How To Perform Competitive Analysis And Save Your Business Before It Even Starts

As an aspiring entrepreneur, you're hopefully eager and ready to launch your new business. However, before incorporating or even building an MVP, there's a crucial step that will save you a lot of future pain - competitive analysis. Spending some time looking at your market and competitors gives you a roadmap and guardrails for how to build strategies for your business, and what options customers will have when you want them to pick you.

Competitive Analysis: A Shield and Sword

What exactly is competitive analysis? It's a careful look into how customers will view your offering, and the practices of your competitors. You need to get to know:

• The market you're in (which may not be what you want it to be or think it is)
• Who competes in that market (directly and indirectly)
• What they offer, and to who.
• If you're going to be able to stay differentiated and succeed in the market over time

Competitive analysis is a strategic tool that acts as a shield and sword.

It's a shield in that it tells you what competitive differentiation you have today, and what that might look like in the coming months or years. For example, if you find your market only has a few main players, and they have out-dated solutions that users are stuck with because they're all that's available, it's clear there's an opportunity for disruption through innovation. However if the market is full of new and mid-stage startups, you know that competition will be intense, and you better have some major differentiation or unique market positioning to protect against the onslaught and expense of heavy competition.

Competitive analysis is also a sword. Knowing the competitive landscape equips you with powerful advantages. You can find gaps in the market that are under-served, competitors who have customers that are begging for better, and other opportunities that you can aggressively bring value in. For example, if you discover that a competitor offers terrible customer service, you can make exceptional service one of the differentiators that you invest heavily in.

Decoding Competition with Porter's Five Forces

The business world is pretty overwhelming when you dive fully into all of the corners. Thankfully some people have thought through markets and competition and come up with straightforward guidance. One example is Porter's Five forces. It's is a framework that evaluates the following "forces":

• Competitive rivalry: How many competitors are there, what's the quality of their offerings, and what is competition like between them? A highly competitive market will be harder and more expensive to succeed in.
• Supplier power: How easy is it for your suppliers to increase their prices? Do you have any power to negotiate with them? Can you source from other suppliers? This force affects your costs and profitability.
• Buyer power: How easy is it for your customers to drive your prices down or pressure you into doing what they want? Examples of challenges here are if there are few customers in the market, or there are lots of alternatives to them buying your solution. If customers have too much power it can impact your profitability.‍
• Threat of new entrants: How easy is it for a new competitor to enter your market? If the barriers to entry are low, you could face more competition, including from companies that don't exist yet.‍
• Threat of substitutes: How easy is it for your customers to find an alternative solution to their problem, and would they want to? If there are many alternative ways to fixing their pain, or customers tend to prefer other methods, then they may not stick around.

There is some overlap in those forces, for example if there are lots of alternative solutions that increases the threat of substitutes and the buyer power. However this is a helpful set of forces to think about when analyzing your market and competition. For fast-growing companies (e.g. startups) that are chasing large scale, you will want to focus more on competitive rivalry, threat of substitutes, and threat of new entrants. For slower-growth or smaller-scale businesses you should look carefully at supplier power, buyer power, and threat of substitutes, as profitability is key for your success.

My Approach

As I was designing CompanyCraft's AI-based competitive analysis (that I'll talk about later), I wanted it to be built on guidance from experts like the founders of Y-Combinator, and Michael Porter. I reflected on how I go about gathering information to put into frameworks like they suggest, and I'll share the main steps with you here so you can use them. There are 3 main steps:

Step 1: Identify your Market and Sub-Category

• Search for solutions in the space: The journey begins with a simple web search for the solution you're offering. Side note, you can use Google, but I've been using Kagi and love it, so you might check them out (I'm not affiliated in any way). With some brief searching and browsing you can confirm a few potential competitor names, but more importantly, look for the terminology they use to talk about the market and segments they exist within.
• Find Market Reports: Once you have some potential market names, web search for queries like "<market name> market report" or "<market name> market size". Find a few resources that look like authoritative research on the market. Some companies that produce market reports like this are MarketsandMarkets and Gartner.
• Determine your Sub-Category: When reading those market reports, take note of how the market is segmented or categorized. You'll want to identify not only the broad market that your business will operate within, but also the sub-category or segment. That segmentation can be based on things like features, customer type, deployment model, or geography.

