How to Use Competitors to Your Strategic Advantage - A Guide for Early-Stage Founders
Sh*& Another Venture-Backed Competitor! Breathe!
At least, a few times a month, friends or family will send me articles about competitors. At this point my reaction is predictable - a moment of panic, “we’re never going to get another customer,” followed by annoyance, “this sounds exactly like us, they must have looked at our website, they’re even using our colors!” followed by deep self-doubt “ahh, they have such a reputable team and backers with deep pockets.” There are lots of moments on this journey when I question myself, but hearing about competitors really seems to fire up the doubts.
But when my head finally stops spinning, I try to remind myself, competitors represent strategic opportunities for your startup. And that is what I’m going to attempt to convince you of here!
So before we get into how that pesky competition can be used to your advantage, let’s define what we mean by competitors and learn best practices for tracking the competitive landscape.
Part 1: Who are my competitors?
Types of Competitors
Direct v. Indirect
There are direct and indirect competitors. Direct means that the products are mostly the same and solve the same pain point (e.g., Uber and Lyft) and indirect competitor means the product is not the same, but could potentially solve the same pain point. Also, as the companies grow, they could become direct (e.g., Uber and public bike shares).
The Status Quo
People always underestimate the status quo. If customers are using something right now that is free or VERY cheap; they are still unlikely to pay for a new solution that is only slightly better - even if the status quo solution is not tech-enabled or requires more work.
How do I find my Competitors?
Ask during your customer interviews, "What are you currently using?"
Search on Google
Use AngelList and Crunchbase to search for other startups
Use ProductHunt to search for companies with early products
Ask industry experts and investors. It's an investor's job to keep a pulse on different companies in the space. If you have access, reach out to them and ask what they are seeing. If you don't, follow them on Twitter to see where they are investing. Industry experts are anyone with a "birds-eye" view of the space.
Process for Tracking Competitors
It’s helpful to have a process to stay informed of your competitors. Here is what we recommend:
Use a Google spreadsheet or Airtable to keep track of competitors
Add to the list when you hear about new companies
List frequency of mentions from customer interviews
Note their differentiation
Take notes about your experience using the product
Also, try them out! Sign up for their newsletters. Use their product/service. And if you’re uncomfortable, ask a friend to try it.
Or if you’re a member of our community Perhaps ask one of your fellow founders in our Slack. Note what the experience is like and what you like or don’t like about it. Don’t obsess over this list, but stay informed. Note: We get asked if this is “shady,” and it is not, as long as you are not copying IP.
Are there too many competitors?
Okay, I’ve done the research. I’ve talked to customers, I’ve explored the interwebs, and there are a lot of potential competitors out there. Intimidating, yes, but is it time to throw in the towel? Not yet! The truth is, most attractive markets are going to be competitive.
But do spend some time sitting with these questions:
Do I genuinely think I can build something different from what's out there and are customers truly unhappy with current solutions? If the answer is no to either of these questions, consider changing your customer or pain-point or some combination.
Is there a free option that meets most of their needs? If the answer is yes, again consider changing your customer or pain-point or some combination.
What if there are no competitors?
If you don’t have any competitors that may actually be a red flag. You may want to consider: Is my target market is too narrow? Are there any major regulatory barriers I’m not aware of? Is the market ready or, alternatively, am I going to have to spend significant time educating customers on the pain point or an entirely new type of solution? The other reason that you might not have competitors is that perhaps no one actually wants to pay for the product you’re looking to build, and previous companies already figured that out. So if you’ve done a lot of research, including talking to customers and experts, ask yourself, “What has kept this market from existing before?” and “Why do you need to create this new market?”
Visualizing Competitors
Here are two types of visual representations that we recommend depending on whether you're operating in an "existing" (several direct competitors) or "new market" (few or no direct competitors)
Option 1 - Quadrant Analysis
If you have direct competitors, use a Quadrant Analysis. You will put your key differentiators on your x and y axes.
Template from Airbnb link.
Option 2 - Petal Analysis
If you have more indirect competitors and are operating in a “new market,” a petal analysis might be more helpful. Each petal represents a related or tangential industry, and therefore this layout will help visualize different industries relevant to your solution. Note: it will not help you understand how your product is different or better (besides sitting at the intersection of multiple industries).
Image from Steve Blank
Part 2: Using Competitors to Your Advantage
In general, and perhaps counterintuitively, we recommend celebrating the fact that you have competitors because they can provide important information and motivation as you try to acquire customers and grow your business.
Find Your Niche
If you want to build a sustainable business, you don't have to worry about beating out all of the competition. You just have to be better for the customer whom you wish to serve. So ask yourself, is there a specific customer segment whose needs are going unmet? We call this customer our “niche” (or “early adopter”) - the small, but specific, audience whose pain point isn’t being adequately addressed. These are the people you will want to target initially. If their needs aren’t being met, they are more likely to be looking for and willing to pay for a solution, even if you’re a younger company without an established reputation. Thus knowing who your competitors are, and aren’t, serving well will help you narrow in on your potential market entry point.
