1. The development of technology in areas related to your product that produces substitutes or superior products.

2. Existing firms that are not presently selling a similar product but may choose to jump into the market.

3. Firms that have a similar product and decide to modify theirs to compete directly with you.

4. New companies that are formed strictly to take advantage of the marketing opportunity you are presenting by “pioneering” the product.

The evaluator cannot be expected to predict technology advancements, breakthroughs etc., since no one that I have ever met has an accurate crystal ball.  It is equally hard to predict which large corporations are likely to become your competitors since many of them are diversifying at an astounding rate and it is all but impossible to predict which little company will be independent today and under the wing of a large parent corporation tomorrow.

A danger here is to underestimate the potential for new competition by counting on the fact that all of your present competitors are small firms.  Remember that if a large company acquires the small company, it may suddenly be armed with talent, expertise, money, and vast resources not available to you.

If the product has no patent or trademark protection, virtually anyone can come along and jump into the market you have “pioneered” and spent time and money to establish, and then they can take advantage of the goodwill you have built, the advertising you have done, and any manufacturing companies or suppliers you are using.  About the only way you can keep market share in this scenario is to offer better and faster service.

On the other hand, if the product is protected by one or more patents (preferably a utility patent to cover function and a design patent to protect form), or you have the chance to establish a trademark name for the product, you may be able to carve out a nice niche for yourself which would be too expensive and not profitable enough for a large company to pursue.

One of the nastiest forms of new competition can come from the employees of companies that you are using to supply parts and components for your product, or companies you have hired to do engineering for you, or develop tooling, or companies which you have contracted with to supply your complete product.

The most bizarre example I can give you was the time one of the new employees of my contract manufacturer in Taiwan stole one of my products from the assembly line on which he worked, took a picture of the product, and placed an ad in the Taiwan Trade Journal offering the product for sale.  The jerk planned on making his own injection molds to produce the product once he got orders for them.  He figured that if his boss was making hundreds of thousands of them, they must be valuable and in demand everywhere.  The funny part was, the product was a subassembly for one of my products which I did the final assembly of in the United States.  The thief did not even know what the product did, or what it was called.  He knew only that there was a demand for it.  After I, by coincidence, saw the ad he placed, I arranged to meet with him to buy some of his “widgets”, and when he arrived for our meeting he was met not only by me, but also his boss, and the Taipei police.  The moral here is to have any company you will be contracting with to produce your products have their employees sign non-competition agreements which contain punitive damages for breaching the agreement.

Another form of theft which can lead to new and unfair or unexpected competition is “computer theft” wherein an employee or outsider, breaking into your company computer, gains information from the computer which allows them to compete with you, or even beat you to market.  This unauthorized entry into your computer files can give a competitor instant access to information and data that may have taken you months or years to gather.  If you are or will be using computers in your business, I suggest you send for a copy of “A Small Business Guide To Computer Security”.  The guide, along with all sorts of other services and helpful publications can be obtained from:

The Small Business Administration

You can call toll free at, (800) 827-5722.

 Or, you can visit their website at: http://www.sba.gov

 Or, contact them by email at answerdesk@sba.gov

The wise evaluator and innovator always attends the latest applicable trade shows and subscribes to all applicable trade Journals, catalogs and publications which feature market trends, new products, acquisitions etc.  Wise innovators always subscribe to the U.S. Patent Gazette to enable them to stay on top of any technology which may arise and affect the product, or any technology which may infringe on the innovator’s patents, trade secrets, trademarks etc.

NOTE:  Call your local fairgrounds and convention centers and ask them for a schedule of any applicable events planned for the current year.  Call your local research librarians and ask them to provide you with a list of trade show promoters applicable to your product.  Write to the promoters and ask for a schedule of events.  It is always better to know about any upcoming competition as soon as possible.

Barriers to Entry
The more “barriers to entry” that your product provides, the less chance you will be “picked off” by either existing or new competition.  Also, the more barriers to entry, the more exciting your product will look to investors.  Essentially these barriers are designed to prevent competitors or would be competitors from entering your market profitably.  An important differentiation between existing competitors and new start up competitors is that new start up competitors have a large up front barrier to entry in the start up costs that existing competitors do not face.  Existing competitors may have economies of scale or mass production capabilities already in place that allow them to have an immediate cost advantage over new start ups.

Don’t underemphasize the fact that existing competitors can use this cost advantage to cut prices in the short run, perhaps lowering their short term profits but in so doing making the start up competitor founder and fail thus ensuring the existing competitor’s long term profits and market share.

Here are a few examples of barriers to entry:

• Provisional patents pending
• Utility Patents existing and pending
• Design Patents existing and pending
• Trademarks
• Copyrights
• Trade secrets in the forms of, formulas, proprietary technology, procedures, proprietary tooling.
• Pricing strategies which make new entrants be forced to operate at a loss to compete.
• Cost advantages through proprietary manufacturing processes, exclusive vendors.
• Advertising, marketing and sales costs which may be higher for would be competitors but which you may be able to keep to a minimum through “guerilla” methodologies not available to competitors.
• Research and development expenditures which new or existing competition would have to do to catch up with you.
• Potential for “sunken” costs through unrecoverable start up expenses should the new competitor choose to back out of the market once they are in it.  Just one example is advertising costs which have no resale value.
• Tariffs, trade restrictions, VAT taxes can be a formidable barrier to entry to your market by international would-be competitors.