How to do competition analysis for startups
The importance of competition analysis should never be underestimated, especially for those starting a new business. It helps to find out a gap in the market and determine strengths and weaknesses of competitors. Knowing the competitive landscape, the company understands what’s new they are bringing to the market and how they can build their strategy to reap the rewards. However, there are several mistakes startup founders make while conducting competition analysis and presenting to investors. Here are the common problems that arise while pitching/doing competition analysis:
- Not really understanding direct and indirect competitors
- Not displaying the landscape properly to investors
- Not using charts while displaying the competitive landscape
- Not splitting the competition between incumbents and startups
- Not including how the new solution will win the competition
For this reason let’s dive more into the topic to understand how to do proper analysis. This article will include some examples from personal experience and in order to give a clear insight, these are few topics we’re going to cover:
- How to find competitors
- How to understand the competitive landscape
- How to display your positioning to investors
- Where is your edge?
How to find out competitors
Google (yeah, as easy as it sounds!) is the best tool to recognize competitors providing the same value proposition in the market. For example, if your startup is a property management platform, searching this value proposition will give you a list of property management software that you should start to compile and start evaluation.
LinkedIn is also simple to use, go to LinkedIn’s search bar, type your solution (our example: property management software) and see how many companies are doing the same.
After having your list divide competitors to direct and indirect competitors. It will give you a clear view of competition and will also help to present your position in an easy manner. (see the chart below.)
Turning on google trends/alerts will also keep you updated about the recent changes within industry. Other useful websites to find out about competitors are — CrunchBase, Dealroom, Producthunt.
Pro tip: You can also ask your investors to have a meeting with competitors if they’ll feel comfortable to see how competitors analyze the market 😉
2. How to understand the competitive landscape
To really understand the competitive landscape, take every competitors and obtain information over the following by creating an excel table:
To see what’s really unique about your product, do the same to find similarities and differences with your competitors (check out their websites, read customer reviews, ask from experts). Do analysis on pricing strategy. Find out what your competitors charge for services.
Important thing here is: finding out your own closest competitors. Sometimes it might not be the market leader but it’s the closest one having the same product features with yours.
After recognizing market leaders, find out information about traction of those companies. Do any competitors have a strong pipeline? Research about market leader’s customers. If you can, contact customers to see what’s their weakness.
Note: Porter’s Five Forces (or diamond model) is a good framework for analyzing a company’s competitive landscape. It helps to understand the threat of a company’s competitive rivals, potential new market entrants, suppliers, customers, and alternative products that impact company’s profitability.
3. How to display competition
Organizing a chart where it displays all the product features of your solution and competitors is a good way to show competition. While displaying it’s very important to mention what’s your competitive advantage. Sometimes people don’t really know how to read your chart, therefore, it’s always better to add a text explaining what you can grasp from it.
“X Y chart” — draw X and Y axis and add your product’s standard features to every edge. Position your company and competitors respectively between the lines to differentiate what’s more superior on your product. This chart shows how you can measure the competition based on 2 metrics. (charts below)
“Petal diagram” — create a diagram and add every feature of your product (for ex. engagement, feedback platform, intranet etc.) to each petal and insert your company logo in the middle. Include your main competitors inside of petals which have those features accordingly.
These are commonly used/suggested charts, but I also suggest this competition matrix for comparing company features.
4. Where is your edge?
Last but not least, always include how you’re going to win the competition. Always mention your go to market strategy and how you are going to break into the market. The competition is based on direct and indirect competitors and while there is a lot of focus on new startups, here it’s very critical to explain why the old solution is not good enough, and what’s new that you’re bringing to table. Make it easy for investors to understand why you are better than competition.
To summarize, having competition is better than no competition but you need to know who your competitors are and how you’re going to win the fight. At the end, be honest with your analysis and make right conclusions about your positioning in the market.