When I was learning to hit a baseball, my coach would always say, "Keep your eye on the ball." Perhaps I never never mastered that skill because I'm running a web development company, not playing professional baseball! The principle behind that phrase, however, is quite relevant to running a business.
I'm surprised how much energy people spend focusing on their competitors, especially in small businesses. Don't get me wrong, I think it's prudent to be aware of the competitive landscape and know what your competitors are up to. They are, after all, trying to put you out of business!
The trouble, I think, is when a business becomes obsessed with its competitors rather than becoming obsessed with its customers.
Your competitors may be doing a great job. Maybe they're even doing better than you. But they're not perfect. There are opportunities to own niches they don't own or to add features to your product that their product doesn't offer. The opportunities won't be found by focusing on your competitors, however. They'll be found by interacting with your customers and your potential customers.
In baseball (at least in little league) they tell you to control where you're looking because that will affect where you swing. If you don't look at the ball, you're not likely to hit it.
In business, it's much the same. If you're looking at your competitors all day, that's where your energies will be directed. You'll probably end up becoming a lot like your competitors. You might close the gap between you by trying to match their offering, but you won't revolutionize anything. You won't innovate. You'll be an also-ran.
Focus instead on your customers. Surely your competition isn't addressing every problem or need in your industry. If you connect better with customers, you'll understand their pains and frustrations and needs better. Then you'll be in a position to leapfrog the competition.
If you want to hit a home run keep your eye on the ball all the way in. And remember, your competitor is not the ball.