PS#106: A 4-Step Guide to Building Competitive Landscapes (Part 3)
Today, we’ll continue to move through my 4-step guide to building competitive landscapes.
In the last issue, we discussed Step 1 (Research) and Step 2 (Taxonomize). In this issue, we’ll move into Step 3 (Reference Calls) and Step 4 (Synthesize) to complete the process.
The next two steps are very important to this overall process. More often than not, I see investors stopping at the first two steps. They’ve got a good understanding of the space from the research, and feel comfortable enough to move forward. In doing so, I think they are missing out on a lot of potential value, not to mention there’s the chance that their research (or interpretation of it) is actually wrong.
In these two steps, we’re going to validate our efforts and really think about what it means for the opportunity, company, and our investment thesis.
Without further ado, let’s get started.
(3) Reference Calls
In my opinion, reference calls can lead to some of the most valuable information in this process (and a lot of venture capital processes).
Remember, if you’re basing your thesis off of information found online, there’s a good chance that everyone else has access to this information. That doesn’t mean it’s wrong, but it does mean that there’s likely no competitive advantage (as an investor) to that information.
However, reference calls, especially through trusted relationships, can provide insights that wouldn’t otherwise be found online. They are uncovered through experience and engaging with the reality of the problem or industry.
So, how do we use this step to our advantage? By using a three step process…
Identify Key References
Structure Questions
Compare
(1) Identify Key References
Through our research, we’ve likely got a good handle on what individuals/personas have the best insight into the competitive landscape.
Typically, this includes…
Customers – champions, buyers, users, etc.
Content creators – journalists, podcasters, thought leaders, etc.
Players in the value chain – vendors, suppliers, integrations, service providers, etc.
Incumbents – large, mature players in the space
Academics – professors, researchers, etc.
This list gives a good mix of those involved in the market (from several different angles) as well as those who are observing/studying the market's evolution. All these perspectives are valuable and can add to the quality of our analysis. Ideally, we’d like to get a few from each category so that we can compare across the different personas.
(2) Structure Questions
The next step is to make sure we’ve properly structured our questions for each audience.
By structuring our questions, we’re able to better analyze and compare the information we are receiving across our different sources. We might keep questions the same across all of these personas, or try and structure them for each specific profile. Each approach works, but some form of structure helps ensure that you’re getting the information you need for your analysis.
In a typical reference call, we’re trying to understand the following…
Background/context on the individual
History of their relationship with the space
Their understanding of the problem and current solutions
How they’ve identified the solutions (or the process for doing so)
How purchasing decisions are made for a new solution
What does the ideal solution look like (or what wins)
As I mentioned above, the specific questions may look different depending on the individual, but these are the key data points we’re trying to secure for our analysis.
Note: Remember, we’ve done a lot of work on the problem, solutions, and market already. These calls are meant to help validate and uncover information that we couldn’t get through research. We should focus on probing the key areas we’ve identified to go deeper.
(3) Compare
The last step in the process is to compare.
We need to compare the information we’ve collected from two perspectives…
Against the research we’ve already done
Against the other reference calls
For a whole bunch of reasons, the data from our research and across these calls may not line up perfectly. It’s our job as investors to figure out which data points are true, useful, and most important to the success of our underlying investment.
That’s the opportunity.
We need to figure out how to properly utilize this (sometimes conflicting) information to inform and make the best investment decisions.
(4) Synthesize
Alright, we’ve now completed Steps 1-3 (to some extent). We’ve done our research, taxonomized the competitors, and performed reference calls to validate the information.
It’s now time to really synthesize and distill this information into what matters. In most scenarios, I’m thinking about this across three categories…
How will this market evolve over the long-term?
What are the things that matter most?
What am I missing?
Let’s break this down a bit further…
How will this market evolve over the long-term?
Venture investments take time.
We need to think about our investments (and their competitive differentiation) over a venture time horizon (i.e., 5-10 years). Based on what we know, what factors are going to be important over that timeframe. Obviously, we can’t predict the future, but we can certainly try to prepare for a range of possible outcomes.
What are the things that matter most?
When we think about the points of differentiation in Step 2, we need to think through what we believe will be most important over the long-term/life of this investment.
We often need to think about this on a case by case basis. It might be the team, technology, capital, pricing, etc. Furthermore, there’s a whole host of contextual factors, including the type of product/service being built, the current competitive environment, the specific industry, etc., which could impact the answer to this question.
As an example, over the past decade, a lot of my investment themes were dependent on finding the best underlying technology and technical teams. As of late and with the democratization of generative AI, this is becoming less and less of a differentiating factor. More and more talented teams have access to similar levels of AI and aren’t able to differentiate themselves in this way based on the problem set. For these investment areas, other aspects of the business have increased in value and proven to create more competitive differentiation.
What am I missing?
Every piece of information is flowing through some kind of distortion field.
Whether that is our own interpretation, process for researching a space, access to information, trusted network, types of relationships, past experiences, etc., we look at the world and the information in a certain way. To the best of our ability, we need to think through that “distortion field” and identify our potential blindspots.
This is why it’s so useful to have diverse investment teams and market relationships that will help you think through your investment thesis.
Keep Iterating
Alright, we’ve completed my 4-step guide to building a competitive landscape.
We did (1) our research, (2) taxonomized the competitors, (3) confirmed with reference calls, and (4) synthesized the collected information.
While I’ve laid this out in a relatively linear and complete fashion, just remember that this is an iterative process. If you get stuck on a certain part of the process, you might need to cycle through the steps to figure it all out. This is often that path I’m taking and why I’ll get started well in advance.
For me, I really want to understand these spaces to the best of my abilities. I believe that as investors we have a unique view of the market. When used properly, our work and in-depth knowledge can help drive significant value for both founders and LPs.
In the next issue, I’m going to layer in some tips, tricks, and nuances I’ve learned over the course of my career performing this analysis.
