The right way to position against competition

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Jason

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This is Part 4 of the series: 5 lessons from 150 startup pitches.

After seeing hundreds of startup pitches for this year’s Capital Factory program, I can tell you that the two most common errors in positioning a company against competition are, strangely, opposites:

  1. Claiming you have no competition.
  2. Defining your company’s offering and positioning by combining “the best” traits of 6 competitors.

This isn’t just a problem when pitching — it’s a problem with you defining who your customers are, what they want, and your role in the marketplace.

Let’s break down the ways these fallacies manifest and what you can do instead.

There is no competition

Here’s what this sounds like in the wild, and my reaction when I hear it:

  • “I have no competitors.”
    Either you’re ignorant of direct competition, or you’re not considering alternate solutions like “build it yourself.”
  • “No one is doing it like we are.”
    Of course you’re going to position your company with a unique offering: exclusive features, a distinctive culture, a refreshing pricing plan, an innovative sales strategy, etc.. But uniqueness doesn’t imply lack of competition!
  • “There’s no competition because this is an industry that has never used software to solve this problem.”
    I know that sounds like a good thing, but what this also implies is that you’ll have to convince computer-phobic people to trust software, and that’s a disadvantage. You’re competing against the status quo.
  • “There’s no competition because people haven’t realized it’s a problem.”
    If they don’t already know they have the pain, the sales process is going to be excruciating. There’s a word for that — evangelism — which conjures other words: Expensive, difficult, time-consuming.

If you’re tempted to argue that you’re the exception, here’s how to elucidate the advantages you’re seeing, but in a way that actually makes sense as a business strategy:

  • We’ve carved out a niche specific enough that no one else is actively targeting it. There are similar competitors A, B, and C, but they’re not targeting this niche because of X, and would be hard for them to switch into this niche because of Y. In fact, it’s quite possible that we’d end up partnering with or being bought by A, B, or C exactly because our idea is similar but out of their reach.
  • We’ve identified a market too small for the large, established players to address, but big enough to build a company. For example, because an 800-pound gorilla like Microsoft is so inefficient at building new software, it can’t go after a market unless there’s a billion dollars at stake. We think there’s a solid business to be made in this hundred-million-dollar market. However, whereas Microsoft can’t afford to build this from scratch, if we show good growth and profits it would be an obvious acquisition target for them.
  • We’ve created technology so different from the incumbents that we’re changing the conversation about how people solve this pain.  Though it’s different, our solution is very easy to describe and to use. (Example: Netflix)
  • Our target customer has traditionally solved this pain themselves or just lived with the pain rather than paying for relief. However, a combination of newly-available technology and modern mindset makes this the right time for a new software play.For example, my company Smart Bear created the first commercial peer code review tool. Before us, there was no software competition but there were plenty of alternative processes — looking over someone’s shoulder, sending emails with diffs, code review meetings, even “Formal Inspections.” By tackling a few specific annoyances with peer code review and leveraging newer technology (like the advent of ubiquitous version control), we completely changed what a “code review” could be.
  • It’s true that this industry hasn’t yet seen a software solution, but that’s not because they hate computers, but rather that it hasn’t been possible to address that market with software. Now it is because (pick one):
    • We’ve built an improbable team that spans geeks and industry insiders.
    • New hardware/networks have just appeared which makes this possible.
    • New attitudes towards the Internet (e.g. ubiquity of Facebook even among traditional technophobes) enables new workflows.
    • This industry is commoditized so giving a player the slightest edge is a big deal.
    • This industry is just now starting to show tangible signs of embracing technology.
    • We have three lead customers signed up for alpha testers; if we make them successful the case studies will be all the evangelism we’ll need.

Defining your company by the competition

Your company is defined by its own strengths, values, customers, and products, not by how it compares with other companies. You need a strong position, something that would be equally clear and compelling even if competitors didn’t exist.

Here’s some ways this mistake manifests:

