Startups: Tips for Talking About Competitors

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Startups: Tips for Talking About Competitors

 


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
 
  1. 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.

  1. 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.
  1. 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).

  1. 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].

  1. 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.

Posted by Dharmesh Shah on Mon, Aug 14, 2006

COMMENTS

Really good points. I especially like the point about inertia.

Perhaps you could comment on the difference between competition from similar startups vs. competition from mega-corporations.

posted on Monday, August 14, 2006 at 9:34 AM by Ryan Elisei


One of my board members in my startup used to say, very correctly, "our biggest competitor is percieved need" or "Percy" for short. That is, many prospective customers didn't really need what we sold, so, duh, they didn't buy it.

There's a trap for the unwary entrepreneur. If you give your stuff away early on, you'll never find out when you lose a sale to Percy. If you charge something, it's much easier to measure how strong a competitor Percy is.

When you're up and running, selling stuff, the Lost Sale Report is a tremendously valuable tool for competitive analysis. It takes a lot of discipline to do this right. Some person, NOT your sales rep, calls the prospect who didn't buy. She starts the conversation by saying something like, "We have a great deal of respect for your decision. I'm curious about how you decided not to accept our proposal. Could I have a few minutes of your time to hear about that?" Then she lstens, NEVER trying to change the prospect's mind about the decision. Finally, she writes a brief report and circulates it as widely as possible.

There's one exception to wide circulation: if the reason for the lost sale is a sales-rep screwup, that information should go to the rep and the sales manager ... unless it is a systematic screwup like a lack of followup process. If you publicly humiliate sales reps, they will conceal lost sales from you, and you won't be able to do these reports.

I've done many dozens of these calls, and about half of them offered some kind of surprising new insight.

posted on Monday, August 14, 2006 at 10:00 AM by Ollie Jones


Adding Michael Porter's five forces (add sixth element if you wish) diagram could strengthen your argument.

posted on Monday, August 14, 2006 at 10:18 AM by Manoj Ranaweera


I find it difficult to differentiate between "researching and learning" about competitors vs "copying" them. I am always searching out competitors and even blogging about them (trying to be honest as you describe), but I generally avoid actually registering with them and trying them out, even if an account is free. I base my opinion of them only on what is visible of their site without an account. My reasoning is that 1) if I see something they do that I don't it will be very difficult to mentally separate myself from it enough to develop my own product without "copying" this feature; and 2) I feel that I may be unduly influenced by their design or their features into putting something similar in my product when in fact it may not be necessary--I should be working on MY users' priorities, and if I haven't felt Feature A to be important, then just because a competitor does it shouldn't bump it up on my priority list.

Another consideration is legal. If I am influenced by looking at a competitor's site and then I consciously or subconsciously work in similar or identical features into my product, am I doing something illegal? Could they take me to court, and am I on solid legal ground? I just don't know about the legal aspects, so I play it safe.

But it's definitely a constant question in my mind, how much to watch the competition and how much to ignore them and do my own thing. Do you have any further thoughts on that?

posted on Monday, August 14, 2006 at 12:14 PM by Nate


Dharmesh, I think these points are really great (probalby mostly because I've already embraced them) -- the struggle I have is then figuring out what my comptetive advantage really is.

It seems that unless you have patentable technology, that the only true differentiator is you, the entrepreneur. Your attitude towards the consumer, the culture you instill in your company, the team you put together to get the job done.

For example, with my company (we provide web-based software to construction industry sub-contractors), I feel that our advantage is that we take a lot of time to learn about the industries that we are targeting, and that perhaps, since we target niches, we'll be so far "under the radar" that we'll build up enough market share before the "big guys" wise up and become a threat.

But it would just require someone else running another company to make those same decisions. So the real difference will be my ability to execute and lead... right?

I feel a little like I'm too caught up in my head about the whole thing... HELP!

posted on Monday, August 14, 2006 at 12:29 PM by Rahul Gupta


I believe that competitive analysis should center on the customer problem you are solving rather than on your product's features or capabilities. Analysis should first deal with whether the problem is important enough that the prospective customer is even interested in solving it, then with what other solutions might exist, and finally with where the customer might find those solutions. Analysis that centers only on your product will give you very limited visibility about what the real competitive environment is, and may lead you to believe that you don't have effective competition when in fact you do.

posted on Tuesday, August 15, 2006 at 2:12 PM by Andy Blackstone


Rahul Gupta, can you post a link to your product? I am interested.

posted on Tuesday, August 15, 2006 at 6:01 PM by


I really appreciate this advice - something about it just feels right. I've had too many conversations with other founders that assume that their competitors are complacent or stupid, and your framework (particularly wrt relevent/hard-to-fix metrics for weaknesses) is a good way to formalize our thinking in this area.

I'm curious, though, how one should talk about competitors in a presentation. I presented at the YC event you blogged about recently (and am taking your advice about not demoing off a live server to heart) and my co-founder and I wrestled a lot with how to deal with competitors. In a ten minute presentation, is it worth addressing these issues at all? Ultimately, we didn't spend any time on it in the presentation, but looking forward, I wonder if we should have at least mentioned some big names in our market. Particularly in a longer presentation, I feel like it might help the audience understand where we see ourselves fitting in. Does hearing about a startup gunning for a market dominated by large players (eg MS, Google, IBM, Apple, etc) make you more wary?

posted on Wednesday, August 16, 2006 at 2:35 AM by Drew Harry


There's a variant of point 5 (Identify Future Competitors) that's probably the biggest threat. Consider a weak competitor with a founder who is a terrific at self promotion and salesmanship. He get's his business bought out by a mega corporation that wants to be a player in that space. And all of sudden, there's money to throw at every problem, including excellent marketing. On example that comes to mind is a small company that I used to work for. They got bought out by a small promoter type for $870k and less than two years later on-sold to a mega-corp for $30m. Not bad ROI ! Imagine what it's done to the other three $1-3m players in the marketplace!!!

posted on Wednesday, August 16, 2006 at 6:31 AM by Eugene


In my experience, many people in development-stage companies try to position their not-yet-ready products as being in a "new category" and thus not having any competitors. When this is true, it's a long-shot high-stakes gamble. It's a long shot because successfully establishing a new category of product or service is quite unlikely. It's high stakes because it takes many years (longer than your VC's cash and patience will last!), gobs of money, and some luck.

And, lots of people will move in to your space if you do become successful. If your business strategy is to get bought by a big company so they can own the category you created, that is valid, and your investors will like it. (They will most likely want it more than you will.)

So, having competitors isn't a bad thing. It is excellent to differentiate yourself from them early on by offering a better sales process, superior support, and better focus, in other words a better customer experience. Loyal users are very valuable.

posted on Wednesday, August 16, 2006 at 7:59 AM by Ollie Jones


An option is of course to phone up your potential competitor and introduce yourself! You never know strategic alliance potential!

posted on Monday, August 21, 2006 at 6:02 PM by David Bain


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