Who Is Your Competition?
By Tom Cramer
Ask any experienced investor or any venture capitalist. The fastest way for a founder to lose their interest – and their investment – is to state they have no competition. In fact, anyone foolish enough to have such an attitude does not deserve their interest. Competition is a fact of life, and arrogance does not eliminate it. It simply makes it more deadly.
Thus, this month’s focus is on your efforts to understand your own competitive environment. In our accompanying articles we first look at the process of Developing Your Product-Service Matrix and then the Porter Five Model.
The Reality of Markets
The very definition of free markets means that someone is always looking to introduce the latest version of a product or service that is faster, better, and/or cheaper than what is already out there. Even if your idea is radically new, it has competition in some form. Even more importantly, the more disruptive and more exciting your “new” concept is, the more quickly it will attract those who are committed to coming with a cheaper or better or faster version.
This is part of the concept of what is called Shumpeterism – the creative destruction of the free enterprise system. Markets always respond to consumer demand, and once you are in those markets, there are always individuals and companies that will provide alternatives to your solution and offering.
Even in our lifetime, we have seen numerous examples of this reality on a larger scale. Sears was the premier retailer in the world until Walmart replaced them. Amazon is now threatening their markets. While it took Sears decades to build its dominance, Walmart did it in half the time. Then, Amazon did it in even less time. And these are just the ready examples. We could speak of IBM, GM, and dozens of other once industry titans and “Blue-Chip” companies to drive the point home.
Heard anyone saying they are on Myspace instead of Facebook lately? Who would consider waiting for a taxi when they can simply use an app for an Uber? While it is largely technology behind these specific examples, the same story plays out day after day in all industries, all markets, and all locales. Even the mundane realtor today must show a totally new face to customers to survive the rapid changes they face. It is what is called today’s hyper-competition, and it exists from tech companies to local landscapers.
Understand Your Competition or Die
We often think of our competition only in the sense of other firms or individuals. That is seldom the case. While those may specifically target your enterprise with a competitive offering, there are other, less visible factors that are part of your competitive realities.
Professor Michael Porter presented the widely accepted and definitive work in this area with his Five Forces Framework at Harvard in 1979. He breaks down the multiple factors that drive change and competition to threaten any existing business. We take a closer look at that framework in the third article in this series, Incorporating the Porter Five Model into Your Business Planning.
Instead of viewing competition as an uncontrollable negative factor, successful companies take a more proactive position. There are three fundamental steps for developing your competitive mindset. These include:
- Accept the reality that you have competent, aggressive, well-funded, and growing competition. You entered a market probably with the idea that you could beat our existing companies in that niche. Understand there is a continual wave of “yous” coming after your enterprise with the same confidence.
- Always respect, never fear, the competition. If you are going to be a race car driver or other competitor, you are doomed if you are driven by fear. Carefully and objectively evaluate your own strengths and weaknesses and those of others in your space. Remember everyone has both.
- Develop your current Product-Service Matrix to visually grasp where you and your competitors stand on key distinctive.
Once you have this understanding and those insights, update your strategic, marketing, and product plans to protect and expand your specific market position.
