EP1 - Any Given Sunday - Competitive Analysis

Happy New Year, everyone. Welcome to 2021. And I just want to start off before we jump into anything else but to say I am so happy for the new year and I'm looking forward to a 2021 where we can put 2020 behind us. And I know that for, for many, many people in our country, this was such a difficult year, and all we can do is hope for a better year this year and just go after it and do what we're called to do. And so, I just want to welcome you to the new year as we start this first episode of the ESOP Guy podcast for 2021. So those are, um, for those that are continuing on with us, this is the journey to an ESOP and I'm so happy to um continue on. We are getting closer and closer to finishing our first season. And as we think about the next season coming, I think it's just going to be more and more informative and interesting because this year, 2020 though, even though it was a challenging year, it gave us an opportunity to meet and discuss ESOPs with a lot of people across the country and I'm looking to do more of that this year and expand that network of very informative interviews and expand the topics and go deeper with the concept of your company going through this process of going to an ESOP, an employee stock ownership plan. So I'm excited about that. For all of our episodes, please go to journey to ESOP.com and you will find all those there. And with this, I want to start off this episode with this clip. In his 5th year, he went to the University of Houston. First year with the Sharks. He's seen 4 teams in his professional career. All right, listen up 22 Snap. What's the snap you make the call. That's a first. Oh jeez. Oh my God. Oh. If you have not seen this movie, um, it's entitled Any Given Sunday, and we're gonna borrow it today for our podcast. So Any Given Sunday, that was actor Jamie Foxx, who had just taken off to the field and was the very first, he's the 3rd string quarterback on this team in the movie called the Sharks. And I guess the first, the 1st string quarterback got hurt, the 2nd string quarterback got hurt, and now he's the 3rd string quarterback. So it's his very first major game and so he's all nervous and choked up. And he looks at the, the surrounding audience and he looks at the, uh, the field and, and he goes out there to call the first play, and then he gets so nervous that he actually does, um, You know, throw up. And so I thought it was really interesting because competition does all kinds of things to each other, to ourselves as we start thinking about our competitive, the competitive forces um in terms of what we do. So again, the the title of this podcast is Any Given Sunday, time to understand your competition. One of the things that a company going through the ESOP process gets hit with is documenting their competition in the evaluation process. This is done hopefully early on in the evaluation process and not in the deep waters of doing due diligence with the trustees. So, The, the advisor really does need to call out the play of saying, let's, let's talk about your company's competition and really, you know, engage the client to start thinking about um what this landscape looks like because at the end of the day, for a company going through an ESOP, this is going to be evaluated as a risk factor for the company and it's going to be something that I think is fairly important as you go through it. So one of the things that this will lead the company to do is to do some type of competitive analysis. In terms of their competition and documenting the strengths and weaknesses of their own business, um, possibly their products against competition against maybe the service model that they have, but documenting themselves in the realm of competition and where they stack up. This is important and I wanted to do this episode because I think it better equips your company, not just to prepare yourself for this journey to an ESOP, but I think it's also just an important thing to do. And sometimes we lose sight of how important it is to assess the competition. So this is gonna be a very practical episode where we're gonna get into some, some ways to do that. Um, if you like what you hear, please subscribe to the podcast. If you think it might be helpful for somebody you know, please share it with a friend. So let's go to the movie for a second. In this movie, Jamie Foxx, you know, he's the quarterback, he has this opportunity to start the football game, and he's got these nerves of steel that are now turning into something like throwing up right before the game or right onto the football field. And I think it's just a, a really um engaging scene whether it makes you sick or not. It just, oh, hey, we've all been there before. We've all, you know, had maybe had to make a speech in front of some people and we're just like overwhelmed maybe by that sense of nervousness. And I feel like, um, You know, as we, as we think about this movie, as we, as we start thinking about the idea behind um what we're up against in life that we all kind of have to, to, I think just go through that process of knowing that um we're gonna be tested and that, and competition tests us. One of the, one of the really cool parts of this movie is Al Pacino makes this really, really neat speech where he gets into um and you can go on YouTube and probably just download it if you wanted to listen to it. Um, but he makes this motivational speech, and it comes back to this idea