PS#105: A 4-Step Guide to Building Competitive Landscapes (Part 2)
In today’s issue, we’ll dive into my 4-step guide to building competitive landscapes.
As a refresh, this is an important part of the investment process. We’re trying to dive deeper into understanding the competitive forces at play and their overall impact on the startup’s trajectory. Answering questions such as…
How hard will it be to build a $50-100M (or VC-backable business)?
Is this a “winner take all” or “multiple winners” market?
What’s winning/not winning in today’s market?
Where is the opportunity for disruption?
How is the market evolving?
With that being said, today we’ll start covering the 4-steps of my process in more detail, including…
Research
Taxonomize
Reference calls
Synthesize
Let’s dive in.
(1) Research
The first step is to start researching the current solutions available in the market.
For most areas, you can get a pretty good handle on this with a few deep hours of research online. The beauty of our modern world is that most of this information is online in some form or another, inclusive of derivative commentary on said solutions (i.e., reddit discussions, review forums, etc.). For software in particular, you’ll find a ton of great information. And of course, with the rapid democratization of AI, this is even easier (but we’ll discuss this a bit more later).
Competitive Categories
As we start our research, we’re really looking into 4 main groups…
Incumbents – legacy players who are already established in the market
Direct competitors – other startups that are competing in the same space
Alternatives/substitutes – completely different approaches to solving the problem
Status quo – the current process for customers today
This should cover the full spectrum (although we will discuss some other ways to look at this a bit later on in this series). You’ll have a good sense of what has won historically, the new ideas bursting onto the scene, and the other ways of approaching the problem.
Example Sources
As I mentioned above, just spending some time in the proverbial “internet rabbit hole” for research can be a good starting point for building out your competitive landscape. However, I think it’s worth providing some more specific examples here to guide your process.
The ideas below can be done on your own and online. It’s not an exhaustive list, but just a few examples of sources I’vel incorporated into my research efforts…
Exploring legacy offerings in detail through the website, annual reports, demos, etc.
Industry-specific groups, conferences, publications, reports, etc.
Internet forums on the topic (i.e., slack groups, reddit, etc.)
Customer buyer’s guides (sometimes from competitors)
Private databases (e.g., Pitchbook, Crunchbase, etc.)
Industry reports from consultants/research groups
Marking materials, social media presence, etc.
Set a Target
At the end of the day, it’s all about learning as much as possible to inform our decision-making process. In order to do so, I’ll usually give myself a goal or a target to hit, just to make sure I’m not stopping too early. I’m trying to really be comprehensive in my efforts and thinking through all the possibilities.
In most cases, I’ll make sure I’ve identified ~25 solutions to this problem.
This will typically force me to really explore. If it really is a smaller space with only a few players, then reaching 25 might not be possible (but trying will uncover a ton of good information). And on the other hand, if it’s a big space with lots of players, by 25, I am typically on a roll and starting to get a good sense of the different categories.
(2) Taxonomize
Once we’ve gathered a whole bunch of research, it’s time to start organizing or taxonomizing as I like to call it (I call it taxonomizing for no other reason than it feels a bit more fancy).
For this part of the process, we should already have our list of potential solutions/competitors. We can now start breaking down this list to understand the competitive dynamics.
DISCLAIMER: There’s a whole bunch of ways to do this!
With that being said, let’s take a look at some of the different competitive dynamics…
Analyzing the Competition
When I am analyzing a company (and its broader competition), I’m typically thinking through its differentiation in the market. This can happen across a whole bunch of different factors, broadly speaking this includes…
Team
Technology
Capital/investors
Product/service offering
Operating/business model
Pricing, packaging, delivery
Sales, marketing, brand, partnership, etc.
Customer onboarding and success experiences
For each of these, we can go much more in depth, but this is a great starting point. Across these areas, we want to get an understanding of how all the competitors we identified in Step 1 compare to each other. The idea is to figure out relative strengths and weaknesses to identify threats and opportunities for our target investment (i.e., SWOT analysis).
Create a Grid
From a practical perspective, I will typically turn this into a grid.
Not exactly groundbreaking advice, but the idea is to keep this simple.
I’m trying to fill in each of these categories with as much detail as possible from my research. If I haven’t been able to find that information, I now know I’ve got to try some different approaches to get answers there. This might come from the work we’ll do in Steps 3 and 4. At the very least, Steps 3 and 4 will be important for validating and articulating who/what will actually win in this market over the long term.
Make it Useful
It’s important to remember that this needs to be useful.
We can go in circles with this process trying to differentiate every minute detail, but that’s not really the point of this exercise. The point is to figure out whether our target company (or another one for that matter) has what it takes to separate from the competition and build a venture-backable company.
We want to be able to answer the question, “Why will they win?”
Will it be because of the team? Investors? The 10x product offering? Business model?
At the end of the day, it’s about what points of differentiation will lead to building a successful, venture-backable business. There’s a lot of ways to slice and dice this. Take the approach that works for you.
In the next issue, we’re going to cover Steps 3 (Reference Calls) and 4 (Synthesize). Research and taxonomizing are great starts to this process, but we need to validate this information (Step 3) and really think about the implications of what we’ve learned (Step 4).
