Being Small is Not a Strategy for Beating Your Competition

Posted on September 2, 2014 by
Always assume your competition is further ahead than you think.

Always assume your competition is further ahead than you think.

A meaningful percentage of my startup clients have no respect for their competition.  Too many first-time founders have bought the story that big existing companies in their space are too slow to be a competitive threat.  Or that “existing competitors aren’t as nimble as we’re able to be.”  Nimble? Oh, got it. Nimble. What? You think you can buy a pretty damn fast pair of sneakers with that $48.87 of available cash, do ‘ya?

Over the weekend, I read the following quote from a client (with specifics removed) which is what got me to thinking about this subject. The quote was in response to a challenge to how they’ll compete against entrenched players in their space.

“We had a conversation with one of our competitors and one of their managers. One of their biggest challenges is all the formal processes they have in place. This prevents them from innovating quick enough to keep up with their client’s [sic] needs. Every suggestion has to be planned out in detail and go through multiple committees before coding even begins. We feel this type of workflow for software development is outdated and can prevent company from keeping up with the wishes of their user base.”

This is hogwash, but I don’t include this quote to ridicule the client. This is fairly routine thinking among many first time founders.  There is an unwritten rule that many have come to believe about entrepreneurial ventures: small = fast and big = slow. This generally holds true in the animal kingdom, though not always.  One reason why this is a poor assumption to start with in the business kingdom is that “small” is roughly equivalent to “woefully lacking in resources”.  I’ve noticed that none of my clients ever say, “Well, our competitor is big, but slow. Since we are small and woefully lacking in resources, we’ll win in this industry”.

What this founder, a first-timer, does not understand is that any and all businesses that begin to have success beyond $1-2 million in sales, must put these types of bureaucratic processes in place. You, the founder, begin to run out of capacity to make EVERY decision that needs to be made.  So, if you’re smart, you start to delegate to another person.  That person has capacity constraints as well as the business grows and brings a 3rd person into key decision making.  But, person #3 makes a couple of poor decisions and now person #1 wants to review some of those decisions going forward.  And maybe a board of directors demands input on certain issues.  And R&D has grown so much that there is a whole team in place that starts to have creative differences and so a new “Feature Development Priorty” team is put in place.  Frankly, what most first-time founders don’t get is that the ability to construct an effective organizational decision making ability is often the reason for success.  And that is because speed (or, acceleration) is only part of the equation for winning.

The other part of the equation is Mass, as in Newton’s Second Law of Physics, in which Force = Mass x Acceleration.  I don’t know if I can take this metaphor a lot further but to suggest that being able to make decisions fast only matters if the number of decisions that are capable of being made is also large.  A startup with $48.87 in the bank can make a couple of decisions fast…eg, Wendy’s or McDonald’s Dollar menu for lunch today?  But those larger, slower competitors can make dozens of decisions, reasonably fast. And believe it or not, there are those larger and fast competitors that can make scores of decisions very fast.  Your ability to become a FORCE in your industry depends on both.

My point to all this… is this: Being small is not a strategy.

If the best answer you can come up with as to how you’ll compete against your competitors is the fast v. slow irrationalization, I immediately assume that you 1) do not have sufficient understanding of your competition and therefore 2) you do not have a sufficient strategy for how to use your speed to out-maneuver your competitors.  What I want is for my clients to say that their competitors are serious, more resource-rich and experienced warriors in the battle for jungle supremacy.  I want to hear about specific examples of ways in which their competitors are vulnerable in specific segments of the target markets and “we think customers will respond well if we do X”.  And, I want to hear that because the competitors already have the customers you want…you won’t be able to sleep until every last one of them is slain by your force.

 

Posted in Business Planning, Entrepreneurial Advice, Innovation and the World | Tagged , , , , , , , | Leave a comment

Hey! Are You Trying To Be Some Kinda Why’s Guy?

Posted on July 8, 2014 by
why-simon-sinek

As a CEO will you continue to articulate your “WHY” as effectively as you did when you were merely a Founder?

You may already be familiar with Simon Sinek’s perspective on the fundamental reason why some companies succeed and some companies fail. If you are not, you’re missing an important business thought and I’m here to help…here is a link to a 5-minute abridged version of his TEDTalk, though I encourage you to view his fuller 18-minute version.

