Know Your Competition
I recently participated in a day of mentoring with my good friend Alex Norman of N49P. We each met with several dozen founders over the course of the day, then got together afterwards to compare notes. Both of us had the same observation: more than half of the founders we spoke with knew virtually nothing about their competition.
Sure, they could all list one or two big-name incumbents. Several name-dropped similar-ish startups that had recently raised well-publicized rounds. But very few actually understood the competitive dynamics at play in the markets they were targeting. It’s a worrisome trend I’ve seen increasingly as of late.
I’ve previously written about the power of perspective: the fact that, as a founder, one of the most powerful things you can have is a unique perspective, insight or opinion about a market. But in order to have a unique perspective about a market, you have to understand the market. And a big part of that understanding involves the competitive landscape.
The most popular model for analyzing a market’s competitive landscape is Porter’s Five Forces model, which was first published back in 1979. If you’re not already familiar with it, I encourage you to learn about it (and take a stab at using the framework to analyze the forces currently at play in the market you’re targeting — I promise you’ll learn something). But Porter’s model takes the perspective of the incumbent rather than a potential new entrant. So while it’s a helpful framework for understanding the current competitive dynamics, startups founders need to go beyond that and understand the competitive landscape past, present and future.
With that in mind, here are 5 things all startup founders should know about their competition:
1. The Incumbents
First and foremost, it’s essential that you understand the incumbents in your market. But don’t do the lazy thing and just stereotype them as slow, out-of-touch, ancient product, etc. Go a level deeper:
Start by looking at history: how did they get to where they are today? What was the original value proposition they focused on to win customers? Does that value proposition still resonate today (why or why not)?
What are their strengths and weakness? Why do customers choose them over other competitors? What are their vulnerabilities (try to talk to multiple customers to find out what they do / do not like about the product and whether or not those weaknesses are significant enough for them to consider changing)?
How do they sell? What are the strengths in their go-to-market strategy? What are their weaknesses?
What is your competitive positioning against them? Is it credible? What would their salespeople counter with?
The old guys are used to being on top. And they won’t give up without a fight.
(Also, if you’ve never read The Innovator’s Dilemma, do so!).
2. The Challengers
Next up are the challengers: the new entrants to the market who are already several years into their journeys.
Don’t waste time analyzing all the other small fry local competitors doing something similar to you. Focus on the startups that are credibly gunning for the same throne you are. Who are they and what is their unique perspective on the market? In what ways do you agree with that perspective? In what ways do you disagree?
Try to learn as much as you can about both their product strategy and their go-to-market approach and compare/contrast it with yours.
The goal isn’t for you to be better on 100% of the dimensions — ultimately, there will be 3-5 winners that matter in each generation of companies. Instead, think deeply about why their approach makes sense, what you can learn from it and how you can eventually compete with it.
3. The Fallen Stars
What’s past it prologue, especially when it comes to startups.
Who are the companies that tried to disrupt this market before but didn’t succeed? What worked for them? Why did they fail?
If there are failed startups that had a similar value proposition to you, it’s essential that you be able to answer the question: why will your outcome be different?
Many founders are more than willing to share their stories and lessons learned (especially off-the-record to other founders). Try reaching out to the founders of prior generations of startups in the market and see if they’d be willing to jump on a call with you. (From a fundraising standpoint, I promise that every investor will be extremely impressed if you can talk in specifics about the reasons why other startups going after this market have failed.)
4. The Neighbors
Now pop your head up a level: who else could credibly make a play for this market?
Porter’s Five Forces model considers the threat of buyers and suppliers moving up/down market, but not about players in adjacent industries. In the world of software, we also have to consider integration partners and other adjacent products and services in addition to platform providers and more traditional “neighbors”. You’re probably used to investors asking you what market you’re going after next, but what about the inverse?
What companies are likely to expand into the market you’re starting out in?
5. The Inflections
In his recently-published book, Pattern Breakers, Floodgate Cofounder Mike Maples, Jr. introduced the concept of “inflections”:
We’ve defined an inflection as a change that a start-up can exploit to radically alter how people think, feel, and act.
While most founders are used to thinking about macroeconomic trends at a high level (e.g. in order to answer the question, “why now?”) the concept of an inflection is much more specific. It encapsulates the change that is occurring, the impact of that change on all of the players in the market (both existing and new), and timing.
You may have correctly identified an inflection, but if you act too quickly to harness it, you’ve got a science project. It’s too soon to radically change human behavior. If you act too slowly, you’ve got what is now a conventional idea, embraced only after it became obvious to many others—leaving your idea to compete against a crowded field. There’s a Goldilocks moment, neither too early nor too late but just right, when you can bring about meaningful change.
What inflection has either recently occurred or is about to occur that will significantly impact the industry? What opportunities does it provide your startup? What challenges is it likely to deliver to incumbents and challengers? Why is your company uniquely positioned to capitalize on the inflection?
Thinking about inflections within the context of competition forces you to consider how the chess board is likely to unfold over a longer time horizon. It’s generally naive to think that nobody else is aware of the technical and/or societal changes driving your strategy, so why are you uniquely positioned to take advantage of them? If the inflection is truly significant, then your competition certainly won’t stand still and do nothing. Which is precisely why “What if Google builds it?” is no longer a bullshit question.
A final note: while it’s important for you as a founder to know your competition, it’s also important that you not be obsessed by it. Avoid going down rabbit holes every time a tiny startup that might be doing something similar announces something. It’s important to know the competitive landscape, but stay focused on building, shipping and selling. Ultimately, that’s how you’ll win.