From the course: Creating a Business Plan

Know the threat of substitutes

From the course: Creating a Business Plan

Know the threat of substitutes

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- Your business plan has to spell out what the threats are to your product. And one of the biggest threats you'll face is substitute products. What can replace your product? What can solve the customer's problem just as easily and do it cheaper? What substitutes are competing for the same dollars that you are? And remember, it may not be a direct competitor to you. Be able to articulate what those substitutes are and why your customer's going to choose your product versus that substitute. A few examples. I had a guy come to me one time with his awesome business idea. And the problem he articulated was when he gets his socks out of the dryer, they're not matched. And it takes them a lot of time to match his socks together. He shared his business idea was for RFID pairing of his socks. So he would put a small device in each sock. And then when he held them close together, they would beep. Now I looked at him and I said, you know the substitute to your product, right? And he said, no, I'm not sure we don't have any competition. I said, well, I just tie my socks together. And his whole business plan fell apart in that moment. There are always alternatives to your product. I worked at a consumer packaged goods company, and that company sold lawn and garden products. And our CEO one day said, you know who our biggest competitor is? And we were waiting for him to articulate who the other consumer package good company was. And he said, our competition is Google. And everybody looked around the room confused. He said, look, we're both competing for one thing. We're competing for the consumer's time. And that consumer can either spend time in the garden with our products, or they can spend time inside behind their monitor on Google and on the internet. And that's our competition. So how do we position our business to be more competitive with those offerings? Another example is video courses versus classroom training, which is very relevant to me and for you watching this video. People can learn a great deal from video, from the courses that I'm teaching like this. However, I need to be able to differentiate our classroom offerings and show that it's not a complete substitute for what we do. So I have to spell out, this is what you get in the classroom. You get immersion and practice and linkages with your day-to-day job. And here's what you get from video. You get convenience, you get content. And I need to show how each offering benefits the customer. So when you spell out your business plan, lay out what those competitive offerings are, and what those substitutes are. And more importantly, what you're going to do to make sure the customer chooses your product versus the substitute.

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