Know Your Competition
I was recently being pitched by a smart team of guys who are building an interesting business in the digital music space. The team has great domain expertise and plenty of credibility as entrepreneurs who have built a number of related businesses in the past. They were doing a nice job of selling the opportunity . . . until they got to the competition slide.
I have noticed that often times when I am pitched on a business, the competition slide is treated as, at best, a necessary evil. It's in there because it is "supposed" to be, but not much more. Sure, I've seen some really creative ways entrepreneurs have found to place themselves alone in the upper right corner of a 4X4 matrix. And I've heard -- perhaps more often than is merited by reality -- that there isn't any competition. But I rarely get a thorough assessment of how others are approaching the opportunity and how the pitching team is meaningfully differentiated.
So why should you focus on the competition? Isn't that just unnecessarily opening yourself up to questions about your business that may not otherwise be raised? Shouldn't you focus on your own business and its powerful attributes and not on the competition? Sure, the glories of your own product and strategy should be the centerpiece of your presentation, but the competition slide gives you a unique opportunity to show how smart you really are about the market you are attacking. Great entrepreneurs eat and breath the space in which they are building their business. And they don't just internalize their own market strategy, they watch every move the competition makes.
How do you know a great entrepreneur when you meet one? Great entrepreneurs would do a better job running the competition than their competitors are doing. They can tell you not only the ways in which their strategy is better than their competitors', but also the ways in which their competitors have created the very opportunity that they are exploiting. There is nothing more credibility building during a presentation than doing a great job of answering questions about the competition, and nothing more damning than doing a bad job.
My advice to any entrepreneur -- learn as much as possible about the competition. Not just because you'll do a better job of pitching your company, but because you'll do a better job of running your company. And, in the end, that is what ultimately matters the most.
Totally agree with this : "Great entrepreneurs would do a better job running the competition than their competitors are doing" ... and I would say that most entrepreneurs should start their business specifically because they think that their competitor have either a bad vision or a bad execution of it!
By the way, commenting on you blog is a real pain : Yahoo's OpenId is not suported and you should definetely add another way of login!
Very valid point.
The flip side of this is that you should be careful in reading too much, and reacting too quickly to competitors that, like you, have yet to launch and operating "in stealth".
At that phase there are bound to be companies that sound very similar (and might actually be) but it's usually a massive waste of time and a dangerous strategy to try to position against them. More on this at: http://orenlosophy.wordpress.com/2008/05/22/competitive-analysis-early-stage-startups/
I've always found that when pitching your business you can acknowledge there are other teams that appear to be doing something similar but it's too early to worry about them (it's important to acknowledge it though)
Great point.
When I see people who haven't done that, I suspect hubris or fear. To keep a watchful eye on your competition takes both humility and bravery, both useful qualities for building something great. Not that a little arrogance doesn't come in handy, too.
Julien et al... I just enabled Yahoo OpenId (as well as wordpress.com openId) log in to VentureBlog. Comment away!
Totally agree.
If you know your competition,
you will go to the left most lane in the freeway and will overtake them.
If you don't know your competition,
you will go to the right most lane in the freeway and will take an exit.
-Uday.
This is a very timely article. My partner and I just met with a patent lawyer here in Los Angeles and discussed both defensive and offensive strategies to employ in protecting our intellectual property. Being that we are both from an engineering background and fairly new at the game we always concentrated on learning more about how to create our patents and how to protect our technology.
Today, we just got introduced to defensive strategies where we have to carefully analyze the patents of our competitors (or the state of the art) and see what the claims are so we avoid future infringements as well as gain another competitive edge over them from a defensive perspective.
I definitely think that competitors although mostly new themselves can teach you about your business and help you improve how you think about problems. This is not to say you should not be innovative technologically (offensive) as that is the basis of successful disruptive start-ups
It is so true that in every meeting with companies seeking to raise capital, they really try to avoid this section, or provide very poor explanations as to how they are unique.
These tips should be given to every company, before they embark on raising capital.
Dave,
While it is important to keep tabs on every move from the competition, it becomes extremely hard to track stealth mode startups until you come across them during conversation with a customer / partner.
For example, I could have never thought of a mobile advertising company that does device-based ad insertion by interfacing with the mobile OS through a proprietary chip! Every enterpreneur tries to position his / her company uniquely and I concur that the most important skillset needed from a founder is to understand the value-proposition clearly and be able to defend it while talking about competition, may be it a Google or a garage-based startup.
Cheers,
Srini (GoldSpot Media)
Great pointer David.
Another bit of advice to young start-ups...financial forecast.
Why is that an overwhelming majority of financial forecasts predict profitability in the 4th quarter of the calendar year? is there something magical in the start-up universe?
Fascinating post. I like your point about how entrepreneurs can really emphasize their intelligence and abilities to "out-think" their competition by really portraying their understanding of a market to vc's. The question becomes... what are the steps to identifying your competitive landscape. Yes, products and services are obviously focal points of determining this. I think one thing that is overlooked is the ideal client profile. Which companies target the same client profile that you do? This includes looking at the demographic characteristics of an ideal client as well as their pyschographic characteristics. Here is more information about what I'm talking about. Great post though! www.readtheanswer.com/index.php?RTA=web2