  • “We combine the best traits of our competitors, letting them show the way to our success.”
    I like the idea that you can learn from the mistakes and successes of similar companies, but “combining the best” misses the point. There are specific tradeoffs each of those companies are making; things you see as “not best” might in fact be best for their target market. Why are you sure that your notion of “best” will result in enough customers who not only agree with you, but is so convinced that they’re willing to switch to you?
  • The rubric.
    A chart with one row for each “feature” and one column for each of six “competitors.” There’s checks and X’s everywhere, except of course a glowing, highlighted column representing your company which just happens to be full of checks. C’mon, everyone knows this is bullshit; it’s insulting.
  • “We’re just like competitor X, only we’re Y.”
    In that case you’re betting your future on the fact that Y is overwhelmingly compelling to a large market segment. X automatically has advantages over you (brand, customers, revenue, inside knowledge, a team, momentum), so Y had better be brain-explodingly awesome.
    Oh, and it’d better be impossible for X to implement Y — or even 1/3 of Y — themselves. Talk about putting your fate in others’ hands!
  • “We’re the same as X, only cheaper.”
    Being cheaper is a strategy, but it can’t be your only strategy. It’s too easy for competitors to change price or offer deals. Typically the best customers aren’t as price-sensitive anyway, so you’re actually biting off a less desirable segment of the market. Often this claim is paired with “We’ll do 70% of the features for 50% of the price,” but supplying less for less is not inspirational.

So how do you look inward to establish your company, contrasting with the competition but not letting the competition dictate your identity?

  • We’re targeting the market segment defined by X, Y, and Z.  We’ve spoken with 20 potential customers who match at least two of those criteria, and they agree our product is exactly what they need and that none of our competitors are doing an acceptable job addressing their issues.
  • Our company has core value X that we exude everywhere from our AdWords to our tech support to our product. (Example value: Simplicity. A simple product with few features, low-cost, pain-point obvious, not tackling complex problems, focussed on making life easier rather than on saving money.) We own this value because we’re completely committed; this is the one point on which we will never compromise. Our customers know it and value this too, which is why it doesn’t matter what features, prices, or advertisement our competitors have.
  • This is the competitive matrix. Note that each player in this space is targeting a different market segment, as is clear from feature selection, pricing, and advertising/messaging. We, too, are targeting a niche; as you can see our offering is consistent with owning that niche, and doesn’t overlap significantly with competitors. It would be difficult for any of them to “switch” into our niche, because as you can see they’d have to change the product, pricing, and their company’s persona; that’s a risk we’re willing to take.
  • We’re going after competitor X. We know they already have a ton of advantages over us — well-known, well understood, and a deep feature list. However they haven’t done anything new in 3 years and we have evidence that their customer base is pissed off. Not only that, they’re famous for annoying attributes A, B, and C (Examples: buggy, slow, confusing, must install, expensive, crap tech support). We see a huge opportunity in their wake of destruction, vacuuming up their customers with our overwhelming advantage. They can’t do this themselves because they’re too big to turn the ship, and anyway the past 3 years shows they’re not able to change.

What else?

How do you cope with competition, incorporating it into your strategy while not letting it consume you? Leave a comment and join the conversation.

32 responses to “The right way to position against competition”

  1. Very interesting (but depressing (for us)) post !

    My company’s offering and positioning was defined by looking at the “worst” traits of our competitors; most note-taking/information tools don’t scale too well.

    Unfortunately, this is something most people don’t realize until they’re already “locked in” by their tools (they have a lot of information stored in a “difficult-to-export” format) making it much harder for us to convince them that “yes, in the long run you will probably be better off with our tool”.

    The problem we wanted to solve was inspired by our competitor’s “worst” traits, but our solution was based on the best large-scale solution that we know of: Google and Wikipedia.

    Inspired by your post, I think maybe we should focus more on positioning towards Google/Wikipedia than our competitors (“Your personal Google/Wikipedia”) ?

    (we have tried a little, for example in this blog post http://www.ppcsoft.com/blog/wikipedia-google-iknow.asp, but this article has at least given *me* some serious food for thought – thanks!)

  2. “Positioning – how to be seen and heard in the overcrowded marketplace” by Al Ries and Jack Trout, is a classic book on the topic. Some of the examples may seem dated, but the examples are still spot on.

  4. Jason, thank you for sharing your thoughts from experiences with interviewing all these startups.

    I am still having a hard time finding a good/valid position against the competition for an idea I have. It is hard for most of us because often what we are trying to do is to find “new ways” of doing something so we can compete with existing companies. Why? maybe we don’t really need to have a “different” product, maybe just treating our clients better and having a better price is the key… maybe a nicer user interface will be enough for people to make the switch, etc.. I know I have switched companies just for those reasons: better customer service, better user interface and better price. I know not everyone thinks like that, but a lot of people do. I believe a lot of people are just waiting for new companies to offer the same exact product with a better customer service, better UI to make the switch. A good example could be a new cell phone company that offers the same phones, same coverage, but does not forces you into long term contracts, horrible customer service, and complicated billing statements…

    If you have some time (as well as the people reading here) I would like to expose my idea and hopefully get some feedback on it, I hope it is not viewed as SPAM.

