Who Is Your Competition and Where Are They?

If you’re a business owner, you should already know this. But for those looking to either start up a business or buy into a pre-existing one, this information is crucial.  

Before starting Venture Point, I looked seriously at buying a pre-existing business. A couple that I looked at I discovered in my research that strong competitors would be moving next door to the business in a matter of months. This would easily force it either into struggling for survival or extinction.  

I couldn’t help but wonder if the owners knew this was about to happen. Perhaps they didn’t have the confidence or maybe the additional resources it would take to stand toe-to-toe with the competitor? They may have decided it was time to bail out while they could still get a decent asking price. If someone had bought these businesses without researching the locations where competition was or was about to be, it could have been devastating. 

It’s not uncommon to see a Best Buy and Circuit City or a Home Depot and Lowe’s across the road from one another, and the same with certain restaurants. These are large chains that can afford to fight their competition. But for a small business owner, a large chain moving down the road that sells a similar product for less is suddenly in a fight for survival. I live in a high growth area so I see this happening quite a bit. 

Competition is always going to be out there. A savvy business owner must keep up with who and where competitors are and understand what must be done to stay ahead of the game. This is equally important for someone looking to invest in a business. Buying a business without knowing the status of its competition could require additional funding that you were not anticipating, or more of an investment than what you’re willing to make. This information can help you to decide if it’s even worth the investment. 

Buying A Business? Have You Checked Out Its Reputation??

When buying a business there are a number of things to look for. 

One that is sometimes overlooked is the reputation of the business. The reported sales or revenue of the business doesn’t always tell the story. 

I have witnessed a group of successful investors that make a living buying, building up, then reselling a business, make this crucial mistake. Financials indicated that revenue was being maintained and even showing some growth. What this information did not show was how much of it was “new” clients vs. “repeat” clients. 

If it had, the investors would have realized that clients were not coming back because of dissatisfaction with the company. A heavy sales force was keeping the flow of new clients coming in, helping to keep revenues intact, but as anyone in sales knows, eventually you’re going to reach the bottom of that barrel.  

The business and its reputation were being run into the ground but its sales hadn’t reflected it yet. Everything the investors saw indicated a successful business with a tremendous future outlook. But, because of the company’s reputation and some other variables, the new owners are now fighting for survival and have contemplated closing the doors. 

The money they invested in what they thought was going to be used to “building up,” the company quickly turned into money necessary to “rebuild” the company. They would have done better to have started one up like it, instead. 

Bottom line here, when buying a business, check its reputation out in the community with clients and vendors, and as well as its standing within the industry it competes in. This information is extremely important. If you don’t take the time to research this it could be a death sentence.