PS#103: Market Maps vs. Competitive Landscapes
After a brief detour on the recent evolutions of venture capital, let’s return to some of our regular scheduled programming…
More specifically, the difference between market maps and competitive landscapes.
While often used interchangeably in the world of venture capital, there’s an argument to be made that they are actually distinct (yet complementary) exercises. Understanding the differences and nuances between the two (and how to use them), can help you demonstrate your capabilities as an investor.
Without further ado, let’s get started.
What’s the difference?
Traditionally, a market map is meant to showcase the broader ecosystem and the different players/solutions that exist. Conversely, competitive landscapes were often used to analyze direct rivals and their points of differentiation. While still true, it’s important to understand how to utilize these two exercises within a venture capital context (and potential recruiting efforts).
Let’s take a look at each of them in a bit more detail.
Market Maps
As the VC industry has grown and evolved, investors have started to narrow their focus on startups in a specific industry, space, technology, etc. We now have more than enough VC-backable startups building in a space for them to justify their own market (and their own market maps). An investor can build a Market Map identifying just simply the startups that are building in that space and have plenty of companies to showcase.
Essentially, a Market Map is about identifying the companies that meet a specific set of criteria in a certain space.
For example, we could build a market map on all the “AI startups” in healthcare. In today’s industry, we would have a very, very long list of startups and probably too many to show within one logo graphic. With that being the case, we could refine the category even further by outlining a specific problem, certain customer demographics, defined feature sets, etc. Even with this granularity, we often still have plenty of startups within each category.
It’s really a testament to how much the VC industry has grown over the past decade. It’s almost an expectation that where there is one, there will be many (which wasn’t always the case).
Of course, that doesn’t really paint the whole picture…
Competitive Landscapes
On the other hand, we have competitive landscapes. As the name suggests, we’re using this analysis to understand how players/solutions compete and differentiate.
While a market map is more about identifying companies that meet a certain criteria in the market, competitive landscapes are about figuring out who will win (and why).
This means that we are really trying to understand what sets them apart and why customers will choose one solution over another. To go a step further, we can’t just consider why a customer will choose one AI Healthcare Startup over another, we need to think more broadly. We need to think about the specific problem and ALL the ways customers can solve it.
This might include legacy players, alternative solutions, the status quo, etc. We need to be thoughtful about how a customer may choose to solve a problem. As we all know, it’s not always the latest piece of technology.
How should we use them?
Now that we understand the difference, it’s important to know when to use them.
Broadly speaking, we can divide these two exercises into two of the venture capital skills – sourcing and diligence. Market Maps are primarily used within the context of sourcing, and Competitive Landscapes are often used when performing diligence.
More specifically, I’ve used them throughout my career in the following ways…
Market Maps
Identifying startups for deal flow
Building content pieces to share publicly
Highlighting the differences between startups
Providing context for conversations with startups
Framing my view on a market for investor discussions
Competitive Landscapes
Getting a sense for the problem (and its history)
Understanding the customer base and its buying options
Learning about different approaches to solving the problem
Informing my underlying thesis and assumptions for investment
Diving into other business aspects (e.g., business model, GTM strategy, etc.)
For the aspiring investor…
Hopefully, this sheds some light on the difference between Market Maps and Competitive Landscapes. They are both important pieces of the venture capital puzzle, but shouldn’t always be thought of in the same context (or as interchangeable).
In the coming issues, I’m going to dive deeper into my process for building competitive landscapes. When you’re investing in a startup, it’s important to understand all the different competitive dynamics (and how they might change and evolve over time). Not only is this useful on its own, but it will provide key details that support some of the other analyses we’ve discussed (e.g., market sizing).
Ultimately, it’s a key part of building and informing your overarching investment thesis.
Much more for us to discuss on this topic. In the meantime, if you’d like to learn more about Market Maps, check out my series on this topic here, here, and here.
