I hear a pitch for a startup every other day or so, and am consistently surprised by how few competitors the entrepreneur claims to have. This post is to encourage every entrepreneur to spend more focused effort on finding their competition and doing a thorough market analysis.
One of the most exciting times of being an entrepreneur is the very early days after having the idea. You discovered a pain point, created an awesome solution, and now you have a whole world of potential ahead of you. Big ideas are fun, energizing, and intoxicating. The last thing you want is to find out that hundreds of other people have already thought of it and Andreessen just backed three of them.
That's why entrepreneurs consistently underestimate how many competitors they have. Not only is a thorough market analysis tedious and time-consuming, it requires diligently searching for bad news.
It generally takes 20-30 hours to dig up all of the players in a space, which seems like a long time to spend looking. But, compared to spending 6-12 months building a product, 20-30 hours now isn't bad at all. Not putting in the hard yards looking is being blissfully ignorant.
That doesn't mean that just because there's always lots of competition, the opportunity isn't there. If an entrepreneur spots a pain point, that means the market for solving it hasn't been completely filled. More importantly, a thorough market analysis is not to be discouraging: it's a way to become an expert in a space and learn vicariously through competition.
This is my process of performing a market analysis, using the example of a fake Rideshare website:
1) Make a Google Spreadsheet with the the following columns: "Name", "Website", "Year Founded", "Funding", "Traction", "Strengths", and "Opportunities". Traction is how many users they have, their growth, and ideally, revenue, Strengths is what they're doing well and opportunities is what you plan to differently/better.
2) Google is always a great place to start any search. For my fake Rideshare website, I would google "Rideshare OR Carpool + Service OR Startup OR App." Follow every link and dig into each company, filling out each column in the spreadsheet. Most importantly, figure out what each company's current traction and how did they got there (if they're already in market). Did they have a huge launch, and then fizzle out? Or are they slowly and quietly gaining users and generating revenue?
3) Two other great places to look for competitors are AngelList and CrunchBase. On both, I searched "rideshare", "ride", and "carpool", and overall found between 35-40 companies. Every one of them goes on the spreadsheet.
4) The last step is a Google alert for the earlier search term to stay apprised of new competition as it arrives. An investor or friend shouldn't be the first one to tell an entrepreneur about someone new in their space.
Even if a competitor is defunct or out of business, they go in the competitive analysis. There's more to learn from companies that failed than succeeded.
Armed with this kind of market analysis, entrepreneurs are ready to articulate who their competitors are and how they'll differentiate themselves. More importantly, they won't be as likely to make the same mistakes as their competition. Startups are all about learning and iterating and failing fast, so competitors are a bunch of experiments that have already been done.
The last thing I want to say about doing a competitive analysis is that entrepreneurs should do it once, do it right, and then move on. It's important to be an expert on the space and know who's doing what for planning purposes, but don't dwell. Choose a direction and a hypothesis to test and see it through.
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