    It is a Real Estate Listing site for Real Estate agents and people in general to list homes for sale.
    So far, this is my pitch… this application is different than the others (zillow.com, craigslist.com, fsbo.com, owners.com, militarybyowner.com, postlets.com, etc…) because it lets people list their properties with a very easy to use interface (web and mobile) and it also allows them to upload pictures and video. If the person/agency listing a property does not have a video of the property, we’ll offer that service as well (partnership) where someone will visit the property and make a professional HD video of the property for sale.

    The site automatically adds the “basics” which is links to Google maps for the property address, links to share the property to social networks, contact form that is linked directly to the email of the person listing the property, etc..
    The advantage for people using this site to find properties is, they will not have to leave contact information (unless they are really interested in a property and desire to do so), as opposed to many of the sites above where signing-up is required in order to view the property’s details and photos. We’ll collect neighborhood information and display it on each property page as well.

    Based on this post, I think I don’t have a real “advantage” over the competition… do I? what do you think?

    • I don’t know enough about Real Estate sites to comment on that in particular (maybe others here do?), but the problem with just being different with price or service is that it’s very easy for others to match.

      If your site is prettier and that’s the only difference, then if someone else decides to drop $30k for a wonderful new site, that’s it. If your prices are lower all someone else needs to do is continuously run “specials” and that’s it.

      Of course “that’s it” is extreme and not entirely true. In a space as big as Real Estate there’s room for lots of players.

      But if those easy-to-fix things are the only difference, you’re at the mercy of your competitors just spending a little time or money.

      • There’s a point about real estate:

        Significantly it’s a geographically local business. So, there’s a geographical barrier to entry. So, be the best in a radius of 50 miles and should do well.

        Similarly for romantic matchmaking.

        Similarly for a recommendation site for restaurants, caterers, general contractors, plumbing, HVAC, electricians, grass mowing, landscaping, driveway resurfacing, roofing, kitchen and bath remodeling, house painting, dentists, family practice physicians, pediatricians, psychological counselors, insurance agencies, small business bookkeeping, CPA, tax services, and legal services, auto repair shops, auto body shops, daycare, K-12 tutoring, music teachers, Web site developers, etc. Uh, think Web 2.0 recommendations for the local businesses that used to keep the Yellow Pages going!

        Similarly for some other businesses.

  5. The point that sticks with me the most is “Our company has core value X that we exude everywhere from our AdWords to our tech support to our product.”

    For a new product/service, I like the idea of focusing on a single core value (both development wise and marketing). It’s too easy too lose focus and forget what you are trying to accomplish (and as a result loose confidence).

  6. The question of positioning against my competitors is something that comes up a lot for me. Somehow, no matter how many completely different ways I come up with to describe what I do, someone will say “Isn’t that like X?” And when I explain how it’s unlike X they will understand and even appreciate it, but I never successfully get to skip that question. At first I thought it was a messaging thing but after the number of different ways I’ve tried to say it, I wonder if it’s just some combination of those nouns triggers something in their heads and they blur out the rest. So far I’ve been unable to find a good “It’s a Twitter for nuns!” analogy that makes it totally clear. Any advice for this situation would be appreciated!

    • It could very well be that you should ignore those people.

      That is, if they don’t get it because they’re not really listening, so they think it’s like X when clearly from what you just said it isn’t X, then they don’t count.

      If they’re not your target customer and therefore don’t understand what it’s really like and therefore cannot understand your differences, that doesn’t matter because you don’t need to convince them.

      Also I find many people are just nay-sayers no matter what it is. You would say “I invented NetFlex” and they would say “But isn’t that like BlockBuster except you have to wait a long time for a movie?”

      However, it could also be they have a point.

      Perhaps it’s because you’re not clearly communicating why you’re different. Remember that if you are different in a great way but you cannot communicate that to others, it doesn’t count! They have to understand and believe. In that case, you need to work on your pitch.

      Perhaps it really is because it’s not substantially different! Of course I don’t know because I have no details, but if no one understands that it’s different, maybe it isn’t.

      • That Netflix example really resonates with me and I really feel like that’s what is happening with me. One of the things that is hard is that someone will write me a two line email saying they really like what I’m doing and they’re really excited about it, and then someone will write a 2 page dissertation on why what I’m doing is lame and I will fail miserably. So the net result is actually a decent outcome but it feels net-negative.

        I do want to spend a little more time on messaging though because I know that I haven’t nailed it yet.

        • I think there’s just a natural human tendancy at play here. Whenever we are confronted with something new we try to compare it against what we already know in order to make sense of it.