that winning is all about inches. And as he talks about it as the football coach to these guys in the locker room. He gets into the idea that inches really do matter and every little inch that they, they either gain or lose, is going to ultimately add up to either the win or the loss. And it becomes this very, uh, heartfelt and cheering and enthusiastic, emotional, um, type of speech. And at the end, that everybody's just chomping at the bit, ready to go out into the football field and win the game. And so, I think those two things are like really good examples of how competition um invades us and makes us either really better and sometimes maybe even actually worse. So what is it about competition that, that pushes us harder to try to do better than we would otherwise? And I think sometimes we have a healthy reaction to competition, and it, it drives us to do our best possible work. And other ways, the other side of it though is there's sometimes it's an unhealthy. Um, obsession with competition, and I wanted to start off really on the outset of talking about competition in our businesses, as really then there's a need that we need to be very aware of for balance and the balance is, is not putting too much emphasis on it, but the other side of the balance is, hey, we, we don't want to completely ignore it either. My experience in the last 30 years in dealing with mid-size and smaller companies. is that many times, most don't really pay attention to the competition, um, and just kind of do what they do. They, they, the school of thought here is that I don't really mind the competition. I'm gonna do what I do, they do what they do, and we kind of all, it just all seems to work out. And, and I'm not saying that's, look, that's not right or wrong. It's just that, I think it's a reality for small to mid-sized businesses that have really a lack of resources, a lack of time as part of the resource, a lack of personnel to devote to this, a lack, and they really are having to prioritize. So it's very difficult. For them to really think and do this, what I'm talking about in this episode is really a competitive analysis of where they stack up or assessment of where they stack up. But the, but as we move through and, and add some hopefully some value to your life through this podcast, one of the things as we go through the, the helping a client go through the journey to an ESOP, is that they're going to be faced with answering all of these questions when it relates to, as it relates to competition. And they're going to be providing information that's going to be requested to them during the due diligence process. So in that, just to, to open that up a little bit, really what's happening is, is that at that point, the trustee and their evaluation firm are pulling together like this check, this checklist, this relate checklist of items that they're gonna want to evaluate. On that look, look, uh, on that list of checklist items, they're gonna be asking some specific questions as it relates to the company's competition. And You know, and I think it's obvious why they're doing it, but again, they're, let me just say that they're buying the company. And when they're buying the company, they're basically going to want to pay what they believe is fair market value for the company. And In order to really evaluate the companies from a fair market value perspective, they need to assess the risk related to the competition. So some of these questions are gonna be like, hey, what is your market share in the in the, in the market that you're, you're driving? That's a hard question to answer sometimes if you haven't done the analysis. How many competitors that do you have in your space? Are you a sole source or main supplier to your customer, or are you um bidding out every year to the same customers with other competitive suppliers? How many customers do you have and what is the breakdown of revenue? And do you have only one major customer? We, we've talked about this last year of customer concentration issues as that gets into risk as well. So, Clearly, when you start thinking about this, there's really the, the extreme example of a company that's in the middle of, of serious competition where they have so many so many competitors and you have the opposite of that is you have a company that's dominating with a monopoly of the market and, and nothing can touch them. And so where do you fall in between it's gonna be something just in general that we're gonna wanna ascertain as we start thinking down the road of, of how do we improve our competitive analysis of our companies. So, when we think about this, um, I guess I wanna, I wanna say the, the other thing that's just, I think in generally just very important. Should we, and this is a loaded question, should you take your competition seriously? What about the competitors that will enter your space in the future? That you don't even know about. How will they compete? We've all seen in the last several years, the head spinning reality of Uber against the taxicabs companies. We've seen Airbnb against the hotels. It's been head spinning because it happened so fast and was so unconventional. No one saw it coming. And I think one of the serious notes about should you take your competition seriously, or competition in general, not just your competition, but just, just generally having competition. Is the is the truth is that technology, as we know it, is going to and has already created new business