Robert Ochtel’s Blog

An Experienced Approach to Venture Funding

A Competitive Analysis Helps Position Your Company in the Market and with Your Investors

All business plans should contain a thorough competitive analysis of your start-up company and its technology, product or services offering.  This analysis is a key to positioning your company in the market.  It is also a key to convincing your investors that you have done your homework and have a product offering that provides a long term, sustainable competitive advantage.  Finally, a thorough competitive analysis provides a basis to inform these same investors that your company and its technology, product or service offering is something worth considering investing in with the potential for a substantial return on investment.  This article outlines various items to consider when developing your start-up company’s competitive analysis.

Never Tell Your Investor There is “No” Competition

One of the biggest mistakes a first time entrepreneur can make when developing their business plans is to not spend the appropriate amount of time developing a thorough competitive analysis. This is a huge mistake and will often come back to haunt you.  In addition, many times I have witnessed entrepreneurs trying to tell their potential investors that there are no competitors or no “direct” competitors for their technology, product or service offering. This again, is a big mistake with investors.  First, they will not believe you.  There are always competitors or potential competitors within the target markets for your start-up company’s technology, product or services offering.  Second, making this statement will cause you to lose your credibility with the same individuals you are trying to impress with your knowledge of the market. Therefore, as an entrepreneur, one must take the time to do their research and due diligence to identify their competitors, both large and small, and also at the same time identify those companies that have the capabilities to enter your market space with a compelling product offering.  One thing is for sure, if you are successful company and making money in a given market, the competitors will come.

Listen to Andy Grove

Andy Grove wrote a book entitled “Only the Paranoid Survive.”  In his book, Andy outlines his belief in the value of paranoia in business. Here, he rightfully claims the following: “Business success contains the seeds of its own destruction. The more successful you are, the more people want a chunk of your business and then another chunk and then another until there is nothing left. I believe that the prime responsibility of a manager is to guard constantly against other people’s attacks and to inculcate this guardian attitude in the people under his or her management.”

 This belief that “only the paranoid survive” must drive your start-up company when entering a market and developing a long term competitive position in this same market space with your new technology, product or service offering.  This basic understanding of business also underlines the value of developing a thorough competitive analysis for your start-up company.

Determine the Key Product Attributes

When reviewing the market and its competition, one must focus on what key technology, product or service offering attributes are important to your customer base.  This attribute list should include all the features, functions and capabilities that you believe are important to your customers.  The purpose of developing this key attribute list is to develop a list of identified and compelling features, functions and capabilities that the current competitors use to differentiate their products in the market. It should also be noted that these attributes should be verified with your customer base.  Often what you believe, as an entrepreneur, are important features, functions and capabilities are not necessarily that important to your customers.  So, spend the time talking and verifying key product attributes with your customer base.  This will go along way when presenting your competitive analysis to your investors.  This will also substantiate the credibility of your analysis. 

Present a Succinct Summary of Your Analysis to Your Investors

To present your competitive analysis to your investors in an easy and readable format, often it is best to summarize all of your due diligence and research on your competitors in a table format.  This table presentation is easy to read for your investors and can be used to present a substantial amount of important information in a succinct and compact format.  To develop this table lists all of your competitors, along with your start-up company, on the horizontal table axis.  On the vertical table axis list out the important and identified key features, functions and capabilities that differentiate the various product offerings to their customer base.  This table, as outlined, and if developed with the appropriate level of detail, will provide a clear view of the competition in the market.  It should also delineate, to your potential investors, how your company’s technology, product or service offering provides a clear, sustainable competitive advantage in the market.   

In addition to your table-based competitive analysis presentation, you should include a summary paragraph that outlines the conclusions of your competitive analysis table to your investors. These conclusions should emphasize to your investors the clear advantages of your company’s product offering in the market. By presenting your competitive analysis and due diligence in this format your investors will get a clear, concise summary picture of your start-up company and the competitive advantages of its technology, product or service offering in the market.

Position Your Company

Once you have developed your company’s competitive analysis and presented it in the appropriate table format, one should next use this same information to position your company and its product offering in the market.  This is best accomplished by developing a “perceptual map” – a two axis graphic which is based on the two key attributes that differentiate various successful product offerings in the market.  (As an example, two key attributes for the microprocessor market can include speed and power consumption.)  These two key attributes are then used to position your company and its product offering with regard to your competitors.  This “perceptual mapping” exercise is a key to developing an identified market position with regard to your start-up company and its product offering and the other various competitor product offerings in the market.  When determining your company’s product positioning one should consider the following:

  • Does your company’s product offering address the “high” end of the market according to these two key attributes?
  • Does your company’s product offering address the “low” end of the market according to these two key attributes?
  • Does your company’s product offering address the whole market?
  • Does your company’s product offering only address a clearly identified sub-segment of the market? 

The object here is to position your company and its product offering relative to your competitors.  This “perceptual mapping” positioning analysis will provide your customers and investors with clearly identified market position that differentiates your start-up company and its product offering from the competitors in the market.

As outlined, spending a significant amount of time and effort to develop a proper competitive analysis is required for your start-up company and its technology, product or service offering. This analysis is very important to both your potential investors as well as your potential customers.  Also, if done properly, this competitive analysis also provides you and your start-up with a differentiated market position that will be attractive to your customer base and allow your start-up company to secure market share from existing competitors in the market.  Finally, it also allows you to provide your investors with a clear picture of the long term and sustainable competitive advantages your start-up company and its technology, product or service offering provides the market.

For more information on developing a proper competitive analysis for your start-up company, along with a detailed discussion on “perceptual mapping” refer to my new book: “Business Planning, Business Plans and Venture Funding – A Definitive Reference Guide for Start-up Companies.” This book is available at http://www.Amazon.com.

Advertisements

May 11, 2009 - Posted by | Business Planning, Business Plans, Competition, Competitive Analysis

No comments yet.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: