Step 1: Understanding your business (Situation Analysis)


Situation analysis is basically done to analyze your:
1. ‘Customer’ and ‘customer relation to product’
2. Location where you could set up your business
3. Competition

Situation analysis gives you a much better understanding about these three things. It is used to understand what kind of environment your company will be in, what are the factors that may affect its possibility to succeed, and what might make your business fail.

Customer & his/her relation to the product

To understand your consumer and his/her relation to your product/service, answer the following:

  • Who is the likely consumer?
  • Where does he/she live?
  • What is his/her age?
  • What is his/her income?
  • What is his/her level of education?
  • How many potential customers are there?
  • Are customers likely to perceive a purchase risk?
  • What needs does the product/service satisfy?
  • How is the product going to be used?
  • What are the other uses of the product?
  • How many units is the customer likely to buy?
  • If it is a service, will the customer have to be present when the service is provided?
  • Where would the customer learn about the product/service (e.g. friends, newspaper)?
  • Who actually would buy the product (e.g. Mom, Purchasing agent)?
  • Who influences the buying decision? (e.g. kids, engineers etc.)
  • How much would the customer be willing to pay for the product?
  • How much would price change affect your customer?

Not all these questions pertain to every type of business. If they do pertain to your business, find out the answers. After finding the answers you will have a very good understanding of your customers and your product/service.

Location where you set up your business:

If you want to start a food stall or a restaurant or plan to go into the retail business, it is very important that you choose a good location for your business. It is also important to choose a good location when you are about to start a production or manufacturing house.

To evaluate the location that you have chosen, answer the following questions:

  • What is the total cost of renting or acquiring the property?
  • What is the estimated cost of any necessary repairs, remodeling etc.?
  • Does the site provide as much space as you need?
  • If customers visit your place of business-
    -Is adequate, convenient and safe parking available?
    -Is public transportation available?
  • Is the location likely to develop "drop in" or "impulse" consumer traffic?
  • Is the site located at a popular area (E.g. Near a movie theater or a shopping complex)?
  • If not, you will have to spend a lot of money marketing your product/service and it will eat into your profits!
  • What other types of businesses are located around your site? Are they going to compete with your business?
  • Is fire protection close by?
  • Are basic utilities available (E.g. water, electricity, sewer, gas etc.) at a reasonable cost?
  • Are you going to be transporting products from one part of India to the other? If so, are the expressways located close to your location?
  • What is the history of the site? What types of businesses were previously run at the site? Why are these businesses no longer there?

After seeking answers to these question you will be able to get a good judgment of how good the location you have selected is.

In some businesses some questions are more important than other questions. For E.g. If you are in the manufacturing business, you will not have too many customers coming to your site. So you do not have to bother about customer parking. If you are in the retail business, customer paring is an important factor.

If you are an entrepreneur you will generally find it most convenient to start of your business right at home. This removes a lot of overhead costs of rent, electricity bill etc.

Only if your business is so large that accommodating it at home will be difficult, think about choosing another location. In some cases, it is required that you set up at some other location, (E.g. when you are starting a restaurant) in that case, you have no choice but to choose the location wisely. Let the location questionnaire above guide you in your decision.


The following is the list of questions that will help you analyze your competition. Answer these questions and you shall know much more about your competitors and how they are going to affect your business.

(Make sure that you do not define your competition too narrowly. For E.g. when you are staring a movie theater, your competition is not only other movie theaters, but also VCD rent places etc.)

  • Who are your potential competitors?
  • What are their strengths and what are their weaknesses?
  • Who are the customers of each competitor?
  • Why might a customer buy from them instead of you?
  • What is the approximate sales volume of each competitor? Are there significant trends in sales?
  • What is market share of each competitor?
  • What is the pricing structure of each competitor?
  • Do your competitors enjoy the support of a strong franchise or parent company?
  • How is each competitor positioned? This means what is the mental image that comes in your consumers mind when he/she thinks about your competitor?
  • How do your competitors promote their products and services?
  • What are the distribution arrangements of the competitors?
  • Who are the suppliers of each competitor?
  • Are there any new competitors that are going to come up in the industry?
  • What are the management strengths and weaknesses of each major competitor?
  • Are the competitors well financed?
  • How committed is each competitor? Will they fight hard for market share?
  • Will the future technological developments affect your competitor? Are they better equipped to handle the change than you?
  • How do the competing products rate in terms of quality, size, appearance etc.?
  • What are the credit terms of the major competitors?
  • How much warrantee do the competitors give for their products?
  • Do the competitors own any exclusive distribution rights that would affect your market entry?
  • What are their hours of operation?
  • How saturated is the competition? Is there room for a new business?

Before you go ahead, you must try to find out the answers to all the questions on this page. This will give you a good understanding of your own business. During the process of finding the answers you may realize that there are certain flaws in your thinking and your business idea. Go back and correct these flaws.

All this information will have to be documented into the business plan. Having information about your customers, competitors etc. tells you how you should run and set up your business so that you can cater to the needs of the market. Having all this is essential if you intend to approach a bank, financial institution or a venture capitalist with your idea.

Next - What do “you” want? (Personal objectives) >>

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Table Of Contents

  1. How to start a company? – Introduction
  2. Is your new business idea “really” that brilliant?
  3. How to make a “perfect” business plan? & Why make one?
  4. Business plan - Step 1 – Understanding your business!
  5.             Step 2 – What do “you” want? (Personal objectives)
  6.             Step 3 – How to form business objectives? & Why?
  7.             Step 4 – How to make the “right” business decisions?
  8.                      - Making the right legal decisions
  9.                      - Making the right production decisions
  10.                      - Making the right hiring decisions
  11.                      - Making the right inventory decisions
  12.                      - Making the right marketing decisions
  13.             Step 5 – Estimating the capital required
  14.             Step 6 – How to “draft” the perfect business plan?
  15. How to raise the capital required for your business?