May 25, 2009 by raymond
In the last post I talked about the goal of competitive analysis. In this post I’ll talk about why (and when) it’s ok to compete head-on.
Let’s review why startups spend so much time showing they’re different. Anyone who’s read (and hopefully re-read) Crossing the Chasm knows that it’s important for startups to find a beachhead, i.e. a niche where they can get some traction without forcing bigger rivals to respond. This is a good strategy because it’s easier and cheaper to start generating results, and revenues, in a beachhead.
But what happens when you’re not the only player attacking a beachhead? Some investors pass on opportunities because there are already one or two funded startups in a space. Others only invest when they see that a space is heating up.
Don’t Be Afraid to Compete
You don’t convince someone you’re going to win a 100-yard sprint by talking about how you have a totally unique approach to running that involves your hands, not your feet. In other words, it’s ok to talk about areas where you and your competitor(s) will compete directly. Your job is to prove how your team, your structure and your approach will mean you’ll win. This is almost entirely overlooked in business plans (and business planning) because we’re all too busy showing why we’re Different, not why we’re Better.
- Funding - I hate to say it as a believer in lean startups, but in some cases more money = more ability to compete. This is true in markets where you’re already competing on price or greenfield markets where there’s a rush to grab open real estate.
- Focus - You may have the exact same product as a competitor but you may be focusing on a different aspect such as bundling/integration, customer service, ease of use etc. You need to prove how your focus translates into competitive advantage, e.g. the best buyers want the best customer service, not necessarily the most features.
- Team - This is why recruiting will always be one of the top priorities of a CEO. In head to head competition the better team (e.g. more experience, more industry contacts, more skilled) will always have a competitive advantage. If you have an A team you should be talking about it front and center.
- Speed - If your startup is built for speed then you don’t need to be first to market. Let your competitor invest in all the R&D and market education. Being a fast-follower is a great head-on competitive strategy and one that’s very well suited to lean startups. Plus it annoys the hell out of your competitors.
- Best Practices – A great way to nullify the competitive advantage of a bigger rival is to adopt industry standards. Being close to the associations that set standards means that competitors cannot say that choosing your product is risky. You won’t have an advantage over competitors but you’ll level the playing field so you can compete in other areas.
I’d like to see more startups openly talk about direct competition and how they’re designed to win that kind of competition. When you think about it, saying you’re unique is just another way of saying your R&D and product development is better than your rivals. In the end there’s a lot more direct competition than startups like to think. It’s ok to compete head-on (assuming you’ve made sure that you have real competitive advantages of course).
May 22, 2009 by raymond
One of the hardest things for emerging companies to get a handle on is analyzing the competition. Investors grimace when we hear “there is no competition” because outside of the world of patents, it’s just not true. But on the other hand, what’s the point of starting a new company when there are lots of competitors, implying a crowded space? Entrepreneurs often get lost somewhere between “no competition” and “too much competition”. This leads to unconvincing business plans or, worse, a strategy that’s blind to real competitive threats.
What’s the goal of competitive analysis?
For most entrepreneurs trying to convince people about a new product, the goal seems to be to prove, at all costs, that what they have is unique. There’s a standard series of tricks to accomplish this, two of my favorites of which are:
It’s pretty easy to define your competitive analysis in such a way that you appear totally unique. The question is, are you defining criteria that your customers care about?
“Competitive Intelligence” vs. “Competitive Analysis”
Whether you’re preparing a VC pitch deck or just strategizing about your business, remember that your real goal isn’t to show that you have a competitive advantage. Why? Because you might not. The real goal is to be an expert about your competitive landscape (and a paranoid one at that). The real goal of the Competition section of your business plan is to impress the reader that you are a) an expert about your competition and b) more paranoid than the reader (since the reader isn’t the one running the business).
The bad news is that being a real expert about your competition takes more time than creating a 2X2 matrix. But the good news is that you’ll be much better prepared for conversations with customers and investors who love pointing out that “Product X already does that”.
Stop Being Afraid to Talk About Your Competition
The takeaway is that you shouldn’t be afraid to have a competitive analysis that seems to be full of competitors. Your job is to show that you have a sophisticated understanding of your industry and where you fit in. I’m always more interested in how a startup is going to compete rather than why they don’t have to.
May 19, 2009 by robin
It’s great to see so many startup enthusiasts out in force and we’re set to do it all again, as we do on the last Wednesday of every month. You are most welcome to bring friends and colleagues. We’ve been seeing 60+ people through the doors and I would love to keep the pace!
Let the drinks and networking begin at Brutopia this Wednesday, 27 May from 5:30pm until whenever.
You can register soon at techentreprise! Techentreprise helps you to connect with the people you meet and even post your own items. But wait, there’s more! You also get a gorgeous name tag on the night and satisfaction of knowing that you’re helping us to plan the best event possible.
May 18, 2009 by raymond
There was quite a lot of interest in our post about Project Olympus, the startup incubator at Carnegie-Mellon University. I think it’s a (good) sign that many people are trying to understand what does or doesn’t work in the university commercialization process. To further help get the information out there I’m posting a detailed follow up from Kit Needham (PDF bio) who is the Senior Business Advisor and Executive in Residence at Project Olympus:
“I am the Senior Business Adviser for Olympus. In response to your very thoughful question, the answer is simply that we truly filled a gap. While there were many professors at CMU who pursued commercialization of their technology that fed into our Tech Transfer system and the other organizations listed, there were many that just had not really considered commercialization. Further, they are often not at the stage where the path to commercialization is obvious. That is where we come in. We have initial exploratory conversations with the faculty and help by providing some preliminary market analysis, walk them through what is involved in commercialization, what their options are, etc. So were are simply creating more, better prepared ‘deal flow’ for our Tech Transfer office and the other organizations in the diagram. For the students, there was no other incubator space where they could meet 24/7, leave their equipment and notes on a white board, and collaborate with other student team members.
Also, when Olympus was getting started and as we grew, we sat down and talked with the staff of these organizations, and explained what we were intending to do. It was clear that this was going to be a true collaboration where what we did complemented and supported what they do. For instance, once one of our PROBEs ‘graduates’ to another agency or organization, they become the primary adviser. We stay informed but are very careful not to be giving conflicting advice. The staff of the other organizations regularly attend our events and, as mentioned earlier, when we think there is a possible fit with one of the organization’s program, we set up exploratory meetings with the faculty (and students). Again, we help identify (and help prepare) good prospects for their programs that they otherwise may not find that connection.
To Ben’s question, we haven’t really been in operation long enough for one of our PROBEs to have crossed the finish line, although one student PROBE is getting close. You can go to our website (olympus.cs.cmu.edu) to see the various PROBEs, link to their websites and see recent news about them as well as see the testimonials.”
Thanks Kit for the excellent comments. One thing I find interesting is how integrated Olympus is with both professors and students who are the source of new startups, and upstream funders and mentoring organization who Olympus can “hand off” projects to. It’s not easy establishing this level of integration especially where every organization wants (and probably deserves) some credit if the project succeeds.
If other people have interesting startup incubator stories they’d like to share please contact me and I’ll post it.