- Don’t be over confident vis a vis the competition - in tech only the paranoid survive;
- Work hard to know your competitors;
- Look to customers to understand which features and points of differentiation are most important;
- Use your understanding of customers to inform your strategy and product roadmap.
Understanding the competition isn’t only important for fundraising of course. Investors care for a reason. Founders who don’t understand the competition risk being out-sold, out-hired, making poor product decisions, and coming second (or worse) in the fundraising game. Any one of these risks can prove fatal.
Whilst understanding the competition is important, becoming obsessed by the competition is a mistake. Companies should first and foremost be oriented around their customers, using understanding of competitors to serve them better. However, as we know, in tech only the paranoid survive.
Practicalities: How to build a great understanding of your competitors
The first step is to assemble a list of your competition. You should include companies with equivalent products and services as well as companies that solve the same customer problem with a different solution. It’s also worth being aware of companies in adjacent markets that might compete in the future and of companies you compete with for budget even though they do something different.
Then get to know the companies on your list, including their product and their people. You should make an objective assessment of competitors’ feature sets and compare them against yours on a line-by-line basis. Be sure to read or watch all their marketing materials and if possible you should have their products in your office or home and use them as a real user. You should also get to know the people at your competitors. If your companies are of a comparable size invite the CEO out to lunch, and in any case visit their stands at trade shows and network with their people at conferences.
The second step is to talk with customers. Armed with a thorough knowledge of your competitors features and products interview customers to understand their pain points. In particular look for frustrations they’ve actually acted upon rather than the lower priority niggles they voice but don’t do anything about. To start with you should ask open questions about their issues and problems and what they are trying to achieve, focusing on business or consumer needs rather than product solutions. This will give you important context for assessing the relevance of their answers to your questions about competitors and which products and features they value. Remember that most people will try to protect your feelings by being nice about your product and to be sceptical about predictions they make about features they would like to use in the future.
Finding customers to talk with can be daunting but founders invariably report that once they get out of the room and start they find it a positive experience. If you are a consumer business: head down to Starbucks or wherever you think your customers hang out. If you sell to businesses then you will need to work the phones and hustle. Being clear that you want a conversation to learn about what they want rather than to sell something will help to get meetings. Another tip is to take advantage of chance meetings to ask questions. Be mindful of the situation, but it’s usually possible to ask one or two questions without being impolite. Steve Blank’s Four Steps to the Epiphany and Rob Fitzpatrick’s The Mom Test have a host of practical tips for getting customer interviews.
Your goals are to build a nuanced understanding of your strengths and weaknesses vis-a-vis the competition at a feature level, and to know which features are most important to customers. You will then be able to write a great competition slide for your pitch deck which will be convincing to investors because it’s backed up with lots of research. If you go the route of a 2*2 matrix make sure the dimensions you choose are meaningful. The AirBnB example works well because affordability and the ability to book online are important to customers and significant points of differentiation from their competition.
If you go the route of a feature list order them by importance of to customers and show the detail of your understanding by using quartered pie charts (or another similar device). The second example above lacks credibility because it shows no understanding of which features are important to customers, it’s ticks and crosses are too binary, and their six greens vs two reds for the competition is tough to believe. As well as impressing investors you can use these tools to develop your strategy as you iterate your product. Periodically presenting them to your board will help you maintain clarity of thought and alignment as well as forcing you to keep your understanding up to date.