Whenever I get pitched by a startup, I always look to see if they’ve properly identified the competition. For starters, I can guarantee you that someone is already working on the same idea. It’s a universal truth. But more importantly than that, competitive research and analysis is one of those areas that is often horribly lacking from any pitch. There are a few reasons for this:
- Entrepreneurs don’t want to know. Nobody likes to find a bunch of competitors doing the same (or nearly the same) thing. So entrepreneurs put blinders on.
- Entrepreneurs are thinking too small. This is too often the case in Montreal, where entrepreneurs think of Quebec as a market. Even looking at your local market as an entry point is risky if you haven’t done your homework elsewhere.
- Entrepreneurs have big egos, which makes them believe what they’re doing is unique and awesome. Egos are needed, but not if they blind you completely.
- Entrepreneurs don’t bother looking. This comes down to not tackling your startup in a diligent, rigorous manner. Too often entrepreneurs get an idea, think they’ve hit a home run and start running wildly (in any and all directions.)
The existence of competition should not (necessarily) stop you from starting your company. It should color your thinking, create the appropriate context and help educate you on what’s going on in the market. And it’s one of the first places investors will look to help educate themselves on the market. Most investors aren’t experts in every market they invest in (they may not be experts in any of the markets!), and so a big part of their due diligence up front is to check out the competition.
This happened to me just a few days ago. I received a pitch, looked at it, and started doing some quick research. This is usually the first thing I do if the pitch gets passed my basic “sniff test” judgement (i.e. does it make any sense at all?) In this case I knew of at least one competitor. That’s going to happen a lot when pitching investors – they see a ton of deals – so they have cursory knowledge on a lot of companies. Then I went to Google and tried a couple of relevant search terms. In this particular case, one of the top 3 listings looked like a competitor. I checked them out and it seemed very similar. I saw a few other ancillary competitors as well. This took no more than 10-15 minutes.
I emailed the entrepreneur asking about competition. I listed a couple of references, including the one that looked like a direct match. I asked flat out, “What’s the difference between you and Competitor X?” He replied:
Not much. Fuck.
He followed that up with a more detailed comparison (after he spent some time looking at the competitor), but this essentially kills it for me. The fact that this entrepreneur hadn’t really looked at this competitor – which I had found in 10 minutes with very little understanding of his market – is really bad news. And before you think this is unique to this guy, it’s not. This happens all the time!
Competitive research is an important point of due diligence for investors. More importantly, you need to do it for your own edification.You need to demonstrate and actually have a level of expertise in your market that’s both broad and deep. Domain knowledge is a key advantage; and I bundle in competitive knowledge as a key component of that.
These days I use Crunchbase for competitive research. The profiles in there are often quite detailed and some of them have links to other competitors. With one competitor’s name you can typically find a bunch of others. AngelList is also extremely useful (although a lot of the information is probably hidden to entrepreneurs.) Try Quora as well. And Google almost always returns interesting results. Find a competitor’s name and type in, “[company name] competitors”.
Do your homework. Know your competitors and how you differentiate from them. This isn’t the crux of your pitch to investors, but it’s gotta be there. If a prospective investor (or customer, partner, etc.) can find a competitor in 10 minutes and you don’t really know who they are and how you stand against them, you’re in serious trouble.