs, as well as a new business. I remember well seeing the signs offering space for rent and asking the realtors who was the biggest warehouse landlord and learning that Number One had ten times as much space as the company I was working for. In my training period at the home office, I learned the basics but I knew that each area had it's own peculiarities. So before I became known, I went out and tried to lease space in my competitors' warehouses. "How much do you want for 5,000 sq ft. for six months?" I asked. With the second competitor, I changed one of the requirements. "What would 5,000 sq. ft. cost me on a long term deal - say five years?" With number three, I increased the amount of space I wanted. I started asking for them to add an office or an additional bathroom. With each I negotiated a little. "Sounds expensive, I've been told that one of your competitors will make a deal at (and I would throw out a lower price)." I quickly got a feel for who was most negotiable and what type of deals each preferred. Some wanted only bigger tenants, almost all did not want short-term rentals -- none wanted to make improvements. This information gave me an opening. I arranged with a local bank to provide a construction improvement line of credit and I began advertising for tenants looking for one year leases and stating that I would provide improvements. My rental rate included the cost of paying back the bank as well as getting my company what it wanted for the space. My theory was that because the area was growing, vacancy would not be a problem -- I would always find a replacement tenant if one moved out -- but more than likely they would grow and want more space -- and the new rental rate would be based on the old rate which included the cost of the improvements. In addition the improvements in the building, which the tenant had paid for, would make the building more valuable and allow me to ask for higher rental rates for new tenants. If you have the opportunity to meet and befriend a successful restaurant owner, you will quickly learn that he or she spends a great deal of time eating at his competitors' establishments. In doing so not only do they get ideas about new dishes, prices, and dcor, but they also get to meet the servers and sample the work of other chefs. In this way they know who they should steal to come work in their restaurants -- or in the new one they are planning. The best competitor in your industry will show you the best ways to do things that will help you succeed. That business should be your model and the people who run it should be your mentors. You will find more about this topic in chapter seventeen in my book. By Art Consoli www.artconsoli.com |