models, that those new business models directly Not just impair, in some cases, they eliminate other business models and then they were gonna continue to see this trend happening. Um, technology itself to me, this is just my own position on it, is a soulless proposition. Technology cares nothing about the history of your company, cares nothing about your traditions, your, um, your infrastructure, what you've done so far to get to your company to where it needs to. It just will come in and has the ability to waylay any potential business model. And so some of this is just being healthy in terms of thinking about how competition itself is something that um is, is geared around technology and changes in technology that affect me. So I, I could have, you know, a company that has, you know, such a strong market share, but then competition comes in and changes it, or technology comes in and changes it in such a way that I have things change quickly. So, Um, I think when we talk about, should you take it seriously, I think the question too comes back to, it really does depend. I I don't want to be so overarching to say everybody, you know, you're all in trouble, we're all gonna be, our business models are all gonna be different in the next 10 years and we, and we have this desperation. I don't, I don't want to come across like that either. I think it really does depend on your business, your industry. I think it depends on the factors that Um, how much time and energy, you know, in terms of, of understanding your competition will play a role in, in the future. I think many times as I think about a business as business planning 101 is, I, I love um truths and, and things that just kind of play out, but they become discussed as cliches as well. So I think that this is true. And it kind of has the same sense of football. The best defense is a really good offense. Meaning, let's focus and leverage our competitive advantages toward our target market to win that. The inches that we just talked about that we need in our business, and that helps to kind of address how do we deal with competition. But we really do, that doesn't completely eliminate us from the place of really understanding what the competition is because part of building a good offense is understanding what's out there, and we may not have some of the tools that other companies are using that would really improve the way we're doing business, um, to become more and more competitive. So some of this competitive assessment is really to drive us towards better understanding the idea behind what we could continually do and improve in our own offense. So, we're gonna start off with what is the reason from an ESOP standpoint that we care about competition. And so I want to get into this a little bit so it's not just general business discussion. Um, competition, as we agree on it, is a risk for the business. So as I said before, a little companies that have little competition have a competitive advantage in the marketplace, they're gonna be more profitable, they can make more mistakes. Um, on the other side, extreme competition, companies that have a lot of competitors, um, that are constantly entering the market are gonna have, they're gonna have lower profitability, they're gonna have less likelihood of sustainability of of movements in the marketplace. And so that is the risk profile. Now, when we think, when we think about risk in the business, we're gonna, we're gonna provide the terminology behind it, relative to the valuation world. And because when we think about the, the company going towards an EA the first thing we are concerned about is, hey, what is it going to be worth? And in order to really value a business, we have to be more in tune with what the risk of that business is. So, The first concept here is, is what is systematic risk and what is unsystematic risk. So we're, we're getting our heads around that so we can properly understand where the risk of competition comes into play. Systematic risk in a company is really defined as the uncertainty of the future return. On the subject investment or the cash flow of the company due to the sensitivity of movements in the market. So this is typically measured in a valuation when we do a cap rate as the beta, so that beta measures the volatility of the changes in that market, subject to market like market risk. On a, on the other side of it, what we have is unsystematic risk. So this is risk that has um the function of, of how risk factors in the business that are specific to your business affect the overall risk of the business in terms of its, again, it's cap rate. And it's the, this risk, unsystematic risk is found and quantified really by the application of professional judgment. OK. So what that means is I'm the valuation guy, I'm gonna go value the company and I'm gonna come up with um a quantitative measure of your unsystematic risk. So when I look at the two systematic versus systematic risk, I, I know that I'm going to fall in terms of competition on the unsystematic category risk side. So, how does one render their professional judgment as a, as a valuation guy, um, when I put my evaluation hat on, how do I, as a professional, um, render my own quantitative assessment of a business's risks. So that's kind of A loaded question too. So it's like the way I do that is I have to collect data in order to collect the data I have to answer, I have to ask the questions. And so what really this, the rest of this