The competitive analysis section of your market analysis is essential. Knowing your competition is as important as knowing your product and your customer. Market gaps tell you where to develop your product or service, and internal weaknesses tell you where you’re vulnerable to losing customers.
A solid competitive analysis shows that you know exactly where you stand among your fiercest competitors — and that you have a way to out-manoeuvre them. So the best way to think of the argument you’re trying to articulate is:
“Here is where we can gain the most customers (offence), and here’s where we could potentially lose them (defence).”
Your competitive analysis should start with your SWOT Analysis.
From my experience, the first step is to get Inside the Investor’s Mind. Your investor is probably thinking something like this:
“This idea sounds good, but I’m worried that current or future competition will crush this company. So I need to know where they will stay ahead of their competition. I also need to know how they plan on defending whatever market position they capture.”
So here’s what you can do to reassure them.
Competitive Analysis Tip 1: Strengths
Lead with your strengths. Talk about what aspects of your product or service are the best in class and why your customers will fall in love. Companies win based on their ability to win over customers. For example, you don’t eat at Nando’s because it’s less terrible than McDonald’s. You eat there because you like their food a lot more. You also eat there because you love Nando’s chicken recipe more than Colonel Sanders’s.
Talk about why customers love your Product or Service. Talk about what you offer that blows people’s minds. Be very descriptive and dig into how those strengths stand out. Don’t assume for a moment that because you understand your strengths that anyone else does.
The best way to present your strengths is to start with your number one greatest strength. Then, if investors don’t think your greatest strength is interesting, you can be assured that your third greatest strength isn’t going to make up for that!
In each section of the SWOT Analysis, begin with a few introductory sentences and then offer a longer narrative explanation below.
Competitive Analysis Tip 2: Opportunities
Your opportunities are all about expansion. You realise your competition is sleeping on the job, and you’re ready to pounce on that opportunity to eat up some delicious market share. Your opportunities typically come in three flavours:
- Areas your competition is currently weak
- Expansion of your customer’s current needs
- Untapped markets
Ideally, you can tap into all three opportunity categories or have some special flavours of your own. Your goal here isn’t to list every last opportunity; it’s to show that the market has obvious room for expansion that a viable startup (like you) could build a real business in.
Areas of Weak Competition: This is one of the few times in life where it’s OK to pick on someone else! If you’ve made it this far into the plan, you’ve found a good reason that your would-be competition is dropping the ball. When sizing up your competition, it’s important to have a balanced assessment. You want to avoid the straw man argument. The straw man argument is when you act like you’re discrediting someone’s argument, but in reality, that argument was never made by that person. Instead, focus on how well you know the weakness exists. Show that you have done your homework and have a real inside track on why this weakness is legitimate. The more convincing your research on competitor weakness, the more excited investors will get. Don’t skimp here.
Expansion of Current Needs: It’s your job to paint a picture of what your customer needs now and what your customer needs next. These needs may not be something you can fulfil now, and that’s fine. What’s important here is that you’re showing that you’re thinking further down the road.
Untapped Markets: If you’re not expanding into current markets, then you’re moving into the great unknown — untapped markets.
Untapped markets are equally exciting and terrifying to investors. On the one hand, it gets everyone pumped to think about a ton of low-hanging fruit that can be gobbled up easily by your startup. But, on the other hand, that fruit is often sitting in a grove that may or may not even exist. Your challenge is to show that these untapped markets exist and that you can tackle them quickly and efficiently before your competition does.
Competitive Analysis Tip 3: Weaknesses
Demonstrating your weaknesses isn’t the same as saying, “we’re so painfully vulnerable we’re not even viable!” Every business has weaknesses, especially in the startup phase. You can bet anyone leaning into your plan will jump on these immediately.
Your goal here isn’t to sugarcoat the nature of your weaknesses – it’s to articulate them in exact detail to show that you know precisely where to build a defensible position. Moreover, articulating your weaknesses well allows you to talk about what you’re going to do about them.
Like the Strengths section, a great way to present this is with a few declarative scenarios where you’re most concerned so that your readers get the gist. Then, craft a more detailed description of why and how those weaknesses and threats are important.
Competitive Analysis Tip 4: Threats
Sooner or later (hopefully later), your competition will pose some serious threats to your business. In some cases, it may not even be your competition directly. Instead, it could be looming legal issues or governance that you’ll have to contend with.
Similar to weaknesses, founders get nervous about being bold about threats. They think, “That will scare investors away!” when being upfront about how you identify and mitigate threats is the best way to make investors confident about potential issues.
Your best bet is to get in front of your threats first. Like your strengths, list the most painful threats first, then explain how you plan to use some Judo-style moves to take them down.
Competitive Analysis Tip 5: Competitors
Your competition can be represented as both “categories of competition” and “actual competition.”
Categories of Competition allow you to create groups of competitors that may share some of the same attributes, such as “online retailers” or an emotional category such as “People who hate to shop in stores.” You may have many different categories that you compete with and a few specific competitors that you’re concerned about. The category approach works well if you have tons of competitors, for example, an online retailer.
Actual Competition is more specific to who you can count on your fingers. In this case, you want to be very detailed about who they are, what about them is particularly challenging, and what you plan to do about it. In each case, the goal is to be very clear about why each competitor has strengths and weaknesses that you’re concerned about. Again, you’re better off listing fewer competitors that are a more direct threat and showing that you know how to compete than creating a giant list of every person with a website that’s tangentially related to you.