When founders are faced with the question “Who is your competition?” from investors, especially if they believe they have no direct competitors, it’s crucial to respond in a way that showcases their understanding of the market and their unique value proposition. Here’s how founders can handle this situation:
Determining both direct and indirect competition is a crucial step in understanding the competitive landscape for your startup. This analysis helps you identify potential threats, opportunities, and gaps in the market. Here’s a step-by-step guide to help you identify both types of competition:
Define Your Niche
Start by clearly defining your startup’s product or service. Understand what problem you’re solving, who your target audience is, and what unique value you’re offering. This clarity will guide your search for competitors.
Perform Porter’s 5 Forces Analysis on your Industry and figure out the buyer power
Identify Direct Competitors
Direct competitors offer similar products or services that address the same problem as your startup. Here’s how to identify them:
- Online Searches: Use search engines and specific keywords related to your industry to find companies offering similar solutions.
- Industry Reports and Directories: Industry reports, market research, and industry-specific directories can provide a list of players in your space.
- Social Media and Forums: Explore social media platforms and forums where your target audience discusses solutions. This can help you identify companies they mention or recommend.
- Trade Shows and Conferences: Attend relevant industry events to meet potential competitors and gather information.
Analyze Direct Competitors
Once you’ve identified direct competitors, analyze their:
- Offerings: Understand their products, services, features, and pricing.
- Market Positioning: Determine how they position themselves in the market and what unique value they emphasize.
- Customer Base: Identify their target audience and the customer segments they serve.
- Strengths and Weaknesses: Evaluate their strengths and weaknesses compared to your startup.
Identify Indirect Competitors
Indirect competitors might offer different products or services but still satisfy the same customer need or problem. Here’s how to find them:
- Customer Journey: Map out your customer’s journey and identify alternative solutions they might consider before or after using your product.
- Substitute Products or Services: Think about products or services that could replace or complement yours in some way.
- Different Customer Segments: Consider companies serving different customer segments but addressing a similar underlying problem.
Analyze Indirect Competitors
For indirect competitors, focus on:
- Overlapping Customer Base: Identify whether there’s a significant overlap in the customer segments you and your indirect competitors serve.
- Differentiating Factors: Understand what sets your startup apart from indirect competitors and why your solution might be preferred by customers.
6. Competitive Analysis: Compile the information you’ve gathered into a competitive analysis matrix. Compare your startup’s strengths, weaknesses, opportunities, and threats against both direct and indirect competitors.
7. Consider Market Trends: Examine market trends and potential disruptions that could affect your industry. Identify emerging technologies, changes in consumer behavior, and shifts in demand that might lead to new competition.
8. Continuous Monitoring: Competitive analysis is an ongoing process. Regularly monitor your competition to stay updated on their moves, new entrants, and evolving strategies.
Identifying both direct and indirect competition is essential for strategic planning, differentiation, and understanding your market’s dynamics. By conducting thorough research and consistently analyzing the competitive landscape, you’ll be better equipped to position your startup for success.
Example, if you make energy drinks, your direct competitor would be Redbull, your indirect competitor would be Expresso shot makers and cafes. If you make carbonated water and your customers only buy it for the carbonation, your indirect competition could also be other soft drinks, and every other product that has carbonation like Appy Fizz apple juice which people can buy as a replacement for your product even if it is not directly carbonated water, so you always have competition even when you think you don’t.
If you have a lot of indirect competitors but not direct competition it can indicate to an investor that perhaps the space is too small, people are not really solving that problem because its not a big enough problem, or that you have not done your market research. So when approaching investors never say “We have no competition.” as that is likely not true and shows that you haven’t done a good enough competition analysis. There can be times when you might be the first mover in a sector but other competitors may soon follow, in which case do this:
1. Emphasize the Problem: Highlight the problem or pain point your product or service is addressing. Explain that your main competition isn’t another product but rather the current way of doing things or the existing alternatives that people are using to solve the same problem. This demonstrates your market awareness and the gap you’re aiming to fill.
2. Position as an Innovative Solution: Frame your response around the innovative aspects of your offering. Explain how your product or service is approaching the problem from a fresh angle, introducing features or benefits that set you apart from traditional solutions or alternatives.
3. Talk About Customer Behavior: Discuss the behavior and preferences of your target customers. Explain how they are currently adapting to the problem and why your solution is more tailored, efficient, or effective for their needs compared to existing options.
4. Highlight Uniqueness: If there are no direct competitors, your uniqueness becomes your competitive edge. Discuss what makes your solution distinct—whether it’s a novel technology, a unique business model, or an entirely new approach to the problem.
5. Reference Adjacent Markets: Identify related industries or products that are not direct competitors but share similarities with your offering. Mention how your innovation draws inspiration from these adjacent markets and how you’re applying their successful concepts in a novel way.
6. Share User Stories: Provide anecdotes or case studies of potential customers who have tried existing solutions and found them lacking. Share their experiences and why your product addresses their pain points more effectively.
7. Market Trends and Gaps: Talk about emerging trends in the industry and gaps that you’ve identified. Explain how your solution capitalizes on these trends or fills these gaps, even if there isn’t a direct competitor doing the same thing.
8. Discuss Barriers to Entry: If applicable, talk about the challenges that new entrants would face if they were to try and compete in your space. Highlight any technological, regulatory, or market-specific barriers that provide you with an advantage.
9. Explain the Ecosystem: Elaborate on the ecosystem that your product is a part of. Discuss potential collaborators, partners, or stakeholders who are part of your journey. This showcases that you’re well-connected within your industry.
10. Mention Future Competitors: Anticipate potential competitors that might arise in the future as the market evolves. Explain how your early entry and established position will provide you with an advantage over newcomers.
When founders don’t have direct competition, it’s an opportunity to highlight their unique value proposition, market understanding, and innovative approach. Instead of avoiding the question, embrace it as a chance to showcase your market insights and the compelling reasons why your solution is poised to disrupt the status quo.