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:
- Claiming you have no competition.
- 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.
How do you cope with competition, incorporating it into your strategy while not letting it consume you? Leave a comment and join the conversation.