He suggests, in short, that great companies are able to find, understand and communicate the fundamental reason for their existence…their “Why” of existence.  The problem for all the not-great companies is that articulating this “Why” becomes muddled when companies become more internally focused and get all wrapped around the axles of their internal operating processes (their “how”) and too focused on product configurations and extensions (their product “what”).  If that doesn’t make sense, you probably didn’t pause to watch the 5:00 minute video, did you?  It’s worth it…I’m just sayin’. If you didn’t, the graphic above helps boil the idea down even further.

This imagery gives those of us who work with startups a new way of explaining why “market-focused” founders beat “technology-focused” founders pretty much every time.  What Sinek doesn’t suggest, but I will, is that most startups must start with a “why”.  Most founders I meet and work with have a passion and a vision for solving a big hairy market problem.  The best founders start with this market problem and devise a product or solution to solve it. They already have, or go out and get, primary customer understanding.  They may rough-draft some solution (the “what”) so they can probe around a bit, but their venture starts with a big, passionate why:  “We’re going to change the way college students get jobs after college”; “We’re going to improve heart valve repair for thousands”; “We think we can help cancer patients receive better outcomes.”  And so on.  They need these easy-to-convey messages because their constituents, (i.e., investors, customers, partners, employees, etc.) are in a chaotic mess. As a startup grows, especially if growth is rapid, organizational and operational issues can add layers of complication to an otherwise clear and passionate “why”.  Whereas Sinek encourages companies to get back to their “why”, I encourage startups to begin with and keep centered on their “why” from the beginning.  Bake it into the culture and organization DNA. Revisit it frequently…make sure every new hire expresses it.

Some founders we meet do not start with a “why”.  Instead, some invent their way to some cool technology and then decide that they have a problem to solve…after trying to find one.  Those founders are not starting with the “why”.  They are starting with the “what” of their technology and work their way to the “how do we improve this technology” before even figuring out how the chaos of some marketplace will perceive their reason for existence. When they try to describe their business plan to me, it is usually a disorganized series of statements that is more than bad storytelling…it is a lack of the “why” that is at the center of Sinek’s golden circle that keeps you from organizing your company and team for success.

It is one thing when a company loses it’s “why” in a surrounding pool of how’s and what’s. A large company with resources at its disposal at least has a chance to re-find it’s center and core mission…think Apple here.  Sinek points out that Steve Jobs was able to continually communicate Apple’s “why” through the products they developed.  As they got big, needed to compete in multiple markets and lost Jobs to cancer, they found themselves in the wide open space of head-to-head product competition.  However, with the right people, Apple could find it’s way back.  A startup with 3 people and a founder focused on their technology “what” hasn’t got a chance to find their market “why”. (Interestingly, while drafting this post, this article popped up in which Jobs complained that his staff was doing “too much stuff”…aka, not focusing on the “why”!)

Clarity of message follows clarity of thought, and clarity of message makes it easier land investors, attract top employees and secure customers. So, always remember that wise founders should start, and remain, “why’s guys”.

Posted in Business Planning, Entrepreneurial Advice, Innovation and the World, Technology and Society | Tagged , , , , , , , | 2 Comments

American Independence…The Greatest Entrepreneurial Venture Ever (reprise)

Posted on July 3, 2014 by

I want you to think about something.

It is July 3, 1774.  You own about 600 acres of farmland.  You essentially run a medium -sized agricultural business and employ some 60 people.  You have 4 children and a pregnant wife.  Massachusetts, Pennsylvania, New Jersey, Virginia and others are discussing a multi-colony gathering to consider making a unified statement on behalf of all the colonies.  It’s basically illegal.  Some in your area are talking about joining them.  A friend tells you that your name was mentioned at a meeting last night.  The meeting was about organizing a local group of neighbors to be quickly alerted and prepared in the event of an armed attack by the British.

You’re a business man for Heaven’s sake.  You’ve got supplies to buy.  You’ve got buildings to build and fences to repair.  And crops!?  You’re a farmer after all…the only entrepreneurial venture where not only is your product commoditized and prices are completely out of your control and all your neighbors plant the same things you do, but even the insects and the rain and the heat and the cold and the dry work against you in ways you can’t possibly control.

