Just about every startup founder at some point or another will need to discuss competitors. This is particularly true when talking to potential investors, such as angels or VCs. How you deal with the topic of competitors is a very important signal and speaks a lot about you and the way you think about your startup.
I’ve heard a lot of startup pitches, and have found some common “patterns” to the mistakes entrepreneurs make when talking about competitors. Each of the tips below is derived from first-hand experience (i.e., none of the examples are made up).
Tips For Talking About Competitors
- Accept That You Have Competitors: Just about every article you’ll ever read about competitors will tell you that you should never say “we are doing something completely different, and so we don’t have any competitors”. This article is no different. I agree completely. Never say that you have no competitors. When I hear this, I believe it is either a sign of arrogance or naiveté. If you haven’t found any competitors, chances are either you’re not looking hard enough or you’re limiting yourself to only direct and obvious competitors (see #3 below). If you’re really struggling with finding competitors, I advise getting help from people close to your startup (team members, advisors or even friends/family). Offer a small reward to those that find the closest and most threatening competitors. Often, a founder has challenges finding competitors to their own startup in ways that are similar to why a programmer has challenges finding bugs in her own software. Get other people involved.
- Be Careful With Criticisms: It is natural to want to weaken the perceived threat of competitors when discussing them. This usually comes in the form of either subtle or not-so-subtle criticisms about their approach, business model, pricing or technology. As an example of what not to say, here is a statement I heard at a recent startup pitch by one of the founders: “Competitor [X] requires users to register on their site before they can do A and B. As such, users clearly prefer our solution as we make it easier for them…” (This is not exactly the wording, but it’s close). Another example, from a different pitch: “Competitor [Y] has built technology that cannot scale like we can.”
I am a strong advocate of a balanced and honest approach when thinking about competition. Let’s assume for a second that both of these statements were true. Even then, I would apply the following filters to criticisms before stating them in conversation:
a) Is The Weakness Relevant? That is, based on the current stage of the competitor and what they are out to do, how limiting will this particular weakness be? So, in the above “their technology won’t scale” argument, I’d counter that in the early stages of a startup, scalability is likely not going to be a life-threatening weakness. By the time scale becomes an issue for them, they may have captured sufficient market-share to survive (and in the process kicked your butt).
b) Is the Weakness Hard To Fix? Too many founders assume that current competitor weaknesses will remain weaknesses. I’d suggest giving your competition more credit. Ask yourself honestly: If they realize this weakness, how difficult will it be for them to fix it? In the example above about “They require users to register”, I’d argue that the competitor could fix this problem almost immediately. They just have to decide to do it.
So, when considering criticisms make sure they are both relevant and hard to fix. Otherwise, you’re not really addressing the competitive threat. I’m not suggesting being overly paranoid, just honest. Face reality. If it’s a real weakness, then talk about it. If not, then don’t – or, if you do, qualify the weakness when discussing it.
- Consider Alternatives and Substitutes: Competition is not limited to direct competition. You likely have several categories of indirect competitors in the form of alternatives and substitutes to your offering. For example, if you’re providing small business CRM software, your competition is not just Salesforce.com and RightNow. Your competition also includes people using Excel to track their customers and prospects – or in some cases, just paper. Which brings me to an important point: Your deadliest competition is often inertia. It’s not that someone else is going to take away the business and grab that particular customer, it’s that nobody gets that customer because the customer continues to live a long and happy life without purchasing anything. (As hard as this may be to believe, many potential customers believe they can get along just fine without you).
- Demonstrate Diligence: The strongest signal of a savvy (and likely successful) entrepreneur is one who can talk about competition honestly. I love to see when startup founders make a habit of tracking competitors and exhibiting a certain level of “diligence” when it comes to collecting competitive intelligence. It’s ok to have competitors. It’s not ok to not spend at least some time researching them and learning from them. [Note: I’m not suggesting that you copy competitors or follow them – just that you watch them].
- Identify Future Competitors: On your list of competitors, you should include people that are not competitors today but have the resources and incentives to become one in the future. A great example is a business that is selling a different product into your target market. Ask yourself if this company has the incentive to offer a similar product to yours – and if they have the resources to do so. If so, then they will have a strong advantage: existing client relationships. Sure, they may not have built a cool, AJAX-driven, socially-aware and mobile empowered application like yours. But, the question is could they?
I don’t think it is necessary (or even possible) to have all the right answers when it comes to competition. In startup-land, it’s often difficult to know details about what the competition is doing, particularly if they haven’t launched their product yet. As such, the key is to be thoughtful about the threat of competition. What do you think? Are there other tips or ideas you have about how best to deal with discussions about competitors? Would love to hear them.