Understanding the competition isn’t only important for fundraising of course. Investors care for a reason. Founders who don’t understand the competition risk being out-sold, out-hired, making poor product decisions, and coming second (or worse) in the fundraising game. Any one of these risks can prove fatal.
Whilst understanding the competition is important, becoming obsessed by the competition is a mistake. Companies should first and foremost be oriented around their customers, using understanding of competitors to serve them better. However, in tech only the paranoid survive.
Understanding Your Competition.
The first step is to assemble a list of your competition. You should include companies with equivalent products and services, as well as companies that solve the same customer problem with a different solution. Be aware of companies in adjacent markets that might compete in the future and of companies you compete with for budget, even though they do something different.
Get to know the companies on your list – their product and their people. Make an objective assessment of competitors’ feature sets and compare them against yours on a line-by-line basis. Be sure to read or watch all their marketing materials and if possible you should have their products in your office or home and test them.
If your companies are of a comparable size invite the CEO out to lunch, and in any case visit their stands at trade shows and network with their people at conferences.
Understanding Your Customer.
Armed with a thorough knowledge of your competitors’ features and products, interview customers to understand their pain points. In particular look for frustrations they’ve actually acted upon rather than the lower priority niggles they voice but don’t do anything about.
Ask open questions about their issues and what they are trying to achieve, focusing on business or consumer needs rather than product solutions. This will give you important context for assessing the relevance of their answers to your questions about competitors and which products and features they value.
Finding customers to talk with can be daunting but founders invariably report that once they get out of the room and start they find it a positive experience.
If you are a consumer business: head down to Starbucks or wherever you think your customers hang out. If you sell to businesses, phone calls are crucial. Be clear that you want a conversation to learn more about what they want, rather than to sell something – you will be much more likely to get meetings! Take advantage of chance encounters, too, to ask questions. Steve Blank’s Four Steps to the Epiphany and Rob Fitzpatrick’s The Mom Test have a host of practical tips for getting customer interviews.
Building your Competition Matrix.
Your goals are to build a nuanced understanding of your strengths and weaknesses to the competition at a feature level, and to know which features are most important to customers. You will then be able to write a convincing competition slide that is backed up with research.
If you go the route of a 2*2 matrix, make sure the dimensions you choose are meaningful. The AirBnB example works well because affordability and the ability to book online are important to customers and significant points of differentiation from their competition.
If you go the route of a feature list, order them by importance to customers and show the detail of your understanding by using quartered pie charts or similar. The second example above lacks credibility because it shows no understanding of which features are important to customers; its ticks and crosses are too binary, and the six greens versus two reds for the competition is tough to believe.
As well as impressing investors, use these tools to develop your strategy as you iterate your product. Periodically presenting them to your board will help you maintain clarity of thought and alignment as well as forcing you to keep your understanding up to date.