          That combined with our tendancy to simplify things in order to prevent being overwhelmed with details means that when presented with a new product/ company idea our natural reaction is to think, “that’s like X”, perhaps with, “but with Y”, if you’re lucky!

          You only have to think of the last time you heard a piece of music from a new band or artist and thought, “it’s a bit like X and Y but with a bit of Z”, to realise how common this.

    • I wonder if this ‘problem’ is actually an indication of the strength of your idea/solution. Let me explain.

      I took a quick look at your site and immediately began trying to think of other solutions that may exist to solve the problem. Now this may be because of your statemements above, but it may also be because you are solving such a true and real problem that people instinctively think “surely there must already be a solution to this” and they blurt out the first thing that comes to mind. Just a thought.

    • Amber please don’t let them get to you. Everyone who is creating startups has heard this line thousands of times. Most startups put different twists on existing ideas, often very subtle ones that completely change the perspective (see Posterous as a great example). Often it also comes down to timing. A product might work this year but the same one did not work a year ago because people were not ready for it.

      For me the best way to convince people that what you do has value for them is to sit down with them and just walk them through your product and show them a single benefit that is strong enough for them to actually want to use the product. So even if it is 99% like that other product it is still that 1% that actually wins people over.

      Or peer pressure ;-)

  7. Nice post!
    At Wellhub (http://www.getwellhub.com) we actually used a variety of strategies to define ourselves, many of which you have illustrated above.
    1. We are attacking a more niche sector of our market then our larger competitors.
    2. We have committed ourselves to supporting small-medium sized businesses and our marketing and customer communication strategy is to come out acting and relating to our customer as a small business rather than making ourselves look huge/enterprisy to our customers.
    3. Our pricing model, we think, is more appropriate for our market than the competition.
    4. Our competitors software looks old and is clunky. We are building a slick interface thats more up to date with what people expect from a web app.
    5. We are building our app to easily integrate with Facebook, which is an important medium in our market.

  8. Hi Jason,

    Our footprint in our target marketplace is so small, we think it is smarter to focus on the characteristics of our ideal client rather than what is special about us.

    Steve

  9. Hi Jason!
    First of all, thank you for this postings – reading your blog helped my a lot – I’ve redesigned and rewrote the web site, and I do not worry about the name of my software any more (not being a native English speaker I did not know all meanings of word WHIZ).
    However, this last post hits the bull’s-eye of my problem – dealing with the competition and explaining how different we are and why we are better is almost untreated on our web site.
    Our software targets the same market that is ruled by ASP and PHP and although we have completely different approach, still our software is used for exactly the same purpose as these programming languages (at least in more than 90% of their usage). Now I’m not sure if it is legal to have comparison of the code snippets form PHP, ASP and my software, but more important for us is how the users of these programming languages will react to such comparison.
    One of our current employees tried to make a comparison between our software and PHP, Perl, Python, ASP, C, etc. to drove our attention to hire him (he was just an user of our software at the time, and was not associated with our company) and he posted a question in many groups. The amount of intolerance shown on these groups/discussions we have newer experienced (and believe me I’m old enough and experienced enough). We hired the man and asked him not to “help” us anymore in that way, but this has thought us that for many developers their programming language is almost as a religion, so we do not want to make them angry.
    On the other hand, our software uses just a few short lines of code to accomplish the tasks for which other platforms require some serious programming, and having those codes compared in a table would really be highly suggestive I think. So, I’m really not sure what to do about this. Any suggestion is welcomed.

    BR,
    Faik

    • Code is a religion, and a career.

      It’s like telling a horse shoer that you have a car. Yours might be “better,” but that’s not enough.

      You have a difficult road; you should focus on how you can make the few open-minded people SUPER in love with you. That’s where the evangelism comes from, not from you.

  10. Yes, I can understand the mistakes you observed in reading many business plans.

    But your cartoon had “the next Google”. Literally that or not, any really big success is, may I have the envelope, please, there it is, in one word

    rare

    in two words

    necessarily rare.

    So, that a big success is rare, necessarily from many business plans we can see a lot of things not to do.

    But the tough question is as in the title of your post ‘The right way to position against competition’. So what is the ‘right way’?

    Well, it’s going to be rare which means that still only a small fraction of business plans will work, but “the right way” might be by far the best thing for a major success.

    I would suggest: In quality of product or service, be by far the best in ways the customers regard as the best and that are too difficult for the other guys to duplicate or equal.

