The Trap That Eats Start-ups and Entrepreneurs.
You should be worried if your boss or client ever says “we have no competitors, we are the best at what we do, and no one does anything similar to what we do”. You should be downright scared if you ever hear yourself say something similar.
“But, having no competition is good!” a novice entrepreneur might say. Sure, the imagination of owning an entire market to yourself sounds like a shortcut to world domination. Someone has to be first, after all. But, like with most shortcuts in life, in 999 out of 1000 cases, the world you will be conquering will turn out to be a desert, an empire of dust.
The Bad News and The Worse News
There are two distinct possibilities when you hear this sentiment: either the person saying “there’s no competition” is just wrong, or, far worse, they’re right.
The best-case scenario is that the speaker is simply making an error. They are looking at competition in too narrow a context, or are being product-centric to the point of ignoring the customer. Maybe they simply overestimate the efficacy of their solution. A reframing exercise can bring clarity. By reviewing the value proposition, user personas, and ideal (vs actual) use cases, you can realign yourself with reality. Recognizing the things that are competing against you in for the customer’s attention and dollar you can actually refine your business strategy, and come out more competitive for it.
It’s worse when the sentiment of “I have no competition” is, in fact, correct. This usually means that there isn’t much money to be made here either. Lack of competition should be seen as a giant red flag. The remedy to this is usually a ground-up rework of the business model. Whatever work has been put into assembling a team, building a product (or platform or service) very likely has to be chalked up to “learning” and regarded as a sunk cost.
Best-Case Scenario: You’re Thinking Of Competition Wrong
Let’s take the best-case scenario for now. You are an entrepreneur, and you are simply mistaken. How did you get here?
Your Idea of “Competition” is Too Narrow
You aren’t considering indirect or replacement competitors. One broad way to designate competition in business is:
- Direct competitors: those who provide for a customer need the same way as you do
- Indirect competitors: those who provide for a customer need in a different way from what you do
- Replacement competitors: the vendors whose action eliminate the customer need altogether
When asked about competitors, many founders think only of the direct competition. If you sell hamburgers on the beach, your direct competitor would be another hamburger stand.
An indirect competitor would be the ice-cream cart. A replacement competitor would be the diet guru who is leading a national movement to eat only in private and in the dark. Newbie entrepreneurs are often blind to indirect competition. Usually, it’s because they are too preoccupied with their solution.
You are Solution-Centric, Not Customer-Centric
The founders who are concerned with building a good product can often lapse in their attention towards real customer need. The excitement of coming up with a clever way to solve X can often overshadow the larger, and more amorphous question: “does X need to be solved?” An even more important question lurks behind that one, namely “what is the monetary value of a solution to X — what is the price limit that makes solving X too expensive?”
By ignoring the market research and assessing the real, monetary value of a solution for the prospective customer, you are missing a critical piece of your business strategy. As the saying goes, “if your only tool is a hammer, every problem looks like a nail”. Likewise, if your only tool is the ability to build apps, every problem looks like something that needs to be solved with an app.
It may come as a surprise, some things are not easily solved with an app, or a marketplace platform, or a web app, or whatever your pet solution is. Concentrate on a need first, and only then work out the solution.
Reinventing The Wheel — The Over-Niched Useless Thing for a Select Few
Finding a Niche is great, but if your target market is too small to sustain your business, you’re going out of business. While entrepreneur advice of “solve your own problems” and “base business on your own experience” is sound, making it all about you can help you fail in finding a customer base.
From a marketing perspective, speaking to a well-defined, narrow audience is generally good, especially at the beginning of a start-up journey. Appealing to a well-defined market is easier, you can tailor your message, and benefit from a glint of “insider” cred. Picking a narrow niche is a great way to bypass the (often larger and better-funded) competition. Before Amazon sold everything, they sold books. Financial planning is a broad, competitive market, but financial planning for motorcycle riders —boom, instant relevance to specific, real people.
And yet, niching down too far can be a disaster for your business model. Just ask Francesco and Tomaso Buti, founders of the “Fashion Cafe” that served up a pack of Newports with your champagne “salad” (with a side of fraud). Seriously, one of the dishes (created by Naomi Campbell) was a glass of champagne, a pack of Newports, and two tomato slices and a lettuce leaf. It cost $20 (in 1998, when cigarette prices in New York weren’t even that crazy).
A healthy business grows when the need for, price of, and user value of the business product are aligned. While Naomi Campbell bringing me a pack of Newports sounds cool, I have a hard time finding value in that experience, or a need that gets satisfied by it (that different, cheaper, and more effective alternatives don’t). Too niche a solution doesn’t attract a critical mass of customers that make your business sustainable.
It’s very likely that your niche problem is already being solved by another product that isn’t quite as niche. Remember the whole indirect and replacement competition bit?
The supermodel-loving smokers of New York and London can get their nicotine and their lettuce needs satisfied like anyone else, without having to combine them. The need for lettuce, or Newports, or an Eyeful of supermodel resting bitch face are all easily satisfied, far cheaper, and easier than schlepping to a restaurant.
When the user has the option to go with a generic, simple solution to their problem, especially one they already know, there is little reason to switch to something just because it’s catered to you as a demographic. The niche solution has to bring real, new value to enough users to sustain itself. If you find yourself thinking you have no competition, focus first and foremost on the problem you are solving, think critically about whether the solution you propose brings real and unique value to a sizeable consumer base.
If you’re lucky, you will discover that you do, in fact, have competition, and can start deriving real strategic benchmarks from what that competition does. You can understand the value proposition that exists in the market, and start working on making your offering more attractive.
If you’re unlucky, though, you have a lot more work ahead of you.
Worst-Case Scenario: No One Wants to Compete With You (Because There’s Nothing to Compete For)
The most common reason for start-up failure is lack of market need. Almost half (42%) of start-ups fail because the thing they do is not needed. At least, not at the price point and scale that would justify the sustainable existence of that start-up.
Think about it — of all the starry-eyed entrepreneurs that want to build the next big thing, 42% have not done enough research (or done their research poorly enough)to make sure that there are enough people willing to pay for the solution. These people solicit investment, hire teams, and spend borrowed money for years on creating something that, in essence, serves no purpose.
How sad is that?
If you find yourself in this situation, you need to deeply re-examine your business model. If at all possible, you should strive to re-use what you have already created towards the new direction you take. That said, being hung-up on loss aversion and sunk-cost can very actively prevent you from moving forward. Being able to recognize that your company is in the wrong place can mean the difference between moving towards a real functional business model, or simply taking your entire crew on a suicide slog into the desert.
Regardless of how much you have already created, you will need to do customer-centric market research and due diligence to identify a real need. Lucky for you, there are probably a few future competitors in the niche. Studying these future competitors will actually help you formulate a stronger business plan, faster.
So, What Now?
If you find yourself in a place where you or your boss thinks there is no competition, panic.
There? Good. Now calm down and get ready to do some work.
A core exercise you need to do at this point is to clarify your value proposition. While there are a number of relatively complex processes to define, refine, and fine-tune your value proposition, here is a simple prompt. Filling in these blanks will help you get the basic gist — the kind of core seed crystal that will serve as the foundation of your elevator speech, your pitch deck, and quite possibly your business plan.
Ready? Here it is:
My product provides (benefit) for (customer) with a (competitive advantage), unlike (competitors).
If you can explain your business model in this one sentence, you are on your way to actually be competitive in a field where there is competition. If you have trouble filling in one of these, you also have a clear indicator of where to reinforce your business plan.