is gonna be dedicated to you, it's really helping you to, to ask the right questions or to be able to prepare to answer those questions um with some concise. Uh, um, process that you're going through that makes sense. So it's not just pulling things, you know, off, off of the internet right away and, um, so that you can populate that checklist that we talked about earlier. So the first, the first step here is what I wanna walk through is, is understanding the benefits of doing this kind of competitive analysis and Analyzing your business against your, your competitors really does help you in in multiple ways. Um, and one is really looking at your own products and services, your own business model, knowing that, and, and I think this is true for business planning again, 101 is every business, just like every person. Has the ability to improve constantly. So whether you call it a core value of continuous improvement, we all know that we have the ability to improve what we're doing all the time and there's always fluidity and movement in our businesses where we're getting better and we're getting worse in certain areas, right? And so, when we're analyzing competitors' business or the competition in general, we're able to grab that data and pull it back into our company to assess what we're doing. And how do we improve it. So I think that's gonna be, as we start off understanding the benefits, that's gonna be a key benefit. Um, and addressing and adjusting your processes. So it's not just, uh, so it's not just getting the data, but it's actually using the data um to improve what you're doing on an ongoing basis. And I, and I wanna kinda throw out on the sidebar here, this is really fundamental to strategic planning, by the way. Um, when you do strategic planning without really assessing the, the competition, I think you're kind of A little bit in the, you know, in the dark on some things and some ways, we wanna, we, we don't want to spend too much time thinking about the competition, but we definitely want to consider what's out there and how do we improve our businesses with it. Um, I think that from a marketing standpoint, understanding your competition allows you to distinguish yourself from the competition. So understanding how the marketing efforts of your competition are coming across and what do you do, um, in your marketing plan and how do you address, now again, again, I want to be really careful about this. I'm not trying to, to take your competition and say let's match what they're doing, um. And chase what they're doing. I think your business is always better off when you are leading the industry or leading the other businesses that, that are, that they're wondering what you're gonna do next, and they're focusing on you. So, but 11 thing I've learned is really does help to see how people are, are communicating their message, um, in, in order to gather the data that you need to create a really strong marketing plan. So, again, that's, that's another direct benefit of, of doing this competitor analysis. So, uh the third thing really is to look at how you, as you, as you really start thinking about the prac some practical data points, is how do you benchmark yourself with the competition, um, measure yourself with future growth. Some of this is done. Um, in financial benchmarking, and this is something that we do directly in doing our own risk profiling for valuation work is to understand the financial benchmarks, but there might be other benchmarks that you see in the competition that will be helpful for you. So, for example, the, the geographic footprint that you, your business has, maybe um you, as you did your competitive analysis, you might find that there's um more of a direct competitor that's closer to your type of customers that maybe your benchmarking is getting closer to those, to those customers in your future business plan. And so you, but you didn't know that until you really looked at the competition and looked at the geographic. Um, the footprint of, of some of your competitors or who's opening where and so some of that, not to get too deep into the weeds with that would be very helpful for you to benchmark and measure your future growth. So, so those are some takeaway benefits I think is, and I think it's important to start with benefits, to be honest, as a business person. I have to be motivated to do things in my business that I feel like there's gonna be a strong return on the investment. As we, as we go into this, I wanna get, so we're gonna, we're gonna have time enough to, to start to scratch the surface. So just so you know, we're gonna end up doing another episode, um, so we get deeper into the tools that we would use. But I wanna cover, um, with the remaining time that we have. I wanna really cover some of the things that you can do, um, just to get started. And we're gonna get into the first step of the competitive analysis is understanding. Um, the who. So, the who is, who are my competitors. Um, and so I want to focus on Um, understanding like the best places to go and how do we actually go about doing that. And the first, the first step here that I think for everybody is to stop and say, um, if I'm the CEO, And I'm doing all this other stuff. I'm not gonna be the one that is going to be the, so that the who is not just uh who my competitors are, it's also who's gonna do this project. So just speaking very practically to you to say, you just need to find somebody and then your business