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.