What Can You Learn from Your Competition?: Crash Course Business Entrepreneurship #4
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What Can You Learn from Your Competition?: Crash Course Business Entrepreneurship #4

We’re used to competitions with clear winners
and losers: baseball games, math olympiads, pie-eating contests, and games involving thrones. We crown a victor and everyone else goes home
empty-handed [– or when you play the game of thrones, you win or you die.] In business, though, there isn’t just one
winner. In today’s world, there are very few actual
monopolies, or markets with a single seller. Participation trophies actually mean something! So as entrepreneurs, we have to take stock
in the middle of the competition, and ask the question: “how competitive am I?” Our competitors are more than happy to answer
this for us — maybe not with words, but with what they do. So get ready, it’s time to study up on the
competition. Are YOU up to the challenge?! I’m Anna Akana and this is Crash Course
Business: Entrepreneurship. [Theme Music] I know what you’re thinking: time to break
out the cat burglar ensemble and do some light corporate espionage! Finally! Well, let’s hold off for a second. Movies like to show a cutthroat business world
with lots of men glaring out windows, surveying their vast empires, and scheming to infiltrate
and destroy their competition. But in real life, there’s way more to learn
from the competition than trade secrets. I know. I’m disappointed too. I have a really piercing businessy glare. Instead of spies or emperors, entrepreneurs
are more like scientists. We come up with a hypothesis — our business
idea — and observe our environment to help us make informed decisions. A crucial part of our environment is our competition
— the businesses or products that customers might buy instead of ours. Competitors and customers are both important
players in our market — any structure that allows buyers and sellers to exchange goods,
services, or information. Not the same kind of market where you get
kale and frozen pizzas. From competitors, we can learn standards for
doing business in our market, who our potential customers are, and possible gaps in what’s
currently being offered where we could provide more value. But wait. I thought you said this wasn’t cutthroat. This sounds a lot like using the competition
to get ahead…? I mean, it sort of is. But we’re not being shady or unethical about
it. We’re NOT trying to destroy everyone who
dares to make a product or service similar to ours. We want to learn all we can so we have the
best chance of being profitable — that’s the ultimate goal, right? To make money doing something we love while
making the world a better place? And to do that, our business must be competitive,
and we have to do this research. Plus, nemeses are having their cultural moment
— or at least a Twitter moment. Comparing ourselves to other people can definitely
make us feel insecure, but these days, people are using their foes as fuel for more innovation. This special kind of competitor can push us
to work harder on our ideas, even if they have no idea who we are. Not to mention, our competitors are just as
curious about us. I might be someone’s nemesis and not know
it! So let’s start with the first thing we can
learn from our competitors: market standards. We have to work smart, not just hard, so take
note of what they’re doing. They’ve set price points, created marketing
campaigns, contracted with suppliers, and already have customers. Straight-up copying is illegal, and sure,
not everything will work for your specific business. But gathering this information can give you
an idea of industry standards. 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. And you don’t want to go to market with
a $100 pizza when everyone else is charging $10. Unless you’ve replaced cheese with gold. But what monster would do that? Or if you notice that someone is wildly overcharging
for their service, your calculations may show that you could charge less and still make
a tidy profit. Down the road, paying attention to your competition
can also tip you off to the winds of economic change. Have they slashed prices or rolled out several
new products? Have they rebranded? Have they merged with a related company? All of this information reflects what customers
currently want from your market. Besides what customers want, our competition
can also tell us who potential customers are. We know how important it is to talk to our
potential customers. So if you’re at a loss for who might buy
your product or where to find them, start with your competition. You might find key demographics from public
data, like marketing on their social media channels and website. Or look at reviews on Amazon or Yelp — customers
are telling us all the time who they are and what they like! They’re laying out what gains they want
and what pains are still frustrating. If you still can’t find what you’re looking
for, try going straight to the source — which is about as close to corporate espionage as
we’ll get. Call a non-competitive, similar business in
another state or city so you can ask them slightly deeper questions like “Why did
you price your product this way?” and “What is your biggest target market?” Or go visit a physical establishment and pay
attention to the other customers and the overall atmosphere. Is the place full of angry old ladies, or
mild-mannered Wall Street brokers? What time is it busiest? What is their customer service like? Once we have a sense of what our competitors
are doing, it’s just as important to consider what they ARE NOT doing or what problems they’re
having. Those are the gaps in the market. There might be 100 burger restaurants in your
town, but none of them offer vegetarian options and gluten-free buns. Hello, that’s a gap! I need it! There might be 3 electric scooter rental companies
operating downtown, but none on the university campus. That’s a gap! There might be dozens of dog-walker fliers
in the community center, but none of them send pictures and walk reports. Gap! Huge one! Pet owner here, believe me! 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. Now to really help our business stand out,
we need to understand the two key forms of competition: direct and indirect. Direct competition is when different businesses
offer similar products or services to a wide variety of customers. Your local bookstore, Barnes and Noble, and Amazon are all in direct
competition to sell you the latest fiction gem. Like Hank Green’s “An Absolutely Remarkable Thing.” Which will someday star me… Customers consider lots of factors, such as
price, location, service, and products when deciding where to buy their books. But people have different preferences, so everyone will probably choose different
combinations of those factors. That’s why competition exists, and what
lets you find gaps! The college kid down the block who shops local
may choose the independent bookstore, while the errand-running parent goes to Barnes and
Noble, and the price-conscious retiree uses Amazon. In the end, they all get the same book. On the other hand, indirect competition is
when a variety of products and services are offered to the same customer base. Bookstores aren’t just selling books, they’re
also selling enrichment and entertainment. So indirect competitors of bookstores would
be other things people do to enrich their lives or be entertained, like films, television,
video games, or board games. Movies as a medium can be considered indirect
competition — it doesn’t have to be a particular business like a theater chain or streaming
service. So competition is sort of a multi-dimensional
tug-of-war between businesses, and it’s not easy to be competitive. In 1979, business academic and author Michael
Porter wrote about competition in the Harvard Business Review, and his insights are still
referenced today. Porter’s 5 Forces is no Pride and Prejudice,
but it’s considered a business classic. So it is a truth universally acknowledged
that there are five key factors you have to balance to be a competitive business.The lower
these are, the better. Like 5-hole mini golf. Number one is supplier power. How easy is it for your suppliers — the people
who get you the stuff you need to run your business — to demand higher prices? 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. In all these cases, you’re sort of at the
mercy of their whims. Number two is buyer power. Can you choose your price, or are you constantly
trying to lure in buyers with sweet deals? 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. Number three is threat of substitution. Is anyone doing exactly what you’re doing? When there are lots of close alternatives,
customers are more tempted to switch what business they support if your prices increase. So threat of substitution is high if changing
loyalties appeals to your customers’ wallets. Number four is threat of new entrants. Money attracts competition, so who else could
try to do similar things? More competition means fewer profits for any
businesses currently in the market. Barriers like patented technology or other
Intellectual Property, governmental red tape, lack of access to distribution channels, or
expensive startup costs can prevent this. But the threat of new entrants is high if
such barriers don’t exist. And number five is competitive rivalry. How many competitors do you have? Rivalry is high if growth is slow across an
industry, getting out is hard, there are high fixed costs (like rent, utilities, or insurance)
that drive price cutting, or if you have competitors that don’t seem to sleep — or literally
don’t need to, like A.I. More competitors often means lower prices
across a market. To see how Porter’s 5 Forces can measure
how competitive a business is, let’s go to the Thought Bubble. An enterprising young man named Tom was roughly
the size of an average, 13-year-old boy. So he created a business called Rent-A-Swag
to rent his luxury clothes and accessories — like truly dope pocket squares — to actual
13-year-olds. But just how competitive is he? Tom owns all of the merchandise he rents,
so he’s his own supplier and doesn’t have to negotiate deals and relationships with
other distributors. So Supplier Power is low. There are lots of kids interested in cool
outfits and there are no direct competitors to Rent-A-Swag in his community. Indirectly, Tom competes with department stores
who sell luxury clothes and accessories, but there’s a huge cost for buyers to switch:
a low rental fee is much more affordable than the complete cost of these items. So Buyer Power is low. And as long as Tom keeps his rental prices
below the retail price of his indirect competitors, customers probably won’t change loyalties. So the Threat of Substitution is low. Tom’s entrepreneurial success was because
his initial financial risk was relatively low — he owned all his merchandise and found
cheap real estate to rent — and there were few barriers to entry. But that means there’s not much to stop
other people either, so the Threat of New Entry is high. And if a rival entrepreneur, like an OBGYN-slash-business
tycoon, starts the same type of business across the street, customers would have no incentive
to stay loyal to Tom. So Competitive Rivalry could be high. So even though his business is competitive,
Tom isn’t sweeping the 5 Forces. He needs to be aware of his weaknesses and
develop a plan to balance competitive rivalry and threat of new entry if he wants to succeed. Thanks Thought Bubble! So basically, 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. Next time, we’ll talk about the ins and
outs of making your business legal. Thanks for watching Crash Course Business which is sponsored by Google. And thank you to Thought Cafe for the graphics you saw. If you want to help keep Crash Course free
for everybody, forever, you can join our community on Patreon. And if you want to learn more about competition
in market economies, check out this Crash Course Economics video