But, the stamp act was expensive for you.  It was completely unreasonable, frankly, and hit at a time you were buying land and promoting your goods.  It added 15% to your costs and the British were finding ways to cope without buying as much from you.  The talk in Phelps Tavern was that you should organize a group of the area’s farmers and tradesmen to share news and information with each other about other potential taxes being considered by Parliament.  There was considerable consensus that YOU should consider becoming a Connecticut representative to the Continental Congress in Philadelphia to make sure that your and your neighbors voices were included in opposition to recent British decisions regarding port and commercial activity.

Because of your business success, you had always been consulted on issues of commerce and governance in your area.  But leaving for Philadelphia when your business needed you most in the summer is not well-advised.  And there is your wife saying, “Of course, it is flattering that they’d ask you, but I’m just glad you’re not considering it.” 🙂

Certainly, she’s right.   I mean, after all, it’s one thing to evaluate whether a new stone bridge across the Farmington River would make sense for the community.  But you’re needed here.  And it’s basically illegal to discuss ignoring laws from Parliament.

Now think about Independence Day, 2014.  This is as good a day as any to look at yourself in the mirror.  As an entrepreneur, you make 100 decisions every day that have an impact on your business, employees and your family.  Clearly you need to make decisions that are in the best interest of your business.  But what would you do if you were confronted with the dilemma of 1774?  Is it possible that sometimes the long-term interest of your neighbors and countrymen become the best interest of you and your business? Remember, outright insurrection like occurred in Boston Harbor could get you arrested.  It could get you shot!  Or hanged!  Then how would your farmstead and family fare?

Still, it seems reasonable to be prepared to defend the town, perhaps even from mischievous local boys.  And a few weeks away in Philadelphia would provide a better perspective on what’s happening outside this colony.  Perhaps there will be a chance to exchange ideas for seeds.  Or new techniques…new markets.

It was an enormous decision among dozens of other enormous decisions that many colonists made in those years.  I think it is important on Independence Day to remember that those decisions weren’t just some abstract theoretical points of debate.  They were decisions made by individuals that would change their lives and their businesses regardless of what outcome occurred…good or bad.  Enormous sacrifices for an unknown outcome.  Perhaps, it is reasonable then, to consider the push for American Independence the biggest entrepreneurial undertaking ever, before or since.

Happy Independence Day!  Huzzah!

Posted in Economic History Perspsective | Tagged , , | Leave a comment

Build Your Companies…With Good Boards

Posted on June 23, 2014 by
Each board is different...choose carefully and use correctly

Each board is different…choose carefully and use correctly

Most of the new founders I’ve ever met roll their eyes when I suggest that they form an advisory board.  One of the main reasons people found their own companies is to have supreme magisterial control over their empire.  They certainly don’t want the obligation of reporting to and taking advice from some outsiders.  They certainly don’t want the extra work and commitment that would be required  for an effective use of a board.  However, this weekend I decided that from now on,  when a founder rolls their eyes at my suggestion, I’m pretty sure I’ll say “Bully for you!  Best of luck with your venture! I’m sorry I’m not interested in helping you and I’m certainly not going to consider funding you.” I mean it.  From now on, my clients are gonna form an advisory board of some type and we’re going to use them. I’m not suggesting that you let some other people run your company…I’m not talking about a Board of Directors with fiduciary responsibilities to the shareholders of your company.  Occasionally, those shareholder-responsibilities can run counter to founder-responsibilities.  I’m simply talking about a group of 3-5 people that are willing to spend 3 hours with you 4 times a year and provide feedback and advice and connections and an occasional smack with a 2×4 upside your head (of course, that is a different kind of board). Here are some quick thoughts about creating an effective and legit advisory board:

TechonomicMan Advisory Board Rule #1: Do NOT simply collect advisors. It’s not impressive that you list 17 names on a slide in a powerpoint titled “ADVISORS”.  Some faculty member that once told you ” you have a great idea, there” is not an advisor…it’s a person being polite.  An advisory board is also not a group of people scattered all over the world that never gets together in person or, at a poor 2nd best, via video call.  Making a phone call to an advisor who is expert in some area of your business 3 or 4 times a year on that subject is not an effective use of their time.  By keeping advisors in one-on-one conversations only, forces them to miss valuable context and prevents deeper discussion that would be gained from having that person in a room with several others.  And you may miss the very best of their experience by not allowing them to feed off the ideas of others. Bring the group together regularly for maximum effect.

