A weekly look at Wyoming business questions from the Wyoming Small Business Development Center, part of WyomingEntrepreneur.Biz, a collection of business assistance programs at the University of Wyoming.
By Brett Housholder, Wyoming Market Research Center researcher.
"I want to open a video arcade because there are no other such businesses in town. Since I have no competition, will this be a profitable venture?" Morgan, Torrington
Many people looking to start a business are encouraged when they think they have no competition. The natural assumption is that being the only game in town is advantageous because, well, you're the only game in town. But sometimes entrepreneurs overlook the fact that they have two types of competition: direct and indirect competition.
In the case of a video arcade, direct competition would obviously be a similar business in town. But it's the indirect competition that may be a bigger factor in the arcade's success. An indirect competitor for a video arcade is basically any other form of entertainment on which your customers may spend money.
For instance, your town may not have a competing arcade, but what about a movie theater? A mini golf course? Roller rink? On the surface, these businesses may seem quite different from an arcade but they are all competing for people's "fun money."
Also, do not overlook home video game systems. Another common misconception is that people will go "out" for much of their entertainment. But movie theaters compete with DVDs, restaurants compete with grocery stores and home-cooked meals, and so on. In tough economic times, consumers will replace their "going out" options with in-home alternatives whenever they can.
Let's look at restaurants a bit more closely. Your town may not have an Italian restaurant, but that certainly doesn't mean an Italian restaurant will have no competition. Indeed, it may draw many customers who enjoy Italian food.
But the point is that a lack of direct competitors is never a guarantee that a new business will succeed because there are many other indirect competitors. An Italian restaurant will still compete with Chinese restaurants and other chain fast-food businesses.
If you are looking to start a business in your town just because there are not any identical operations, do not make the mistake of thinking you have no competition. It may not always come in the form of direct competition but there are always indirect competitors that also are vying for consumers' dollars.
For more information, contact Housholder at lazarus@uwyo.edu, call (307) 766-5389 or follow him on twitter at http://twitter.com/BrettHousholder.
A blog version of this article and an opportunity to post comments is available at http://www.wyomingentrepreneur.typepad.com/blog/.
The WSBDC is a partnership of the U.S. Small Business Administration, the Wyoming Business Council and the University of Wyoming. To ask a question, call 1-800-348-5194, e-mail wsbdc@uwyo.edu or write 1000 E. University Ave., Dept. 3922, Laramie, WY 82071-3922.
Posted on Monday, July 13, 2009