Why is competitive analysis important to an entrepreneur? Originally appeared on Quora: the place to gain and share knowledge, empowering people to learn from others and better understand the world.
Every company that has ever existed has had competition. It doesn’t matter whether you’re doing a groundbreaking product or not. I guarantee you, you have competition.
Think about it. Your competition is the old way of doing things. So it doesn’t matter that you believe you don’t have competition. You do. And the question becomes, what do you do about your competition?
Your Competitors Are Tough. If You Don’t Understand What They’re Doing, You’re in Deep Trouble.
As Martin, a very senior customer applications engineer once said to me about dealing with competitors, “It’s like hand-to-hand combat when you’re competing directly with another company to win a big deal.”
Here are seven steps to dealing with your competition, plus an eighth bonus step to dealing with your competition. Well, let’s start with step number one.
Step Number One: Take Your Competitors Seriously
My basic rule, whenever I’m doing a competitive analysis, is I assume the companies, and the people that I am competing against, are smarter than me. They’re better than me. They’re working harder than me.
So, therefore, I know I’m taking them really seriously. I’m going to assume that there’s a best-case outcome for every competitor. And I’m going to assume that each competitor is going to do the right thing.
Therefore, I know that I’m going to be on my game when I’m competing with them. If you do that, you’re ahead of everybody else. Because most people, what do they do? They discount their competition. They say the competition sucks. They say the competition isn’t. The team isn’t good, whatever it is. And then they get surprised, and they get blown up out of the water.
You don’t want that to happen to you.
Step Number Two: Build A Perceptual Map Like Steve Jobs Did When He Introduced The IPhone
Now here’s the perceptual map that Jobs built:
And you can see the perceptual map is just a four-quadrant map. It’s got an x-axis and a y-axis. You want to put all your competitors on this map in terms of features that are important to your customers, and how you believe your customers view the market.
Now you put yourself on this map to where are you and where do you want to be? And now you can see the world in a way that nobody else can.
Yes, this is business school. One-on-one, but who cares? It works. And it works really well because this frames your whole marketing strategy, just like it did for Apple and Steve Jobs. Try it.
Step Number Three: Build A Baseball Card Deck of Each Company You’re Competing with
A baseball card has the picture of the player on one side, and the key statistics about a player on the other side. You can use the same format to keep track of your key competitors.
Here’s what you can put on your baseball cards for each competitor:
- The strengths of the competitor
- The weaknesses of the competitor
- What does this mean to you in terms of their strengths and weaknesses
- What do you think they’re going to do next based on all of this.
A CEO I work with taught me this one. I’d always done the analysis, but I loved his idea of the little baseball card thing. He did this for his data room when he was raising money. And I thought it was just absolutely brilliant.
Step Number Four: Don’t Race to The Bottom
Sell on value, not on price. If you’re selling on price, that’s like the death knell for a startup.
Why is this? Because if you’re selling just on price, are you going to really have a price advantage as a small startup versus the rest of the competition?
Probably not. So why would you do this? Instead, you should sell on the inherent value of your product in the marketplace. The value comes in many shapes and forms, not just price.
For example, value comes in terms of:
- The performance of your product
- The ease of use
- The customer service
- The quality
There are all sorts of things that determine the value of your product. If you understand the value in the way that your customers view things, you can price your product in a way that avoids the race to the bottom.
Because of the race to the bottom, when you start cutting your price and your competitor cuts their price, it’s like going down a drain.
Step Number Five: The Value Equation
Now, what is the value equation? It’s the price of your product multiplied by the value you provide.
It is a subjective measure that the value equation provides, but it gives you a logical way to look at the value you’re providing versus your competition. Here’s how it works.
Let’s say your price is on a pricing scale versus your competition. You’re a seven on price and the value you’re providing is an eight. You take the seven times and eight, and that gives you a score of 56.
What’s the value of your competition? You have to guess at that too. In this example, your competition is priced the same as you, so their pricing score is a seven. However, you believe you are providing twice the value they are, so they get a score of four for value.
That gives the competitor a score of 28. And now you can compare to them, to you in terms of who’s providing more value to customers. It’s not just price, that’s the value equation. Try it add it into your mix of things to look at when you’re figuring how to compete against a tough competitor.
Step Number Six: Have A War Board Mentality
Now, what’s a war board.? This is something I learned from the late Jack Gifford, the founding CEO of Maxim Integrated Products.
He built Maxim up to over $2 billion a year in revenue from nothing. Jack was a brilliant marketer. One of the things that he taught me was the war board.
A war board is when you’re managing every single movement that you’re doing to implement your strategy. You know who will do what, by when for every single thing that you’re doing on any important project sales call.
It’s brilliant for sales. A war board mentality is essentially a souped-up CRM, but you manage every single deal, every single opportunity.
This is the difference: You can increase the market share of a great product from 30% to 90%. After Gifford taught me this trick, I implemented this in several business areas, and we consistently ended up with between 80% to 90% market share.
That’s what happens when you follow up on every single detail, this is how you win and you win big. It’ll drive everybody crazy in your company. People will get pissed, but you know what? If you need to do it, it’s absolutely worth it to do it. Try it. It works like crazy.
Step Number Seven: The Bigger You Are, The Bigger the Target Is On Your Back
As your company becomes more and more successful, it is guaranteed you are going to have more and more competitors coming after you. They’re going to try and copy you. They’re going to try and leapfrog you. They’re going to try and steal your best people.
Understand that this is all part of the competition. So what do you do? You stay ahead of them. You pay your people well while you keep them happy. You’re moving fast and you’re not getting complacent.
That’s how you beat a tough competitor. Once you have that target on your back, it never goes away, but you can do it. Just don’t get complacent. That’s how you win.
Bonus: Always Be Thinking About How to Develop Breakthrough Products
When you have breakthrough products that limit the effectiveness of your competitors. Therefore, it makes it easier to compete because, almost by definition, you’re going to be dominating the marketplace when you do this correctly.
This is how you win and win big.
Think big, think different. Think about how you can own a marketplace. Think about how you can do something that’s not just a little bit better than your competition, but 10X better.
Think even bigger than that. How can you do something that’s a hundred percent bigger?
One of the things that I loved to do was challenging the people that I worked with to do what I called, “ignore physics.”
If you’re working in an engineering company, how do you ignore physics? It’s just that simple.
What do you mean really want? Assuming there are no limitations on what you can do, and it’s amazing what happens when you start thinking this way and you can really open up your mind and think about, “Wow, I can do anything. What would I do?”
You define it that way when you figure out what your limitations are, and you get pretty close sometimes. Sometimes, maybe you’re meeting with this one customer who talks to you about using your product in a way you’ve never thought of before.
This is where major breakthroughs can come from.
You then realize there are a hundred other customers who’d love to do the exact same thing that you’re doing.
Then you design a product that does exactly what they want in a way that nobody else does, has done, and you win big.
I’ve had meetings like that with one customer and built a hundred million-dollar businesses off of that one idea that a customer pointed us to. We thought about it and we realized this is a totally different way of thinking.
And if we do it this way, we’re going to come up with a breakthrough idea of the breakthrough product and win and win big. That’s the beauty of thinking differently and thinking about breakthrough products. That’s what you want.
That’s how you win. That’s how you limit your competition. That’s how you win big in the competitive game. But take these seven steps seriously, you know, keep the target off your back and allow you to win.