Part Three of Three: Competitive Landscape
Read Part One: Valuation here and Part Two: The Five-Year Pro Forma here
While you and your company are indeed unique and special, do not delude yourself into thinking you are so unique and special that you created lightning in a bottle, or that you and you alone have developed a solution to one of the world’s largest problem. Entrepreneurs are not that unique. You do not exist in a vacuum.
Unlike the previous two articles in this series – on valuation and multi-year pro formas, respectively — the rationale for surveying your competitive landscape is relatively simple: if you don’t, you could end up in a situation in which you look like an idiot. If you’re talking to an investor about your start-up and, through a simple Google search, they can find a competitor about which you know nothing, it doesn’t look very good for you. As a general rule, not looking good to investors and other stakeholders is unwise.
This ‘don’t be an idiot’ rationale should be enough to inspire even the most inexperienced entrepreneurs to action. Yet for some reason, many entrepreneurs still don’t pass this basic Google test. In fact, most entrepreneurs will take a cursory look at the competition when they start their business, and then put the thought out of their head, put their head down, and get to the work of building their business. This hard-driving, bull-your-way-forward mindset is helpful, but you have to pull your head out and look around on occasion. Do not lose the forest for the trees.
In fairness, a competitive landscape exercise is one of those things that should not change a founder’s daily efforts. Entrepreneurs have to focus on controlling what they can control. Competitors are out of their control. What competitors do should not affect your day-to-day work. A reactionary organization is not inspirational and probably a market laggard. If your start-up is so fragile that a competitor changes your direction, you really need to evaluate your overall existence.
Nonetheless, a consistent, but not overbearing, review of your competitors is essential for every entrepreneur. First, you want to stay one step ahead of the Google test. You need to be the domain expert of your industry with a knowledge ahead of the novice generalist. You also, as a practice, need to not get lost in the trees, and a competitive landscape charting exercise helps in that process.
This exercise also requires more than just a cursory Google search. We recommend a charting exercise like the one Bill Aulet, managing director of the Martin Trust Center for MIT Entrepreneurship, suggests in his book Disciplined Entrepreneurship. Aulet argues that the competitive landscape and the customer’s priorities are inextricably intertwined: a customer will decide to purchase a product or service based on comparison between options. Aulet’s Competitive Positioning Chart allows entrepreneurs to see how their solution fulfills the customers’ needs in comparison to the competition. To create a chart, follow the following steps:
- Find out who your competitors are. What solutions do they offer? What are their strengths and weaknesses? Why do customers choose them? Why might customers choose to leave them?
- Determine your customers’ top two priorities. What are the two main things are they looking for in a solution? Are they interested in reliable service at a low cost? Are they interested in hands-on assistance and individualized solutions to unique issues?
- Once you determine your customers’ top two priorities, create a simple chart with an x and y axis. The x-axis will represent the customers’ first priority and the y-axis the customers’ second priority.
- The left side of the x-axis and the bottom of the y-axis will represent the “bad” side of the priority – i.e., a solution that doesn’t meet that priority well. The right side of the x-axis and the top of the y-axis will represent the “good” side of the priority – i.e., a solution that does meet that priority well (see the example below).
- Plot your business and your competitors on this graph. Ideally, you’ll find yourself in the top-right quadrant. If not, you’ve got some work to do.
By going through this process thoroughly at least every year and at a high level, you will ideally have the following insight:
- Knowledge that should not set but will inform strategy;
- Industry knowledge about potential exit partners;
- Industry knowledge about potential strategic partners;
- State-of-the-industry knowledge that helps you realize (and benchmark) your customer’s acceptance; and
- Recognition of your industry and allowance for industry leadership.
And, of course, you will not look like an idiot.
 Valuation, the five-year pro forma, and competitive landscape charting: all of these activities provide non-actionable data — i.e., information that the entrepreneur cannot (or does not) necessarily need (or, rather, want) to act upon. They are often considered “busy work,” and, for a time-pressed founder, busy work is an anathema. However, each are absolutely key to the success of a start-up. In this series, we’ll discuss these overlooked but crucial activities.