TechonomicMan Advisory Board Rule #2: Do NOT call an advisory board meeting only when there is a crisis. If you are down to 2 weeks of cash for payroll and haven’t spoken to someone you’d consider an “advisor” for nine months…you are not only a bad entrepreneur, you are a jerk.  A smart entrepreneur doesn’t “use” an advisory board, she “engages” it.  Treat the people you consider to be professional advisors in a, you know, professional way.  It isn’t hard: A) Put meetings on a calendar 1-2 months in advance; B) Send update material to your advisors 1 week in advance; C) Have a high level agenda for the 3-hour meeting to touch on major aspects of your business (eg. sales/marketing and pipeline; product development; organization and staffing; financials and capital).  This professional approach not only makes you a better founder, but it is more likely to get the best out of your advisors.

TechonomicMan Advisory Board Rule #3: Speaking of getting the best out of your advisors, yes you should provide some form of remuneration to the advisors.  If they are not already shareholders, they should be provided with at least a token amount of equity.  Nothing dramatic, just a few hundred to a few thousand dollars worth is appropriate, depending on your situation. If you do bring them together in person once or twice a year (and meet online the other times), and there is travel or overnight stay involved to make the visit possible, offer a small amount of expense reimbursement.  This is probably $100 if you are bootstrapping and pre- or very early revenue.  It is probably closer to full expense reimbursement if you are up and running and more of a going concern.  Talk to your attorney or accountant for the best way to establish these policies.

You’re making dozens of tiny and several large decisions every week as the founder/CEO of your company.  And, I’m guessing that as a founder of tech company, you have a hard time staying focused on the mission at hand.  This combination of accumulated decision-making and a hyperactive and creative mind, make you a perfect candidate for an advisory board.  A well run, healthy advisory board not only provides a way to help you gut-check some of the more important specific decisions in your company, but it will also help you  recalibrate your company strategy and mission a few times during the year. “Measure twice, cut once” is the old woodworkers adage regarding boards. For the tech entrepreneur, I hereby declare the mantra to be “the cut of your company can be measured by the effectiveness of your advisory board”.  Or something like that.

Posted in Business Planning, Entrepreneurial Advice, Seed/Venture Capital | Tagged , , , , , | 1 Comment

The Four Seasons of Your Start-Up Begin in the Spring

Posted on May 30, 2014 by

The inner dynamics of a start up…like sands through the hourglass.

In case you hadn’t noticed, it’s been about 9 months since I posted anything…time to get busy! While I’m working on some new stuff, I thought I’d re-post this since it’s, well…you know, Spring.

I spend a lot of time with start up companies.   To be specific, I spend more time with start up companies than I spend with my wife.  That is actually true and explains why despite 22+ years of marriage, I think I understand start up companies better than I understand women.  With that in mind, I’ve observed and want to share my thoughts about the evolutionary stages that start ups go through as a framework for understanding them better.  I think this matters for you as a start up company or, perhaps even more importantly, for you as an advisor to start up companies.

My view is that start up companies, to achieve success, will progress through 4 major stages before departing “early stage” or “start up” status.  As with any good rule, no individual company actually follows all these stages, and yet somehow, they all do.  I’m calling the four stages the “Four Seasons” because it obviously possesses more flair and lends itself more to a potential book deal.  I arrived at the framework for these seasons, as I listened to “The Boston Consulting Group on Strategy” audiobook in my car.  I’d actually recommend you get the print version and read it sitting still because concentrating on complex business strategy concepts while working through traffic at 80 mph does tend to challenge the senses…especially while also keeping one ear on your smartphone…DID THAT JUST BUZZ?!  Stay calm…here are the seasons your start up will flow through:

Spring     =     Experimentation

Summer =     Tactical Execution

Autumn =      Operational Organization

Winter   =     Strategic Maneuvering

We’ll probably take care of these in a couple of separate blog posts.  Let’s start with the spring when all is fresh and new, and pollen covered and allergic-reaction-inducing.  In terms of a start-up, the spring is the beginning and clearly an experimentation stage.

