• Step 1: Identify your competition
  
• Step 2: Analyze strengths and weaknesses
  
• Step 3: Look at opportunities and threats
  
• Step 4: Determine your position
  

Every business has competitors, and you need to take the time to discern who your customers can approach to get a product or service that fills the same need as yours does.

Begin by looking at your primary competitors. These are the market leaders, the companies who currently dominate your market. They are probably the ones who you find yourself bumping up against in your search for new customers.

Next, look for your secondary and indirect competitors. These are the businesses who may not go head-to-head with you, but who are targeting the same general market. (e.g. Bed and Breakfast Inns)

Finally, look at potential competitors. These are companies who might be moving into your market and who you need to prepare to compete against. 

After you've figured out who your competitors are, determine their strengths and find out what their vulnerabilities are. Why do customers buy from them. Is it price? value? service? convenience? reputation? Focus as much on "perceived" strengths and weaknesses as you do on actual ones. This is because customer perception may actually be more important than reality.

It's a good idea to do this strengths/weaknesses analysis in table form. Write down the names of each of your competitors. Then set up columns listing every important category for your line of business (price, value, service, location, reputation, expertise, convenience, personnel, advertising/marketing, or whatever else is appropriate to your type of company). Once you have this table set, rate your competitors, and be sure to put in comments as to why you've given them that rating. You might even want to put strengths in red and weaknesses in blue, so you can tell at a glance where each competitor stands.

Strengths and weaknesses are often factors that are under a company's control. But when you're looking at your competition, you also need to examine how well prepared they are to deal with factors outside their control. These are called opportunities and threats.

Opportunities and threats fall into a wide range of categories. It might be technological developments, regulatory or legal action, economic factors, or even a possible new competitor. For example, a photo developing store needs to know how well its competitors are prepared to deal with the advent of digital photography. Or a company that sells over the Web should analyze how its competitors are prepared to deal with online security issues.

Again, an effective way to do this is to create a table listing your competitors and the outside factors that will impact your industry. You will then be able to tell how they can deal with opportunities and threats.

Once you figure out what your competitors' strengths and weaknesses are, you need to determine where to position your company versus the competition. Some of this may be obvious from the results of your analysis, but it also pays to take a hard look at how your business operates.

One of the most effective ways to do this is to create a strengths/weaknesses opportunities/threats analysis of your business. Rank your company in the same categories that you ranked your competitors. This will give you an even clearer picture of where your business fits in the competitive environment. It will also help you determine what areas you need to improve, and what characteristics of your business you should take advantage of to gain more customers.

The bottom line: look for ways to leverage your strengths and take advantage of your competitors' weaknesses.