About Ralph Robinson

Read All Posts By Ralph Robinson

81 thoughts on “What Can You Learn from Your Competition?: Crash Course Business Entrepreneurship #4

  1. Knowing your enemy is the best thing to do to make more money in your market. It will also help you review you and your business if you are still on track and still solving your target markets problem.

  2. Dunno, did blockbuster get a participation trophy?

    Not to mention the subtle psychological tactics that store like jcpenney used before the CEO that basically revealed the tactic.

  3. I just made $0.20 more in donations for my channel compared to last year when I only made $0

  4. Jeff Bezos, CEO OF Amazon, in interviews suggest focusing on the customer I'd be inclined to agree with him.

  5. Imagine how much we could learn if we worked together instead of constantly stabbing each other in the back in a race to the bottom.

  6. The 5 forces are great to be aware of for entrepreneurs and small business, but holy cow they match up almost exactly with shady stuff that large businesses do that makes customers lives' miserable (here's looking at you, Comcast et. al.)

  7. Gold on pizza? Weeeeeellll, I know a local pizzeria that has a pizza with all kinds of premium topings, including 22 carat gold. As it costs about 1000$ though, no one has apparently yet ordered one. Makes for good advertisement though as it keeps people talking about them.

  8. I believe the best way to beat any competitor is to truly understand what the customer wants and match it 100%. Empathy is key.

  9. On the one hand i find this serries fasinating. Business is maybe the biggest factor in our modern live.

    That being said I always get a existential crisis when watching, my body just reels against the thought of compitition. The moment i start thinking in that way I imidiatly start stressing and losing focus making me preform worse. But that is my problem.

  10. liking competition can help you to go harder and faster, but I think you shouldn't get to watch what they are doing. You could be influenced in a bad way. Stay in your lane and crush them!

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