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