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Competitive Analysis for Startups: Being Better, Not Just Different

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.

Some examples:

  • 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).

Competitive Analysis for Startups: The Goal

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:

 

 

 

 

 

 

and

 

 

 

 

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.