The Spring of Your Start-Up…Experimentation

When founders found a company, they usually do so, based on several critically flawed notions. The trouble is, you never know which of their assumptions are critically flawed. What we know is that the percentage of your glass that is filled with uncertainties is larger than the percentage filled with certainties.  In the spring of your start-up, founders are and should be, probing the boundaries of their assumptions.  They are probing their assumptions with regard to technology veracity, customer-base validity and management team, um, virility.  I don’t have a clue how long the spring will last for your business.  And while spring on planet earth signals warmer mornings and brilliant sunny days, spring in your start up can feel like the winter of your discontent.  Customers can inexplicably evaporate. Production costs are twice as high and take twice as long as you hoped. Your business partner decides that full-time wages beats full-time no-wages. You are probing…probing.  And you should be.  And you should plan for this potentially long season.  Spring in a start up can last for years and, like some species of life on earth, start ups can die in the flowering stage.

But the probing goes on for those that last.  Elation associated with spring often emerges with the signing of a customer.  And then, maybe, another customer.  Maybe a third who hires you more for consulting than your product…and in a different industry than the other two, but its a customer.  And, OK, so the purchase decision by one of the three was made by a former college roommate who happens to be the VP of something at a business in an industry not targeted by you. But it is real revenue!  The beautiful aroma of spring is in the air!  Your idea is validated!  Several other relationship-based sales prospects are favorably evolving.  This all proves your technology has some value.  It does NOT prove that you know how to build a business.  This is why so many “seed stage” investors really don’t invest in your business until you’ve started securing a series of non-relationship-based sales.  They want evidence that your SALES PROCESS works, not just your technology.

The good news is that buds are on the vine.  The family members who took a lot of convincing are starting to make eye contact with you again!  You’re no longer introducing yourself as a “consultant”, but as a “founder” at Thanksgiving gatherings.  Your start up finally got, say, $250,000 in total revenue after 18 hard months!  But alas, as with spring on earth, spring in start ups tends to bring with it…rain.  It is going to rain.  There are a lot of opportunities flowing in…some prospects are finding YOU!  Unfortunately, you don’t really know why.  What did they search on? What are they searching for? What are they expecting? So much probing and experimenting yet to do. Different messages, different contact approaches, different pricing packages…probe, probe, probe.  This is life during spring in  a high tech start up.

Put a system in place that allows you to evaluate the successes and failures of your customer probes.  I know, this might just be a weekly meeting with your sales person.  Not exactly some complex methodology, but build the discipline.  Look for trends.  Be objective.  Be critical.  Ask your sales guy to keep better notes and look for trends.  Ask your incubator manager what she thinks about the trends you think you see.  Probe, probe, probe.  Spring is when you begin converting your business concept into a business plan.  Summer is coming…in the next post.

Posted in Business Planning, Entrepreneurial Advice, Tech Based Economic Development | Tagged , , , , , | 1 Comment

The Four Seasons of Your Start-Up…Autumn Begins! (reprise)

Posted on September 23, 2013 by

The inner dynamics of a start up…like time through the year.

(Originally posted in 2012…thought of it as I picked my last tomato of the season yesterday!)

The temperature outside my window last night dipped to 44, the crickets have stopped chirping and my wife told me that she “can’t manage all the tomatoes I’m bringing in from the garden.”  Hmmm…kinda like life inside a high tech start-up.

The spring and summer inside a technology start-up can be, hopefully, times of growth.  Sometimes the growth is frustratingly slow, as can be true in the earliest months and years…the spring.  Founders spend the spring probing their potential customer base for the right mix of product, pricing and proposition of value (see part 1 of this Four Seasons series).  A successful spring leads to a summertime filled with rapid growth in revenue.  Your company’s offering has struck a nerve with a customer base and rapid customer acquisition and revenue growth leaves your team elated, but that rapid growth and strain it can put on your growing staff and operating systems can stretch your cash to the breaking point with all its heat (see part 2 of this Four Seasons series).  It is critical that your start up gets some relief and the Autumn can bring it.  Autumn in your start-up is the time to operationalize your organization and to build your WHOLE business instead of just your customer base.

This is what your business can look like as Autumn in your start-up breaks…a lot of tomatoes, no organization, and a pulpy mess.

