Business is a chess game. As you plot your moves, you also need to anticipate your opponent’s plans, and block them — knowing full well that he is doing the same thing. Sun Tzu said it best: “If you know your enemy and know yourself, you need not fear the result of a hundred battles.”

This kind of strategic thinking lets you stay two steps ahead of competition. The first question to ask is: who are my competitors ? Direct competitors offer the same product or service to the same market, e.g. two travel agencies selling tickets to a luxury cruise. But you also deal with indirect competitors, who meet the same need through alternative ways, e.g. a website offering cheaper tickets, since it removes the cost of a travel agent. Both cut into your profit because customers will choose only one way to meet one need.

For this reason, company formation experts recommend that you invest in understanding your consumers’ needs and values so you can convince them that you provide the best option. You must also study how your competitors are already meeting those needs. What will make your product or service different from theirs? How are they perceived by the consumer, what are strengths and weaknesses, and how can you take advantage of those weaknesses to highlight your own strengths?

Knowing your competitor also means identifying his potential — unused opportunities and resources that may not be a current threat, but may develop into one once he makes the necessary investment. Many financial consultants say that the cost of investing in opportunities is far less than what it would cost once competition has made its move on those territories.

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