How to Deal with Startup Competitors
“What enables the wise commander to strike and conquer, and achieve things beyond the reach of ordinary men, is foreknowledge...
If you know the enemy and know yourself, you need not fear the results of a hundred battles.
If you know yourself but not the enemy, for every victory gained you will also suffer a defeat.
If you know neither the enemy nor yourself, you will succumb in every battle.”
- Sun Tzu, Art of War
If you think your startup has no competition, think again.
Your startup does not exist in a vacuum. There is always an alternative solution in your customer’s mind. Even if that means they do the work themselves.
When you look into the mind of your customer, you will discover dozens of competitors competing for their cash. Gathering competitor intelligence will give you a clear understanding of where you stand, and what you need to do to win customer loyalty.
What Is Competitive Intelligence?
Winners usually make plans that will work regardless of what the enemy is doing. This is the essence of a good strategy.
- Jack Trout, bestselling author of Positioning, The Battle For Your Mind
Competitive intelligence is the process of gaining key information about the products, customers, and competitors in your market. This process is also known as competitive analysis.
When gathering competitive intelligence, you’re finding clues to position your startup for high growth. Regardless of what the competition does, you are prepared to succeed.
By analyzing the competition, you will learn:
- How to rise above your competitors.
- Find the most desirable growth channels to scale your business fast.
This, in turn, will improve your marketing return-on-investment before you spend a single dollar.
What Are the Best Methods for Gaining Competitive Intelligence?
Like most research, not every startup needs to do competitive intelligence. But quality competitive research is profitable because you will better have data to support your strategy.
Competitive intelligence should help you do two things:
- Increase your odds of finding a profitable market to serve.
- Decrease your risk of failure by giving people a clear understanding of your customers.
To do this, you will need to:
- Determine your goals. How are you trying to differentiate your business? Through the product, the price, the place you sell it, or where you promote it?
- Analyze the competition. Study their website and their marketing strategy. Look at what’s happening in the news, on forums, and social media (especially Reddit). Based on what you came across, what are your competitors’ strengths? Weaknesses? Where opportunities are they capitalizing on? Where are they vulnerable to attack?
- Pick which battles you can win. As a startup, you have limited resources you want to invest wisely. If you cannot win a battle while forming your marketing strategy, don’t fight. Instead, you should either ignore the battle or get to "good enough" so you don’t leave your flank wide open. It’s just as critical to know when to fight as it is to know when not to fight.
Your goals will change what methods you should use when creating your competitor analysis. This article will give you the tools necessary for 80% of the goals for early-stage startups.
How Should I Deal with My Startup's Competitors?
When dealing with your startup's competitors, there are two schools of thought:
- Ignore the competition.
- Research the competition to find their strengths and capitalize on their weaknesses.
You may have heard the advice it’s best to ignore the competition. This is a mistake, and I’ll show you why.
There are four common reasons marketers suggest you should ignore the competition:
- They do not know how to do a competitor analysis.
- They are lazy or looking for a quick fix. No one will admit this reason. But that doesn't mean it isn't true.
- They believe they need to invest their time on other activities.
- They believe they are more likely to create a me-too product.
Because you are reading this article, the first two reasons are not true of you.
With the third point, you may find you are able to ignore the competition in the beginning. Through intuition, luck, or being the first to market, you can carve out a meaningful niche.
But time-and-again I find these startups would benefit from analyzing their competitors.
Some startups gather competitor intelligence when asking customers what sets their business apart.
Others refuse to analyze the competition. Without this analysis, co-founders cannot position their startup in a meaningful way, they open themselves up for attack by a hungry startup.
As for the fourth point, the fear of creating a "me-too" product is legitimate. But it doesn't make sense if you go to its logical end. Most entrepreneurs use this thought process:
- If I ignore my competition, I can focus on creating features that only serve my customer. But why can't you research the competition and listen to your customers’ needs? By researching your competition, you will be able to know what solutions your customers are missing and want from you.
- If I look at the competition, then I will want to create the same features as my competition. But what if you need to create a feature that's necessary, but not a point of differentiation? In this case, there's no reason to reinvent the wheel.
What do you miss out on when you choose not to do a competitive analysis?
- It’s impossible to position your startup in a meaningful way against the competition. As I explain in my article on how to position your startup, you need to be different, not better. Without information on your competitors, how will you become different in a significant way?
- Your odds of competing in marketing channels with low ROI increases. If you don’t research your marketing channels, how will you know if your customers use those channels? And if you find your customers, how likely is it your competitor has a strong foothold in that channel?
- By not learning about your competitors, you can't create comparison landing pages. Comparison landing pages are prime opportunities to get early customers. They often bought from your competitors and were not satisfied with the solution. Or they looked at your competitor and the messaging did not resonate. These landing pages can convert into double digits, pulling in hundreds of new customers every month.
Yes, you can choose to ignore the competition. But ignoring them doesn’t mean they aren’t competing for your customer’s wallet.
How Do I Perform a Competitive Analysis?
To start, list out all competitors you know about. Second, use review websites like G2 Crowd and TrustRadius to find other competitors you may have missed. Finally, you need to talk to customers to find out what solutions they have used in the past.
You may think you can skip the last step of asking customers because you know most of your competitors already. This is a mistake.
First, it's the customer who buys your product. A competitive analysis isn’t valuable if it doesn’t aid you in getting more customers.
Second, it’s not uncommon for entrepreneurs to miss 30-40% of their competitors when they don’t talk to their customers.
