Competition
Studying the competition can help avoid challenges
Sports teams pursue an extreme focus on understanding their competition. Companies may not need the same level of intensity but benefit from studying other industry participants as these details can help shape strategy and provide details on what may or may not be working.
We often ask founders or executive teams to name their competitors and describe what those companies may be doing differently. The responses convey a lot about the future of a company.
Describe The Competition
Asking about competition does not imply a lack of our own research, instead we prefer to understand what the management team believes are the direct competitors. Sometimes hearing managements description of its competitive universe changes how we analyze a company or helps us better understand where the company may be positioned.
After years of asking the competition question, we find companies claiming zero competition may be overly optimistic or developing a product for a very small group of customers. It is rare to find a new industry or product where competition does not exist.
Why Study The Competition
Start-ups tend to be ambitious by nature so we caution teams to not always believe they need to be the first to market with a new idea. Sometimes the best strategy is observing how others approach a product or service launch and learn from early mistakes.
Watching initial market entrants also uncovers how additional value can be provided or new features to differentiate a product. Consider how Blackberry dominated the early smartphone market for almost ten years until Apple released the iPhone. During BlackBerry’s dominance, Apple studied customer behaviors and despite being a late market entrant went on to overcome BlackBerry’s market share.
How To Study Competitors
One of the quickest methods of evaluating industry competition is reviewing public company data. A company with publicly listed stock has an Investor Relations section of its website which includes investor presentations and detailed financial reports. Although public companies tend to be larger, the data provides a starting point for industry analysis.
Another option is trend analysis to evaluate broader market perspectives. Two free options are Google Trends and Google Books Ngram Viewer.
Google Trends provides data on search trends along with several options for data analysis.
Google Books Ngram offers key word searches across over 40 million books scanned as part of the Google Book project, including publications going back 100+ years. The website allows click-through access for viewing original publications ranging from books to newspapers.
If a team gathers for quarterly meetings, include a discussion of competitor successes and failures. Review parallels to your own products and where changes or improvements could be made to add value.
Be careful about mandating employees only use your company’s products or services, as some of the best ideas originate out of frustration with a competitor’s product. A restaurant owner we know rarely hosts colleagues at his company locations, preferring instead to eat at other restaurant chains. He realized people were more open with feedback of his competitors so he was able to obtain a constant stream of competitor analysis.
Uniqueness Of A Number
Part of venture capital investing is understanding why people make certain decisions. Today’s date reminds us why the number 7 is unique, as more often people choose the number 7 when asked to pick a number between 1-10.
For those interested in why the number 7 is so popular, consider picking up the book The Grapes of Math. It is not a detailed math book but instead contains several discussions on how numbers and life tend to be intertwined, including reviewing the study regarding the most popular choice between 1-10.