Business Tip: Know Your True Competition

One of the most common mistakes entrepreneurs make is thinking that they have no competition. I can't tell you how many have told me that their idea is so new and innovative that no competitors exist at all. But the truth is that some other product or service is competing for the customer's time, attention and money. Investors know this. They always look askance at businesses that claim no competitors. Investors want to read a good competitive analysis and know that you know what your competitive advantage is.

You may just have to think more broadly. Who is a partial competitor? Who is in a related industry who might jump into your category and become a competitor?

I just read a great quote from Mike Linton, who is the former CMO for Ebay and Best Buy, which shows how even large, established industries don't always understand who their true competitors are. Read it, and think of how this might apply to your business and category. The quote appeared in Ad Age.

"Don't be blindsided by the competition and get lost in what innovation is.
Record labels still believed they were each other's competition even as they engaged in legal battles with music download, peer-to-peer sites and the consumers who used those sites. They didn't see that consumers were bypassing the $19.99 CD en masse while Apple created a colossal digital-music franchise."

Competition

When VCs or other investors hear an entrepreneur claim that "there are no competitors," they immediately tune out the story. I can't tell you how many times I've heard that claim, only to go online and immediately find a slew of competitors. When you think of competition, you've got to think not only of direct competitors, but also indirect competitors. You've got to think of your entire category. If you bake specialty artisan bread, all bread bakers are your competitors because consumers must decide where to spend their bread money and which bread calories they want to consume. Analyzing the competition is very useful. You can find out what they do, how they do it, what their financial structure is, their suppliers, their allies and who they believe their competitors are. You can also learn more about the industry from reading competitive information. Finally, studying the competition is the best way to figure out what your competitive advantage is. If you don't have time to do the research yourself, you can hire an expert to do it for you.