Third, competing solutions aren't always what you expect. Customers know what solutions they use to solve the problem your tool alleviates. And you may also miss up-and-coming products that your customer already knows about.
You should perform a competitive analysis during customer discovery interviews or during customer experience interviews.
After you've found your competitors, bucket them into different market niches.
A market often has many niches. This is especially true for large markets. For example, in web hosting there are three major niches:
- Generic web hosts. This includes GoDaddy, BlueHost, and HostGator.
- WordPress web hosts. This includes WP Engine, Kinsta, and Pantheon.
- Developer cloud web hosts. This includes Digital Ocean, Linode, and AWS.
There are other companies serving smaller niches, such as FlyWheel for designers. But these three niches cover the majority web hosting startups.
You get to choose how you segment the market. But you need to segment in a way that your customers make a buying decision. For example, I could segment web host companies by those that focus on privacy or security. A simple way to check if your market is an actual market is to do keyword research to see
Once you've found the main market niches, choose which market to target first.
How did Facebook start its growth ramp?
Facebook's first users were Harvard students. Next, they served Ivy League universities. They then expanded into prominent state universities, all colleges, and finally opened to the general public.
Wealthfront took a similar approach. Andy Rachleff began by creating a best-in-class product for Facebook employees. After reaching the tipping point, Rachleff focused on LinkedIn employees. In time, Wealthfront opened its doors to the general public.
Why did Facebook, Wealthfront, Lyft, Lyme, Pinterest, and Poshmark exclude some customers they could serve?
It's easier to win a small market and expand into a bigger market than it is to win the entire market at once.
Again, you need to focus on the battles you can win.
Decibite could position itself against all three web hosting niches. But they are taking on the generic hosting market, as you can see from their comparison landing pages.
Focus on serving the smallest viable market. Once you become the biggest fish in the pond, move to a larger pond. Wash, rinse, and repeat until you're the 500-pound gorilla no one can ignore.
After you've chosen your niche, find out what features matter to your customers.
It's easy to find the features that your competitor's think matters to their customers. They will list these features on their website, most often on their pricing page.
Write all features down in a spreadsheet, even if the features aren’t necessary. Then mark who offers what features and where relevant, how much of that feature they offer.
For example, let’s say a startup called AceCook provides a ½ cup of happiness and 2 lbs. of clovers. At the top of your spreadsheet, you will include the columns “happiness” and “clovers.” In the row marked “AceCook,” you will fill in 1⁄2 cup for happiness and 2 lbs. for clovers.
After doing research by hand, talk to your customers to find out what features they value the most and the least. Let’s say they value 4 lbs. of clovers and dislike eggplant. In your spreadsheet, you will want to add “eggplant” and find out which of your competitors offers this feature.
Finally, you will want to find out what features your audience loves. For every feature they chose as the most important gets +1 point, while every feature they value the least gets -1 point.
Once you've added up the points, you’ll find what features your customer’s value. In the example above, the customers prefer clovers over eggplants. And happiness wasn't a buying factor. Of course, you will want more data before tossing out eggplants and happiness from AceCook.
AceCook should consider doubling the number of clovers, especially if all competitors offer 4 lbs. of clovers in their product.
Finally, you will look at what marketing channels your competitors are using and how effective they are doing.
Everything you need to learn in this step I talk about in the article on how to craft your go-to-market strategy. But here's a quick summary:
- Examine each of the inherently scalable marketing channels. Those channels are SEO, business development and partnerships, virality and network effects, paid advertising, and sales.
- Score each growth channel in three areas on a scale of 1-5. First is the potential impact you may get, then your confidence of success, and finally the ease of putting the test into action (or your "ICE" score).
- Pick the channel where your competitors are weakest and you are strongest.
- Test two other channels at the same time. Ideally, these two channels support your primary scalable channel.
- Keep testing until you find a successful beachhead to get new customers at scale.
- Convert your process into a scalable and repeatable procedure that anyone can follow. Automate what’s possible and hire or outsource the rest.
- Double down on your success. Don’t make the mistake of losing focus by testing another channel.
- Print that money and take it to the bank.
What Are Some Sources of Competitive Intelligence?
The most efficient way to analyze your competitor is to check their website and talk to your customers. You can also check review websites, blogs, and looking at customer opinion on social media.
As I mentioned earlier, checking a competitor’s website gives you an opportunity to look at the competition yourself. This is important because it allows you to compare what you learn with what competitors are doing.
Talking to your customers will give you key intel how successful your competitors already are doing.
Review websites will give you direct feedback from the customer. You should know some review websites pay users to write feedback. This can lead to fake reviews.
Affiliate blogs and review websites aren't inherently bad. But it’s important to know how these websites choose the products to feature and review each product.
Social networks often are less biased by pay. Relevant Reddit communities (called subreddits), forums, Twitter, Quora, Facebook Groups, and Slack are excellent sources of competitor intelligence.
The danger with social media is these customers may not be your ideal buyer. This may lead you to build your product for the wrong person. Also, the information you find is more likely to be out-of-date.
I've Finished My Competitor Analysis. What Should I Do Next?
Once you have finished your competitive analysis, you are ready to put in place two powerful methods to ramp your growth:
- Position your company to rise above the noise.
- Find the most desirable growth channels to scale your business fast.
While it’s critical to find your optimal growth channels, you should position your startup first. Then when you promote your business, you will have a clear and compelling reason for customers to choose your product over the competition.