Without a competitive advantage, your business is at risk.

Every business leader who wants to drive growth must establish a competitive advantage. Your competitive advantage answers the question all target customers will ask: “Why should I do business with you?”

GE’s legendary former CEO Jack Welch said, “If you don’t have a competitive advantage, don’t compete.”

I say, “If you don’t have a competitive advantage, create one!”

But how do you do that? A critical first step is to conduct a competitive analysis to learn the strengths and weaknesses of rival firms so you can create and communicate a competitive advantage to your target customers.

Many firms unwittingly make mistakes, however, that severely limit the usefulness of their analysis and cripple their efforts to create a competitive advantage. Most notably, they don’t define their market and competition accurately.

What’s a market?

Investopedia defines a market as, “A medium that allows buyers and sellers of a specific good or service to interact in order to facilitate an exchange.”

Note that this definition is based on products and services. That may be fine for accounting purposes, but it is not helpful for business leaders who want to identify their true competition. A company should never define its business according to the products or services it sells, but rather by the customer needs it satisfies.

It’s helpful to remember that people buy products and services to get tasks done. People don’t care about our products or services except insofar as the offerings enable them to accomplish their ends — get something done, have an experience, feel a certain way, etc.

True market

A much more useful definition of a market for identifying your competition is, “A group of people that share a common task they want to accomplish.” This is your true market. You don’t only compete with those companies that sell the same product or service that you do, but with anything your target customers use or do to get the same task done. For example:

• If you offer public accounting services, you compete with anything that your target customers use or do to get their financial and accounting tasks done including internal accountants, tax attorneys, QuickBooks, TurboTax, etc.
• If you own a hotel, you compete with anything that your target customers use or do for accommodations such as bed and breakfasts, youth hostels, Airbnb, etc.
• If you lead a professional association, you compete with anything that your target members use to enhance their networks, take charge of their careers and broaden their knowledge.

This definition of a market provides us with a much broader and more strategic view of competition and substitutes. This is your true market. Now you can identify the firms that are helping your target customers get their tasks done well. These are your true competition.