While its bad form to steal your competitors’ ideas, there’s a lot any entrepreneur can learn by observing their failures.
“If you’re worried about your business failing, an easy way to prepare for success is to take a look at why your competitors failed before you,” says Samuel Tang, Designer and Gemologist at Joy Creations, an Ottawa-based boutique jeweler.
Tang suggests businesses perform what is known as a “SWOT” test. An evaluation of your (internal) strengths, weaknesses, (external) opportunities, and threats.
“By doing a SWOT test, you’ll be able to learn what went wrong with your competitor quickly,” he explains.
He also recommends looking to their financial strategies. “How did they spend their money? Did they bring on too much staff, or not enough?” he says. Perhaps they were overpricing their products or services. You can glean a lot of information with some careful research.
“Lastly, if you have the opportunity to, play the role of the customer yourself. If you know of a struggling competitor, see for yourself what the issues are that are causing their failure,” Tang says.
By gathering this information, he says, you can save yourself from making the same mistakes.
Joe Bailey, business development consultant for My Trading Skills, which provides on-demand education for financial traders, says “Your competitors’ failures are a golden opportunity for you to learn essential lessons that will help you avoid making the same mistakes and catapult you above your competition.”
He believes it’s important to determine the sequence of events that led to the failure of a business and use that to predict or forecast the chances of making that same mistake in your business.
An additional benefit of competitors’ failures, Bailey advises, is to see how the market reacts to the failure. “Use the insight gathered to capitalize on the opportunity that your competition’s failure has presented to your business.”
Better yet, he suggests you use this information to design a failsafe into your own business should you find yourself in the same situation. “Observe how the competition reacts to its failure, and its attempt to rectify it,” Bailey says. “This information will make it easier for you to bounce back if you ever find yourself in the same situation.”
Lessons from competitors’ failures don’t have to be grand, either, according to Beth Bridges, author of Networking on Purpose and a networking consultant.
“I’ve attended over 2500 networking events and I’ve seen it all. It’s a great way to learn what doesn’t work and how not to approach someone,” she says.
She gives examples of such “failures,” saying: “There’s the person who introduces themselves and then gives you a sales pitch complete with business card and asking for the appointment. The person who won’t stop talking. [And] the person who doesn’t know what to say and apparently wants you to carry on the conversation…”
By discovering what puts you off, you can take notes on how not to behave.
Mark Shandrow, California based CEO of Asana Recovery, a series of substance abuse facilities, says he learned from his competitors’ failures around growing too fast and being unable to manage their cash flow.
“Many programs find that when their beds are full they just add additional capacity, not anticipating normal business cycles or changes in the payer mix,” he says. When business slows down, these companies can’t contract fast enough, he explains, so they lose money.
He’s also avoided spending money on Google AdWords. “I have watched other programs burn money on them,” he says.
However, not all failure is the worst thing that can happen to a business, depending on its scale and scope. He says, “Failure is a big part of being an entrepreneur. You have to continue to test and find solutions for your problems.”