Modern attitudes to competition are evolving. Dog-eat-dog attitudes towards business are becoming outdated. Many business gurus are urging modern startups and enterprises to switch the vernacular from ‘competitor’ to ‘collaborator’.
While a shift in perspectives can be enriching, we haven’t quite achieved economic utopia yet. Competitor mapping is still crucial for businesses and investors.
Let’s start with the two types of competitors a company can face when entering the market:
Direct competitors: companies that offer the same product or service as them.
Indirect competitors: companies that offer something different that achieves the same goal for the customer. For example, Gloria Jean’s is a direct competitor of Starbucks. But Starbucks is also up against homebrew coffee, canned coffee, energy drinks, and even tea brands. It’s important to be aware of these, as they can draw customers away just as effectively as direct competitors.
When looking at a potential investment’s direct competition, start by asking these two questions:
- How long have they been in the market?
- What are their strengths?
If the company is entering an emerging market (more on this in the previous article), they may only have indirect competitors, because their exact product or service doesn’t exist yet. Looking at their indirect competitors can be a little more tricky. You’ll need to consider at the following:
- How are people already solving the problem?
- Will the company’s new solution make it sufficiently easier for them?
If consumers are already broadly satisfied with existing solutions, there may not be a huge market for new ones. It’s also difficult to change peoples’ long-held habits. They can be very loyal or even evangelical towards brands. The company you’re looking at will need to deliver a significantly improved experience, and make it easy for people to switch over to it.
‘Offering it cheaper’ is not an ideal metric for assessing the value of the new solutions. This is something that competitors can easily imitate. Added value needs to be durable. Understanding the competition will build you a useful picture of your potential investment’s chances of success.