Step 2: Find Potential Competitors

• Build a List: Using the market reports and further web searching, start to put together a list of potential competitors. Search directly for competitors, but also search for guidance from 3rd-parties in the industry. This can be from industry-specific blogs, "listicles", tradeshow exhibitor lists, company blogs (like this one), and you can even ask AI like ChatGPT (though remember that it currently has a data cutoff in 2021).
• Who to Include: Keep in mind that competition can be direct (another startup) or indirect (a player in an adjacent industry who might be able to launch a competing offering). I suggest including competitors of various types if they exist: large incumbents, new startups, market leaders, niche players, etc. You want to get data on who the competitors are, and also a "feel" for the extent of competition in the market, how they talk, why they're using the messaging they are, etc.
• Determine key Strengths and Weaknesses: To compete in the market and to evaluate competitors you need to understand what key attributes customers use to evaluate offerings in the market. I suggest including "Brand Strength" and "Recent Innovation Pace" for every analysis, but you should also identify a few solution-specific strength/weakness attributes to weigh competitors with. If you have a technology-based product then this might include something like "AI Intelligence", or if you're walking dogs as a side-business this might include "Services all breeds".

Step 3: Confirmation and Detailed Profiles

• Solution Data Gathering: It's time to dig deep on each potential competitor. Visit their website to confirm whether they offer a competitive solution. If they do, gather info on them: their Ideal Customer Profile (the specific customer segment they are targeting), their Unique Selling Proposition (the unique value proposition they are messaging to customers to stand out from competition), their business model (what they sell, how they sell it, and how they charge for it), and any other unique notes on them as a competitor.‍
• Review News and Updates: Next, check out their recent news releases, blog updates, or other news articles about them. This can give you an idea of their current projects, strategic priorities, and overall business health.
• Filter Your List: Through your in-depth research you've probably uncovered new information. Add or remove from your list so you have clarity and can categorize those who should be on your radar. You need this for yourself, but also to be able to communicate with potential employees, investors, or partners about the competitive landscape.

Each of these steps will give you a broader and deeper knowledge of your competitive landscape.

Too Much Work, Not Enough Time? CompanyCraft to the Rescue!

Doing proper market research and competitive analysis takes a lot of effort and time. However, your business is likely to run into ugly surprises if you don't do it.

We live in an amazing time where AI is revolutionizing the way we build and run businesses. At CompanyCraft, we've harnessed the power of AI to automate your competitive analysis. Our AI Auto-Research feature performs all of those steps I've outlined above and more, including web searches, looking through market reports, and analyzing competitor's websites and news releases. This data is carefully gathered and analyzed, giving you actionable insights that you can make informed decisions with. What would take you many hours to do manually, our AI does in 10-15 minutes. Check out a demo in this 5-minute video:

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Even if you decide not to use AI Auto-Research, the CompanyCraft app provides helpful structure for you to track business ideas, markets, sub-categories, and competitors while you're researching and analyzing. It gives you a logical system to capture and evaluate the data you need to succeed.

Once you've researched and done your analysis (or let AI do that work), you get a nicely-formatted report. Check out an example report here.

P.S. You Might Freak Out

In the businesses that I've started, I've often had a "freak-out" moment when I realized there were notable competitors in the market. Going into starting these companies I knew of the legacy solutions in the market that my offering was far superior to, but I wasn't aware of "real" competition that would be a threat to what I was building. However after sufficient time and searching I found a set of new competitors. In each case they were startup companies, similar in age and scale to mine. At first in my head I thought "oh no, I'm going to fail". But after some reflection and wise counsel from other people, I realized that those competitors were more validation of the market need than anything else. Going forward I then had them as data-points that I could use in my product and growth strategies.

I encourage you to look with eyes wide open at your market and competition. If you don't find any competition then you should be a little concerned. Are people staying away from your market and sub-category for a good reason? Or are you just ahead of the market and going to be a pioneer (which has its own challenges)?

Tarpit ideas attract Founders to them and they seem like good ideas, they seem like something people want, they're ideas that are very appealing and and the fact that there aren't already famous companies solving them attracts more Founders. It looks like you've come up with this amazing original idea but the death of everyone that attempted it is hard to see, all you see is like a freshwater pool you're like 'oh this is a wide open space' but right below the surface...

do your research, know what the bar is, think about the supply and demand thing, and give yourself the best best odds for Success, this is how you create luck

Quotes from Dalton Caldwell, in Avoid These Tempting Startup Ideas

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If you find competition then evaluate it carefully, and use that information as a "sword" and "shield". In some cases knowing about the competition should cause you to stop and do something else, or pivot to another idea or approach. However in others it will just be valuable data and perspective that will contribute to more success with fewer bumps along the way.

Starting a business is a thrilling, complex journey filled with huge ups and downs. Competitive analysis makes those ups and downs a bit less intense. Start analyzing markets and competition today with CompanyCraft. We'll help you turn your business dream into a successful reality!