Hagrid

By Ed McLaughlin and Wyn Lydecker

One of the biggest mistakes you can make when pitching to investors is to claim that you have no competitors. As investor Marc Andreesen said in a posting on Quora, “It’s almost always a red flag when someone asserts that they have no competition – from an investor standpoint, good markets naturally draw competition, and so if there is no competition, that often means that a company is in a terrible market.”

Andreesen, who is a general partner of the venture capital firm Andreesen Horowitz and co-founder of Netscape, also said, “We want to hear how your company’s offering is better/different than the competition, ideally in ways that can be verified in due diligence.” That means you need to take an honest look at your competitors and your own product.

Define and Analyze Your Competition

Whether you are planning to use your own money or seek outside funding, you need to understand the existing competitive landscape. To get started, make a list of the top companies operating in your market, as well as ones that are likely to enter the market. With a little research you can get the answers to the following questions:

  • What do your competitors sell?
  • How are their products positioned in the market?
  • What is their market share?
  • What are their value propositions?

Armed with the answers to these questions, you can move on to articulating your own competitive advantage.

What Is Your Competitive Advantage?

Identify your competitive advantage by comparing and contrasting your value proposition against the value propositions of your finest competitors. This process will enable you to set your business apart by pinpointing the genuine elements of differentiation between your business and that of your competitors.

Your competitive differentiation can come from any number of sources. Even in an established market, you can target a different segment that holds untapped potential. For example, if you are starting a B2B company, and your competitors focus on the Fortune 100, your startup can target the middle of the Fortune 1000.

When Reid Hoffman launched LinkedIn, he positioned his company as a search business. As Hoffman’s slide deck for his Series B round shows, Hoffman claimed that unlike Google, LinkedIn enabled people to search for other people within a network of contacts they could trust. That framed LinkedIn’s unique value.

10 Questions to Ask

To help you determine your business’s unique advantages vs. those of your competition, answer these 10 questions:

  1. Does your product fill a gap in the market?
  2. Is your product innovative?
  3. Is your product disruptive vis-à-vis traditional models?
  4. Are you using technology as a competitive weapon?
  5. Do you have control of your intellectual property?
  6. Do you have a unique talent or special reputation?
  7. Does your product improve customer productivity?
  8. Does your product increase customer revenues?
  9. Does your product save your customer money?
  10. Is your competitive advantage is sustainable?

When you understand your competitive advantage, you can focus your efforts on following through to deliver your unique value to your customers. Your satisfied customers will help you build a barrier of loyalty and put you on the road to sustainable growth.

Ed McLaughlin is the author of the upcoming book, The Purpose Is Profit: The Truth about Starting and Building Your Own Business, along with co-authors Wyn Lydecker and Paul McLaughlin. The Purpose Is Profit (Greenleaf Book Group) will be available in bookstores on August 2, 2016.

Download a complimentary excerpt, “The Ten Commandments of Startup Profit,” here.

Connect with Ed on LinkedIn here. His email is Ed@ThePurposeIsProfit.com