In my last blog I covered the types of competition in startups. Because understanding competition is essential to developing a competitive positioning strategy, I highly recommend you read that blog first. This post is part two of the series, and it will cover competitive analysis, and competitive dynamics so your startup is prepared to develop a competitive positioning strategy.
What is Involved in Competitive Analysis and Why Does it Matter for Positioning Strategy?
Analyzing a startup’s competitive situation is a complicated process. The Bible for competitive analysis and competitive strategy is Michael Porter’s book, Competitive Strategy. Here from my book, The Fundable Startup: How Disruptive Companies Attract Capital, is a summary of Porter’s process:
Like planning, competitive analysis is a discipline that is learned. The bible for competitive analysis is Harvard professor Michael Porter’s original book on the subject, Competitive Strategy. This book outlines a detailed process for organizing information related to an industry: vendors within the industry, buyers, suppliers, potential substitute, or alternative products, companies entering the industry for the first time, and alternative approaches to solving the same problem that the product solves.
Porter’s point is that competition doesn’t only come from other similar products. A substitute for a butane fire-starter, for example, is a match. An alternative product might be a cigarette lighter. An alternative approach to solving the same problem might be using flint and steel to start a fire. It would be shortsighted to plan for a fire-starter business without considering these other options. Porter also outlines approaches for determining the competitive dynamics between existing vendors and describes competitive strategies that a new entrant might pursue in order to establish a position within the industry.
How is Your Solution Better Than Your Competition’s?
In most cases, your customer will have a wide selection of solutions from which to choose. Most important problems can be solved in a variety of ways. So, even though your product might be quite unique, it is probably not the only way to solve the problem.
An important step in identifying your competition is to identify each and every one of the different ways of solving the same problem. Usually, a good starting place is asking how the problem is being solved today? Before the telephone, there were telegraphs and messengers. Prior to television, there was radio. Before cars, there were horses and buggies.
Being Unique Won’t Matter if it is Unattainable for Your Market
Just because there is not a similar product, doesn’t mean that customers will run out and buy your solution. The first TV sets were too expensive for most families. The automotive revolution didn’t really happen until Henry Ford developed techniques for mass production at affordable cost. Are you starting to see how competitive analysis is a crucial part of developing a competitive positioning strategy?
It is important to identify all the different ways of solving the problem you are solving. Each of these methods is potentially a competitor. Some may not hold a candle to your solution, but you should still identify them as another way to solve the problem.
Your task in convincing investors that customers will buy your product is to explain carefully and precisely and quantitatively how your product is better than each of the alternative solutions.
What are Competitive Dynamics?
To make life even more complicated, before developing a competitive positioning strategy, you have to understand that competition is not static. It is a dynamic, ever-changing facet of innovation. You can’t just identify today’s competitors. To the extent possible, you must also identify possible future competitors. It’s very common in the high-tech world for startup companies to capture first-mover advantage, only to be overtaken several years later by large companies that were developing similar products all along. They were just taking longer.
You must convince investors that it is highly unlikely that another company— either small or large— will develop a product better than yours. This is where “unfair” competitive advantage comes in. Your best protection against competition from another company is to have a product that is well protected by patents or proprietary processes. However, patents do not guarantee protection. But a sound patent portfolio can certainly make it more difficult for companies to knock off your product in the future.
What is a Competitive Positioning Strategy?
Before you begin developing a competitive positioning strategy, you must first understand what it is. Your competitive position is the way your customers perceive your product in relation to their various alternatives. Customers buy a product for different reasons, so competitive positioning can be a complex topic.
- Are customers buying your product because it is cheaper than the competition?
- Because it works better than the competition?
- Is it because it’s smaller?
- Is it the better customer service you provide?
- Because your product is more reliable?
This list can go on and on. The important thing is for you to identify the customers’ key factors buyers use in selecting your product over their other alternatives. Then you can determine your desired competitive position. For example, you might want to be perceived as the higher-cost, but higher-performance, and more-reliable solution. These factors can define a segment of your marketplace. Your competitive positioning strategy is your game plan for achieving this perception in the marketplace. How will you create your image as the high-cost but highest-performance, most-reliable product?
How to Develop a Competitive Positioning Strategy
Some of the important steps in developing your competitive positioning strategy are:
- Identify a quantitative goal for each of your competitive positioning criteria. For example: cost, performance, reliability.
- Establish metrics for each criterion.
- Identify strategies for obtaining each goal.
- Create tools for monitoring your competitor’s positioning and modifying your goals if necessary.
Understanding Competition Will Help in Developing a Competitive Positioning Strategy
Competitive analysis and competitive strategy are complex topics. The simplistic product matrix used by most startups in their pitch decks will not do the trick. This signals to investors that the company does not have a good understanding of competitive strategy. If you want to greatly improve your approach to competition and your chances of getting funded, use the Porter books to sharpen your competitive IQ. Then start developing a competitive positioning strategy for each of the topics discussed in this article.
Good luck with your efforts! And when you’re ready to pitch, you can reach me via my website contact form. You can also sign up for my newsletter for regular tips and strategies for startups delivered straight to your inbox.
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