that you feel is, is qualified to do the type of research that we're talking about. And has the time, or at least you're gonna dedicate the time that they're gonna need. And we go back to the strategic planning, we go back to traction and some of the EOS models. This definitely would be a rock. So like just say we're starting off 2021, 1 of the rocks I want my company I need to do is assess the competition, um, and I'm gonna dedicate that, um, I'm gonna, I'm gonna designate that rock to this person in the company and I'm gonna basically outline what they're gonna be doing. So this, this is just practically saying you're who and your company is, you need to find somebody to do it and then that can report back to you. Assuming I'm speaking to the CEO or the, the, the leadership of the company. Um, so the, now the tasks that they're gonna have as they go through it is, it really kind of depends um on the size of your company and everything else. But generally speaking, the task is, is they're gonna really need to outline um the primary competitors in your space. So I would recommend that they populate some type of matrix. And let's just start with the name of the companies, the size of the companies, the number of employees, if you can, if they can get to this level of detail, what is the competitive advantage from a price, service delivery standpoint. And so what we're doing is, and this is probably the simplest thing to do is put this into a spreadsheet, right? Um, but building a matrix of information on your competitors. So as they do that, they're gonna have to go find where the competitors are. So, You know, really, and I think this is obvious, but this is kind of where everybody would start, obviously with Google, right? Let's go through Google and find every company name that we can that fits the, the keywords that we have. So creating a keyword matrix is gonna be important um to help them to say, you know, these are all the things we're gonna search. Those keywords are gonna be built around the your products and services. They're gonna be built around your credentials if you're an engineering firm, if you're um a licensed professional, if you You're, you know, a construction company, if you're a subcontractor doing different types of work, if you're a manufacturing company and you produce certain types of products, you're gonna need to build this list of keywords that they're gonna want to just put in there. And what they're gonna be looking for, um, is anything and everything that fits in like this broad stroke information of, of data that they're gonna want to start to collect and to start putting into this matrix from a very very practical standpoint. So, That's gonna include content and social media. It's gonna include any kind of mention in the news like this company was mentioned in the news or this professional was mentioned in the news. So, um, we might pull out, um, you know, articles or they, they got somebody wrote up an article, a key article on this company. Um, we're gonna be looking and assessing the company's niches and the, the niches or niches, however you like to say that, within that, that spectrum. So what is it that they're known for competitively? Are they the, the best at, you know, this specific product that everybody else is trying to produce and they're the only ones that can get it. Um, what's their, their geographic reach and all that. So, so a lot of that is just gathering as much data as you can and making sure that that keyword list is so um comprehensive. That provides as much information as you can. 11 of the sources I, I use a lot is just LinkedIn. You know, LinkedIn is a great place to look for what's happening in your, in your industry. There's a lot of information obviously on profiles of companies and profiles of individuals in those companies. Um, your own customers might be a good place to, to get the data, like, um, in a, you know, you might ask the question of your customers, hey, who else do you use? And then it's a little bit forward. But it might be really helpful for you to ask that question anyways because you might not even know that they're using, you know, they have 2 or 3 other suppliers and You know, so getting that type of intelligence once we leave the website kind of data collection process, maybe we go then to to directly to um our customers or um individuals that do other business, you know, that sell you business, you know, maybe they're your vendor, um, you might be asking them questions as well like who else do you sell to in the marketplace and just trying to get good competitive information from that standpoint as well. So, Now you can see that's a very wide spread, that's a very wide process in terms of the project itself, and it needs to have some, some parameters put on it. So as we start to collect this information, what we're getting is a ton of data in this matrix and trying to stay, you know, within those columns that we kind of talked about with the name and the size of the company and anything else that you think might be really valid. The next thing that we're gonna want to do with all of that data is we're gonna want to categorize our competitors. And I think that the, the easiest way to do this is to try to, to categorize them into three levels. So the first is the primary competition that we have. The, the, these are the people that we care about the most or the companies we care about the most. There are direct competitors. They do