Assessing Your Competitive Landscape…It’s a Forest Out There

It's easier to find the path when you see the whole forest.

It’s easier to find the path when you see the whole forest.

I’m finally going to get a business plan pet peeve off my chest and onto your shoulders.  I’ve decided that I’ve read my last business plan with a “Competition” section that blithely lists a few direct competitors and a factoid or two about them.  Statements like “We compete with Blackboard, a large, global, $600 million educational software company.  We feel they are too large to focus on our niche.” will no longer be tolerated in my office.

When I want to know about your competition, I don’t really want to know about individual trees.  I want to know about the whole forest ecosystem in which you’ll be competing.

There are several ways in which entrepreneurs fail to accurately describe and, therefore fail to understand, the nature of the market forest they’ll be facing at launch.  Most common among these is an inadequate understanding of their actual market segment.  You cannot understand your market segment by reading a market study.  My experience is that market studies prepared to cover large segments…data security, for example…are too oblique to have relevance for a teeny-tiny start-up.  The fact that a $6 billion market exists is good.  Knowing that it is generally growing at 11% per year is a little more meaningful.  But for the most part, I don’t care.  What I want to hear is the classic “bottom up” understanding of your target customer.  After all, data security is not a market, it’s a task that needs to be solved by a market. Markets consist of groups of customers that share certain characteristics; certain needs.  Banks have different data security problems than hospitals do.  Large hospital networks have different data security problems than small hospitals do. Small hospital finance departments have different data security problems than small hospital patient safety departments do.  And so on. The point is you can’t possibly know your competition until you have drawn a circle around the appropriate group of companies with similar needs and characteristics.

Telling me that Cisco is a competitor in the data security industry tells me nothing about how you should approach your target customer base.  It does not help YOU understand how to organize your sales process, operational structure, staff, product development roadmap, etc. to compete to win the first small hospital customer.  Or the tenth, or hundredth.

If you are going to tell me about individual company competitors in a market segment, be sure to tell me about the value propositions and benefits they offer to customers in your target segments.  Tell me about the customers with which you’ve already been in communication and what data security providers are doing for them now.  If you don’t already have first-hand knowledge of the your target customer segments…get some!  If you’re not already selling in a market, and even if you are, you had better have a serious depth of understanding how your target segment makes purchasing decisions and a compelling story of how you’ve built your product offering to address the specific priority needs they have.

The companies that you will have to compete with in your target market segment will only be understood if you are accurate in identifying and describing and quantifying your specific target market segment.  Existing competitors in that target market segment have had success there for a certain set of reasons.  Cisco isn’t successful in it’s markets simply because it is large…it is large because it is successful at competing for customers.

The final mistake that about 20% of new founders make when assessing their competition is the dreaded “we don’t have any competitors.”  You’ve lost my interest at that point.  When you tell me that, you’re saying “I don’t know what my customers are doing to solve data security now, and I probably don’t even understand who my customer is really, but no one else offers them my particular product configuration.”  From that point on, I’m probably spending most of my meeting with you challenging every one of your other assumptions about your business. Your product configuration is irrelevant unless it has been intentionally created to address a customer segment’s needs…and they are probably doing something to solve their problems now.  It may be suboptimal compared to your vision of the future, but some sort of competitor is currently doing enough to get their attention and money.

Be aware that your competition may not be a particular competitor at all, but rather a confluence of solutions that emerge from the competitive landscape.  Simply put, be sure to spend a lot of time focusing on current solutions being provided and less time telling me about how some giant competitor is to big to be agile.

Certain trees thrive in certain forests and not in others.  Most industries have market crevices where your new, little business tree has a chance to take hold, even next to the oldest old-growth tree there is.  To understand your competition is not to understand the competitors, but the ground on which they compete.

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About TechonomicMan

Manager, Entrepreneurial Services at Ben Franklin Technology Partners in Northeast PA.
This entry was posted in Business Planning, Entrepreneurial Advice, Seed/Venture Capital and tagged , , , , , , , , , . Bookmark the permalink.

5 Responses to Assessing Your Competitive Landscape…It’s a Forest Out There

  1. It’s true the focus is usually in the wrong place. Bottom up is more accurate and I believe more intuitive. I wonder how often entrepreneurs go top down when describing their market against their instincts out of a desire to conform to business plan conventions. Examples of progressive businesses plans that break with convention while still answering investor questions may be hard to come by. The entrepreneur/investor communication gap narrows I think when the two can sit in the same room and discuss. That’s not always practical so we fall back on traditional document formats which haven’t kept pace with the communication they’re intended to proxy.

    • Thanks, Michael. Absolutely right…in-person information exchange is the best way. Getting investor attention often requires either a business plan or pitch deck. In those documents, or in the two-minute elevator pitch, I think founders need to find a way to convey, preferably from first-hand experience, understanding of how their target customers make purchasing decisions. Just knowing a market is big is not enough. This is not easy if the co-founders have no experience in the target market…no doubt. If the team does not have this experience, the amount of “good luck” they will need for success increases significantly.

  2. Stephen Stearn http://www.subterraneanbusiness.com
    Thank you for an interesting and provocative article on an important subject.

    The detailed, careful and analytical information you are asking a small start-up to provide in a business plan takes a lot of hard work to arrive at. It is a far more valuable thing the big picture information one gets from available source material.

    So why would a start-up needing money provide an investor general information of lesser important?
    It could be because it’s easier and quicker to get. However, it could also be because they are unsure of the seriousness or abilities of a prospective investor and are therefore naturally reluctant to provide information that required talent and hard work to obtain.

    It seems that Michael O’Boyle has a made a good point when he talks about how “two can sit in the same room and discuss”. Perhaps at first contact, you need to offer a little of the forest and a little of the ground around your tree. That is, just enough to get you to the face-to-face conversation.

    People selling an idea never want to tell too much. This is normal. They want to provide just enough to gain the other person’s interest. They are rightfully reluctant to “spill all the beans” right at the beginning. Detailed and accurate market understandings which describe opportunities for potential products are valuable beans.

    • Matt Fuchs says:

      Stephen I see your point towards selling to an investor and making the ask enticing. I think the focus of the article was more in terms of lack of experience on the entrepreneurs part much like a cautionary fairy tale. Anyone can say a market is big and cool and that may get a foot in the door because that is the first gate of knowlege needed, but it only goes for that single foot step in.

  3. Thanks for the comment, Stephen. Too often, founders do not have any experience in the markets they are targeting. They do not know the thought leaders or the early adopters. They do not understand the buying processes of target customers. When working with companies, I try to get focused on the very granular level of how an individual transaction is likely to transpire. If you simply show me numbers from a market research report, or cite individual competitor information that is able to be found on the internet, you do not demonstrate a knowledge of your market that will be required to succeed. I’ve always felt that good entrepreneurs are good students of human behaviors, and there is a ton of human behavior to understand about why a potential customer makes a purchase decision. The tighter you can target the group and the more experience you already had in past experience with that group, the more likely you are to have sales success. It is harder to get to this level of understanding, but it is the important understanding to get.

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