Refine Your Value Proposition
Once you’ve identified where you think the gap is, the next step is to go and talk to your niche customers to validate that there is an unmet need. Even if they complain about the existing solution, it doesn't mean that they’ll switch. We want to know if they've tried other solutions, how they evaluate current solutions, why the current solutions are not working, and what they seem to care about most in a solution. To do so, we can include the following questions in our customer interviews: “What are you currently using?” “When was the last time that you used it?” “How was that experience for you?” "Can you show me how you use [your existing solution]?"
You can use this information to create clear language around why this customer should choose your product or service over the alternatives. In doing so, you’re crafting an even more compelling case for why the customer should buy from you, and why your product is best-suited to their specific needs (this is called your “value proposition”).
Communicate Positioning
Similarly, competitors can provide very helpful points of comparison to refine your positioning for branding, pricing, marketing, etc. For example, evaluating competing brands - including their voice, colors, and copy - can help you shape your distinct identity in line with your unique strengths as a company and a founding team. You can also use competitors’ pricing to gauge how much customers are used to paying for similar products and whether it makes sense to position yourself as a more premium product or a more affordable solution (depending on your niche customer). In analyzing what competitors are offering, you may also discover a differentiated way to bundle your product or service and one you hadn’t thought of before.
Move Faster
If you’ve started your own company, it’s unlikely you’re the lazy type. After all, why would you not stay with a cushy 9-5 with a lifetime supply of La Croix and solid health insurance. However, even the hardest working amongst us can get complacent. Especially when we’ve found something that we think works, it can be easy to rest on our laurels and assume that we’ve found the winning path. But the market is always changing, thus we always need to be considering our assumptions, engaging with customers, testing, and iterating based on our learnings. For a company to grow quickly, we need to push hard, consistently. I’m not suggesting subverting life-work balance, but a healthy dose of competition can be just the motivation you need to stop checking your Instagram and implement that new customer acquisition strategy test you’ve been mulling over for the last several weeks.
Learn from Mistakes and Wins
Learning from competitors, especially those that are one step ahead of you, is a great way to leverage their time and resources to your own benefit. What are they doing, or what have they done that’s worked? How can you incorporate that into your strategy? Maybe even more importantly, what hasn’t worked, and how can you avoid those mistakes? At Female Founder School, when we see competitors’ strategic decisions mirroring our own, we consider it validating. When we see them doing something different, we check in with ourselves and review our potential blind spots.
Collaborate
On occasion, there may be opportunities to collaborate with competitors. Can you find alignment or is there an opportunity to leverage different and complementary strengths? We had a large Fortune 500 competitor move into our space, and we approached them about partnership. We brought our experience working with early-stage founders and they brought their technical expertise. Together we created a more robust program for female founders than either party had initially envisioned. Still, we avoid collaborating with our partners in areas where their products or services cannibalize our own.
Another area where you could potentially collaborate is marketing, if a competitor has access to your audience, can you do an Instagram takeover, an engaging contest or challenge, or a product photoshoot together? Perhaps sponsor a post on each others’ page, or host an FB or IG live video talking about a topic that helps or entertains your target audience.
Leverage Industry Benchmarks
Finally, competitors can provide helpful data points for fundraising. Early-stage investing is as much an art as a science, and being able to point to other industry benchmarks (including valuations and check sizes) provides investors with more information to evaluate the perceived value in investing in your company. Check out AngelList, Crunchbase, or Pitchbook for information on companies that have fundraised.
But you have to stay sane!
Honestly, as a founder hearing news about your competitors can be extremely discouraging - maybe they've raised more money, or solidified a strategic partner, or are launching something in your wheelhouse. Even bad news about your competitors can feel like bad news for you and send you daydreaming about if you'll end up like them.
That's why it's essential to understand where you differentiate yourself. If a new competitor pops up in your space or a company announces that they're launching a new product that's exactly the same as yours, take some time to consider your advantages and reassure yourself why you’ll win. There are lots of ways that you can edge out a competitor. Maybe you'll have superior technology, or you might be targeting a different user base than they are.
And if you need a community of hype people to remind you why you've got this, join the Female Founder School Community link (all female-identifying and non-binary folks welcome).
It can also be helpful to put some blinders on. Your top focus should be your customers and helping them, less on what your competitors are doing. And resist the temptation to imitate them unless what your customers are telling you is leading to the same thing.
Freaking out over competitors is normal, but try changing the framing. Rather than a threat, can you use your competitors to identify how to better serve and sell to your customers? Embrace the opportunity and the competitive advantage will be yours.
