The right way to position your startup against competition

(Editor’s note: Jason Cohen is an angel investor and the founder of Smart Bear Software. This story originally appeared on his blog.)

The two most common errors in positioning a company against competition are, strangely, opposites. Some entrepreneurs claim they have no competition, while others define their company’s offering and positioning by combining “the best” traits of 6 competitors.

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This isn’t just a problem when pitching — it’s a problem when defining who your customers are, what they want and your role in the marketplace. Let’s break down the ways these fallacies manifest and what you can do instead.

There is no competition

Here’s what this sounds like in the wild, and my reaction when I hear it:

“I have no competitors.” – Either you’re ignorant of direct competition, or your not considering alternate solutions like “build it yourself.”

“No one is doing it like we are.” – Of course you’re going to position your company with a unique offering: exclusive features, a distinctive culture, a refreshing pricing plan, an innovative sales strategy, etc.. But uniqueness doesn’t imply lack of competition!

“There’s no competition because this is an industry that has never used software to solve this problem.” – I know that sounds like a good thing, but what this also implies is that you’ll have to convince computer-phobic people to trust software, and that’s a disadvantage. You’re competing against the status quo.

“There’s no competition because people haven’t realized it’s a problem.” – If they don’t already know they have the pain, the sales process is going to be excruciating. There’s a word for that — evangelism — which conjures other words: Expensive, difficult, time-consuming.

If you’re tempted to argue that you’re the exception to these arguments, here’s how to elucidate the advantages you’re seeing, but in a way that actually makes sense as a business strategy:

• “We’ve carved out a niche specific enough that no one else is actively targeting it. There are similar competitors A, B, and C, but they’re not targeting this niche because of X, and would be hard for them to switch into this niche because of Y. In fact, it’s quite possible that we’d end up partnering with or being bought by A, B, or C exactly because our idea is similar but out of their reach.”
• “We’ve identified a market too small for the large, established players to address, but big enough to build a company. For example, because an 800-pound gorilla like Microsoft is so inefficient at building new software, it can’t go after a market unless there’s a billion dollars at stake. We think there’s a solid business to be made in this hundred-million-dollar market. However, whereas Microsoft can’t afford to build this from scratch, if we show good growth and profits it would be an obvious acquisition target for them.”
• “Our target customer has traditionally solved this pain themselves or just lived with the pain rather than paying for relief. However, a combination of newly-available technology and modern mindset makes this the right time for a new software play.”

Defining your company by the competition

Your company is defined by its own strengths, values, customers, and products – not by how it compares with other companies. You need a strong position, something that would be equally clear and compelling even if competitors didn’t exist.

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Here’s some ways this mistake manifests – and the reactions those mistakes elicit:

“We combine the best traits of our competitors, letting them show the way to our success.” – I like the idea that you can learn from the mistakes and successes of similar companies, but “combining the best” misses the point. There are specific tradeoffs each of those companies are making; things you see as “not best” might in fact be best for their target market. Why are you sure that your notion of “best” will result in enough customers who not only agree with you, but is so convinced that they’re willing to switch to you?

The rubric. – A chart with one row for each “feature” and one column for each of six “competitors.” There’s checks and X’s everywhere, except of course a glowing, highlighted column representing your company which just happens to be full of checks. C’mon, everyone knows this is bullshit; it’s insulting.

“We’re just like competitor X, only we’re Y.” – In that case you’re betting your future on the fact that Y is overwhelmingly compelling to a large market segment. X automatically has advantages over you (brand, customers, revenue, inside knowledge, a team, momentum), so Y had better be brain-explodingly awesome. (Oh, and it’d better be impossible for X to implement Y — or even 1/3 of Y — themselves. Talk about putting your fate in others’ hands!)

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“We’re the same as X, only cheaper.” – Being cheaper is a strategy, but it can’t be your only strategy. It’s too easy for competitors to change price or offer deals. Typically the best customers aren’t as price-sensitive anyway, so you’re actually biting off a less desirable segment of the market.

So how do you look inward to establish your company, contrasting with the competition but not letting the competition dictate your identity? Try one of these:

• “We’re targeting the market segment defined by X, Y, and Z.  We’ve spoken with 20 potential customers who match at least two of those criteria, and they agree our product is exactly what they need and that none of our competitors are doing an acceptable job addressing their issues.”
• “Our company has core value X that we exude everywhere from our AdWords to our tech support to our product. We own this value because we’re completely committed; this is the one point on which we will never compromise. Our customers know it and value this too, which is why it doesn’t matter what features, prices, or advertisement our competitors have.”
• “This is the competitive matrix. Note that each player in this space is targeting a different market segment, as is clear from feature selection, pricing and advertising/messaging. We, too, are targeting a niche. Our offering is consistent with owning that niche, and doesn’t overlap significantly with competitors. It would be difficult for any of them to “switch” into our niche, because they’d have to change the product, pricing and their company’s persona. That’s a risk we’re willing to take.”
• “We’re going after competitor X. We know they already have a ton of advantages over us — well-known, well understood and a deep feature list. However they haven’t done anything new in three years and we have evidence that their customer base is pissed off. Not only that, they’re famous for annoying attributes A, B, and C (Examples: buggy, slow, confusing, must install, expensive, crap tech support). We see a huge opportunity in their wake of destruction, vacuuming up their customers. They can’t do this themselves because they’re too big to turn the ship, and anyway the past three years shows they’re not able to change.”