Here is your problem as autumn breaks inside your start-up: You don’t know what is happening. Revenue growth takes a breather…maybe you simply hit a seasonality lull…but maybe your organization has simply reached an initial capacity plateau.  Two years ago you may have generated $200,000 in revenue.  Last year was $1.2 million.  This year might be over $2.0 million.  So you’ve built revenue nicely (remember when you had no revenue and friends and family told you to give up?)  Well now you’ve got so much revenue it is really all you’ve been able to concentrate on for 18 months.  But you recently heard some expert refer to a concept you’ve never really heard of…”EBITDA”?  You know…the stuff that is left after you pay for stuff?  You look at your Income Statement and, sure enough, it is there and although probably “negative”, it has been there all along.  Then you went online and Googled it and while you were clicking around, another person mentioned something called a “Balance Sheet”.  Somehow this sheet is supposed to help you understand the financial health of your business.  “Gee,” you think, “I wonder if I should have one of these Balance Sheet-thingys.”

Ok, so you may not be that far out in left field, but you do begin to realize in this chillier air of Autumn, that you really have no clue what the health of your business is.  In the spring, you spent all your energy trying to get one single freaking customer.  Then, in the summer, you spent all your energy trying to keep your head from exploding while chasing all the new customers you had.  Well, it is Autumn now, and time for you to focus on the other part of your business…your ability to sustainably deliver goods/services to your current, and more importantly, your future customers.  And you can’t just stop the world while you do it.  If you’re fortunate, revenues will continue to grow, maybe on their way to $5 million.  But it will all collapse if you don’t start putting some ORGANIZATION in place.

For those of you who have read Geoffrey Moore’s timeless classic Crossing the Chasm, this is what that transition looks like.  You’ve secured the “innovators” in your target industry and the “early adopters” are coming aboard or are in your pipeline.  Your organization now needs to make two huge transitions.  One, as Moore points out, is that you need to “normalize” your product offering for the large group of customers who are looking for a different set of clues about the value of your product or service.  You probably need to adjust your sales techniques (those channel partners who weren’t interested a year ago, now might see the light since the hard, missionary selling has had effect).  You may need to add to or subtract from your product offering to reach a customer set just above or just below your current customer set.  Maybe, for your business, geography needs to be added.  More US territory?  Go international? Whatever is next, you need to be aware of the drivers that will move you from a couple of million in revenue to the $10 million mark.

I know they’re apples and not tomatoes, but this is still no way to manage your start-up’s Autumn harvest.

The second, and arguably the more important of the two on this early Autumn day, is you’ve got to get your act together internally.  An inability of the founders to go from “100% entrepreneurial skill” to “75% entrepreneurial skill/25% management skill” can kill your business like the first hard frost of Autumn kills those tomatoes.  Managing cash flow, automating your customer on-boarding process, instituting standardized customer service levels and staffing, maybe creating organization-wide dashboards for measuring the key “profitability” drivers, all need to be front and center now.  If you hope to later emerge from the Winter of your “Start-Up” to the Spring of your “Growth” company, you need to show stakeholders that you can MANAGE all those tomatoes.

If you don’t already have a board of directors, get and meet regularly with a Business Advisory Board.  Seek out a part-time CFO…an accountant alone probably isn’t sufficient.   Consider hiring a top-notch Chief Operating Officer.  Depending on your business type, select and relentlessly install and use an ERP software package and, perhaps, engage a consultant to help.  Think of your business as a machine.  In the Spring, you and your partner were like a little 6 horsepower business…overkill for a $0 revenue business, about right for a $1 million business, but incapable of running a business generating even $1.00 more than that.  Just can’t do it.  As police chief Brody said in Jaws, “You’re gonna need a bigger boat.”

If you haven’t been through this phase before, it can be startling to watch your own growth. Resist the temptation to stand there and watch it.  Groom someone else in your company to prepare all the quotes you need to write.  Your new responsibility is to add horsepower to your business machine.  Take actions to organizationally operationalize your business.  Otherwise, you may as well just toss all those young tomatoes in the garbage disposal.

See the other three seasons of your start-up:

Spring, Summer and Winter

Posted in Business Planning, Entrepreneurial Advice, Seed/Venture Capital, Tech Based Economic Development | Tagged , , , , , , , , , | 3 Comments

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

Posted on September 16, 2013 by
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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