    How to do that? Since the world-class example of totally blowing the socks off the other guys is the US DoD, borrow their techniques. Key words are physical science, applied math, engineering, and technology, and exploiting those have new work, clear and rock solid just on paper. Or intuitive, heuristic, elementary, and routine techniques are not very promising. And the software is no earlier than the second step: If the ‘technology’ is just software implementing nothing significant, and on paper, logically prior, then there is no real hope. Sorry hackers. And mostly sorry computer scientists. In Web 2.0, hackers and computer scientists get involved at the earliest in the second step after all the challenging, new work is done. Only a tiny fraction of people in Web 2.0 understand this fact, but the fact is an opportunity for any who do understand it.

    Uh, but there is another, simplifying issue: For anything like Web 2.0, either (A) fund it to profitability yourself or (B) go for early stage angel or venture funding.

    For (B) the ‘memo’ says that, for angel funding show a good Web site and for venture funding show good ComScore or accounting numbers. So, from this memo, at least just to get the check, just go for these criteria and f’get about everything else! How ’bout that for ‘simplification’?

  12. similar to what Salman said, one can also group a set of core competencies or value propositions. for example, “6 reasons to shop at XYZ”. one must know their customer, and when you know who you are selling to, you can bundle up USP factors that appeal most to your demographic. this is how i have had success in the past personally and as part of larger organizations

  13. Can you elaborate on this statement: “But uniqueness doesn’t imply lack of competition!”?

    Because, as it stands it makes no sense.

    • I mean that saying “we’re completely unique” doesn’t automatically mean you don’t have competition.

      Often I hear people defend their claim that competition doesn’t exist by saying they’re unique. As if only fungible products are competitors.

      So for example “doing it by hand” or “doing it with a spreadsheet and interns” is often an alternative to many online software products. You may have a “unique” product but it doesn’t mean there are no alternatives you’re competing against.

    • Heck, even I can give you a real life example of how just because some part of a product, service or company is unique doesn’t mean it has no competition.

      For example, look at the increasingly popular Trader Joe’s. They are unique in the way they deliver service, in how they decide what selections to carry, in how they decide their next location, even in how they keep most of their business decisions very secretive.

      However, just because the uppity, trendy, growing-chain of neighborhood grocery stores is unique doesn’t mean they don’t have competition. In fact, just the opposite, they are in direct competition with whole foods, stop & shop, shaws, publix and any other grocery store, however large or small, that might be nearby.

      They target a particular market segment with their unique products and services.
      But then again, so too, do all the other similar companies in the same line of business.

  14. The article is thoughtful and insightful. I agree it’s childish to claim his/her “ware” as the “best” when it is not proven.

    Research and analyze key competitor core strength/value of a particular product would seem to offer a way to see why their product is liked by its users/customers then its brand. This approach provides a way to learn from competitors…

    Connecting with high value users and customers is not an easy task. “Connecting” includes receiving feedback etc. two way street…
    I’m still struggling on this guy…

  16. Wow! Terrific summation. Although we tell our customers at Ingenious Business http://bigmd.blogspot.com to differentiate and carve out a niche so they view themselves as having no competition, it is important to do a traditional SWOT analysis and look at your customers and potential customers through the lens of the competitive landscape.

    I specifically like you you espouse the competitive ‘moat’ and talk about evangelism. Your article is spot on and relevant. Thanks!
    Cheers!

  17. Jason,

    I just discovered your blog a few days ago and enjoyed it. It’s nice to hear common sense in business advice such as “There’s no competition because people haven’t realized it’s a problem.” Communicating value is one of the biggest struggles for most business.

    Not competing on cost is such a huge thing that business owners don’t seem to realize. You’re in business for one reason, make profits. Losing sight of this can make or break a business long term.

  18. I think one of the best ways to deal with competition is try to be one step ahead of them. IF that is not possible thn follow them ;) till the point u are equal and then coe up with an innovative way. Innovation is the key to defend competition.

  19. Jason
    My experience says that differentiation comes mainly from how your customers perceive your brand, how your brand is positioned in their brain and not how you differentiate yourself from x,y,z competitor in terms of product features. New features, new products have very short life cycle ( in terms of uniqueness ) these days, especially in the tech industry. You certainly need to keep growing and changing but make sure you know what your brand stands for at your customers’ mind.
    Take surverygizmo.com and qualtrics.com for instance, pretty much same product  but price difference is huge, the one costs you $50 per month and the other $10,000 per month ( price difference can not be justified in terms of features ) . The one is targeting small businesses and the other large corporations.
    From day 1 you need to know whom you are targeting and how to position yourself in your customers’ brain as the leader in the industry. Every single interaction with your brand helps you create powerful positioning, customer support, advertising, promotions, logo tag etc..

    My 2 cents
    Elias

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