How many business plans contain the words, "We have no competition"? Every time an investor or a banker reads these words, he or she cringes. Every business has competition. If you ever find a business without competition, then buy it; do whatever it takes, because that business will make you rich. While you’re at it, see if you can find a business with no customers to deal with or an opportunity that requires no investment of time or money. A business with no competition is fictional.

Never, ever state that your business has no competition. You will instantly lose credibility with your banker or with that potential strategic partner who is interested in learning more. The reason so many entrepreneurs make this mistake is that they confuse competitive advantage with lack of competition. Your competitive advantage is whatever you do differently or better than others; it’s what sets you apart from the competition.

If you’re opening a coffee shop, will you really sell coffee? Or, is the convenience or location of your shop the true attraction? Have you created the place where the cool kids hang out, or do customers come in to buy special baked goods or chocolates? Maybe it really is the coffee. Just make sure that you understand and communicate what "it" is, because your competitive advantage is the essence of your business and your plan.

But, just because you’ve identified a competitive advantage, this does not mean that others aren’t trying to outdo you. Despite the fact that no one else may exactly match your product or service or the way you do business, competitors will try to attract your customers. Neither will your competitive advantage necessarily keep others from simply imitating or expanding your business model if it’s successful. Remember Friendster?

To construct a complete competitive analysis, start by listing all direct competitors. Use web searches, trade associations and publications, the local Chamber of Commerce, and the yellow pages to identify them. Mention pertinent details about each competitor in your business plan. How do their products and their prices compare to yours? What are their competitive advantages? If location is an important factor in your business, then include a map where you plot your competitors’ places of business.

If you are a new entrant to a market, do not assume that businesses with whom you plan to compete will not react (aggressively, if necessary) to maintain their positions. They may lower prices, spend more on marketing, increase their quality, or perform any number of strategies if threatened. Quizno’s built a business model based upon toasting sandwiches for their customers; now it seems that almost every sandwich place does this. If you plan to become the low-cost provider, you cannot assume that competitors' prices will remain the same once you get going. And, it’s likely that an incumbent can handle a price war a lot longer than a newcomer.

Let’s just say you’re lucky enough that it is difficult for you to identify any direct competition. There’s no coffee shop in the neighborhood or anywhere near the proposed location. Your business plan must still identify and address indirect competition. Bookstores, theaters, restaurants, bars, art galleries, even bowling alleys, compete for people’s food, beverage, and entertainment dollars. There’s only so much time and money to go around. Your customers may drive through McDonald’s for their coffee or choose to meet at the library instead of your coffee shop. Any of these venues could represent competition.

Indirect competition does not even necessarily come from other businesses. Many people buy coffee at the grocery store and make it themselves at home or in the office. Similarly, service providers such as plumbers, accountants, travel agents, and carpet cleaners have one big source of competition-customers who decide to perform those services themselves. To compete, you must provide some level of quality or customer service that exceeds what your customers can do for themselves. Your strategy may even embrace customers doing it themselves as a method of attracting business. The big coffee shop chains sell their coffee in grocery stores. Service businesses typically develop relationships and some even teach classes so that when the do-it-yourselfers need extra help, they know exactly whom to call.

The bad news is that you do have competition. The good news is that there is something special about your business. Your business plan should be the place where you identify this competitive advantage and a strategy to capitalize on it. With some creativity and effort, you will attract those customers and become successful.