pretty much exactly either what we do, um, maybe they're smaller or larger than us, um, they're targeting the same audience. When we do competitive analysis, we definitely want to be very in tune with Not only our target as a company, our target market, and the demographics of that target market, but we also want to have a little wider approach like what else is out there in that target market that these competitors are touching. And so the primary competition would may have some type of, um, you know, in addition to what they're doing with our target market, they may have other things that they're doing. Now, if I stop that process for a second and just say, hey, the obvious thing with that, if you, if you see that, is that that might lead you to create in your marketing plan and your sales plan that you have for the next year. Um, opportunities to expand your services into new target markets. So, so, simply put, my primary competition is doing it, why can't we? Um, we may not be ready to, to do that, but that's the kind of information that would be super helpful to a company that's going through that. Uh, the next is the secondary competition. These are competitors that may offer, um, maybe a higher end version or a lower end version. They're not really in the same exact space, um, but they're definitely in the space that we're in. And so what we want to do is, is look at, you know, do we want to be more like them or less like them? And this is the secondary competition really allows us to assess what we think are our real competitive advantages are in the business and I think that's gonna be important and as you write, and I would literally write this down as much as you can, is, is what is my competitive advantage in the business, um, that I'm doing right now and what does it need to be? And when I look at, say, you know, the, the actual, what people, companies are known for, you know, Walmart's known for low cost. Amazon's known for being able to ship things free and, and get like almost anything in every, everywhere in in the world. And so, there's different competitive advantages to, to each company as you, as you start building it. We don't want to be everybody's business in terms of, we don't want every customer, right? We want a target market customer that fits, but we want to be really succinct about what our competitive advantages in the process. So we want to write those things down as part of this competitive analysis. And then the other category would be the, the, the third category we're called the tertiary category, and that is businesses that are really related to our business, so tangentially related, um. But they're not exactly directly in it. So they're part of um what we see as the industry itself. And, um, you know, this could be related products and services that are really trending, um, as well as businesses that may be beneficial to partner with down the line. So they're not the direct competition. So like if you sell jewelry, a tertiary competitor may sell gems and stones. So there's this There's this, um, I think channel of distribution that's common, but they, but you're selling different things in that market. This is another area where you might develop a good list of potential acquisition targets. So one of the nice things about acquiring companies that do something in the same space that you do. But in a, it's like you're expanding your channel of distribution, but there's different products you could offer to the same customers and so there might be some advantages to, to doing that. And so, I think one of the things I've, I'm mentioning as I go through these sidebars is The competitive analysis really does help you to provide um data to populate your business planning and strategic planning, um, to, to think directly about your competitive advantages, to think about your potential acquisition targets, um, and in order for you to start to think and how do we position ourselves in the future. Um, I think that's gonna be really, really a great, um, asset out of all of this planning. So, as you conduct your research, I wanted to kind of just encourage you to be organized in all you're doing and to make it easily accessible, easily updable. Um, when we come back to this topic, what we're gonna do is we're gonna get into um a lot more specific as to Pulling that, the first step of, of what we just talked about was, who are we talking about? And we're gonna get deeper into writing out the competitive analysis in another episode, but I think that's a really good place to start because it definitely isn't something that this, this is not something that you can do overnight. And I think you want to incorporate this into your 2021 plan as you start thinking about um preparing your company for a potential ESOP. Um, this will be really important as you start thinking about populating your forecast and how that really, the competitive side plays a role and, and better understanding your financial forecast. So there's a lot to, to talk about when it comes to this. So with that, I wanted to stop and just say thank you again for, for listening to our podcast. We're excited about 2021. Um, if you are a football fan, we're kind of in deep football season and looking forward to the main football game I watch is the Super Bowl. So I'm looking forward to seeing what happens with that. But with that, I just wanted to, to, uh, thank you for listening and we will see you on our next step in this journey to.