Who your (real) competitors are
Why you should watch — and learn from — more companies than those doing exactly what you do
A question that gets asked to any start-up is with whom it is competing. This allows potential investors to understand what the company aims to achieve, in what industry, and how it differentiates itself.
Unfortunately, the answer that too many founders give is that they don’t have any. This is wrong, for every single company, anywhere in the world.
I will explain here why, and give tools to better understand who your real competition is.
Who are your competitors?
Some people may pretend they don’t have competitors as a misguided attempt to make their company look more attractive — which won’t work, and more on that below. However, in most cases this answer is given out of an honest misunderstanding of how to think of competition.
When a founder tells that their company has no competitor, they usually mean that there is no one in the market who provides the same service as their company, in the same way. This, in turn, is caused by putting too much emphasis on the technical implementation of one’s solution rather than on the benefit it brings.
When you are building a company, you will spend a huge chunk of your time building a particular solution to a particular problem, so it is natural to see your own technology as the most important thing in the world. However, the sad truth is that how you solve a certain problem is of no concern to your customers, as long as you solve it.
This is at the core of the advice oft given to founders to sell benefits, and not features. Your product should be marketed by what benefit it brings its users, and not how it is made. Thinking about your product this way will also make you realize that there are lots of competitors out there, and they come in many shapes and sizes.
Who are Netflix’s competitors?
Think about it as a customer: you are at home an evening and are looking to watch something on TV. You could turn on Netflix or Amazon Prime, two services that clear, direct competitors. But you could also watch cable, YouTube, or one of your Blu-Rays. These are widely different technical solutions, but ultimately they provide the same value of showing moving pictures on your screen.
You could phrase the problem in a broader way still: you could be looking at an evening activity in general. In that case, the above TV options would also be competing with movie theaters, restaurants — or dare I say books! — to solve the problem of how to keep you entertained.
So when thinking about who your competitors are, you shouldn’t be asking yourself “Who does the same thing as we do”. Rather, it should be, “If our product didn’t exist, what would our customers do instead”?
Ask yourself: “If our product didn’t exist, what would our customers do instead?”
That question broadens the scope of competition and will prevent you from thinking that you don’t have any.
Or consider Airbnb as another example. In its early days, the company could have (mistakenly) considered itself competition-free, since no other company allowed renting rooms on a nightly basis in people’s flats, with the full service provided through a web platform.
Such a narrow definition of what constitutes competition is obviously misguided. If you were a homeowner in a pre-Airbnb market, you could use craigslist to rent out a room. If you were a traveler looking for accommodation, you could go to a hotel. By redefining how these services were offered, Airbnb offered for many stakeholders a better venue than either craigslist or hotels, but it did compete with both.
Or think about Slack: its founders could also have fooled themselves in believing that they were without competition since no one else provided workplace-oriented instant messaging solutions, and they too would have been mistaken, since their customers would have used other media in their absence; in that case mainly email. So even though email is not a suitable replacement for Slack in many situations, it was and still is an important competitor.
Why you should spend more time thinking about competitors
Having a too narrow vision of competition can be harmful to your company in two main ways. First, any investor worth their salt will understand competition as being a much broader concept than people doing exactly what you do, and your saying that you don’t have any competition will not make your venture sound more interesting; it will simply make you look inexperienced, foolish, or both.
Second, not looking at who your real competitors are may leave you blindsided, or prevent you from finding valuable inspiration (or cautionary tales) in them. I suggest the Competition Matrix as a framework to think about your competition in a broader and more structured way.
The competition matrix
The matrix has two axes:
Does it look like what you do?
Does it solve the same problem that you are solving?
By breaking the field in quadrants along these axes, we get four categories, three of which you should watch:
Solves the same problem as you, in a similar way: Direct competitors
Solves the same problem, but differently: Alternatives
Looks similar to what you do but solves a different problem: Parallels
Let’s dig in each one of them.
1. Direct competitors
The direct competitors are companies solving the same problem as you, the same way. By “the same way”, I mean in a way that looks the same for the end-user: if your company uses AI and another one doesn’t, but the service you provide is indistinguishable for the end-user, then you are solving the same problem, the same way.
Microsoft Teams is a direct competitor to Slack. A thousand real estate platforms are in direct competition with each other. Vrbo.com or HomeAway compete directly with Airbnb.
These products may differ by their technology or their positioning in the market, they may be distinguished by some features, but they are essentially doing the same thing, the same way.
Direct competitors is what most people have in mind when they think about competition, and you should not stop watching them: these may be the most direct threats to your company, and you can certainly learn from their successes and mistakes to improve your own product. But the other quadrants deserve your attention too.
2. Alternative solutions
An alternative solution is something that solves the same problem, but in a different way. Again, “a different way” means here something that actually looks different to the end-user, and not a different implementation of the same solution.
Email is an alternative solution to Slack. Hotels are alternative solutions to an Airbnb. Cable is an alternative solution to Netflix. Each one of them provides an alternative solution to the same problem, but in a very different way. Which one works best in your case is up to you.
If you are a young company coming into the market with a new solution to an existing problem, you may dismiss alternatives as being inferior. This would be a critical mistake: your whole challenge will be to convince your customers to drop the alternatives in favor of your product. In that situation, not acknowledging them may blind you to valuable technical, organizational or sales insights. To take the example of Slack again: even if you deem the technology infinitely superior to email, the study of email will teach you who needs asynchronous digital communication, when, for what purpose. These are priceless data.
3. Parallels
Parallels are solutions that look like what you are building, but that solve a different problem. Silicon Valley often uses the formulation “X for Y”, à la “Boatsetter is the Airbnb for boats” to leverage parallels to explain a new concept. In this case, Boatsetter is a parallel for Airbnb: while it does not serve the same purpose for the same end-users, it works in a similar way, and Airbnb therefore provides a convenient explanation of the company’s product.
Parallels may also exist in specific aspects of your value proposition: healthcare providers can learn a lot about ensuring satisfaction of their patients from the hospitality industry, even though hospitals and hotels do not provide competing services.
Parallels are a huge source of inspiration, since many different companies may have worked on problems similar to the ones you are trying to solve, but in different industries or for different applications. Not acknowledging them leads to the risk of reinventing the wheel.
An example: Airbnb’s competition matrix
Let’s put the competition matrix in practice for a well-known company, to get a better grasp of what we’re talking about. Take Airbnb. It’s something we all know and have probably used. When Airbnb launched, a couple of other similar services already existed: Vrbo.com, for instance, or HomeAway¹. You could argue that Airbnb’s service was superior to these, and 30-odd billions of dollars of investment would seem to agree with you, but these were there nevertheless, and were valuable insights for Airbnb, be it only to learn what they shouldn’t do.
But there was already at the time a plethora of alternatives. Hotel chains for one, listings sites like craigslist for another. Yes, they don’t work the same way as Airbnb, but that’s beside the point: they deliver the value of finding accommodation in a remote place all the same. How did the customers of these companies find them and what was their customer journey? What do they like, and what don’t they? Answering all of these questions can save precious time for a start-up and prevent it from doing the same mistakes as others.
Finally, parallels are also plenty, but may not be as obvious. TripAdvisor technically has an activity in the same sector as Airbnb but it’s small potatoes², and it’s not what you typically think of when you think of TripAdvisor. But think about restaurant recommendations. While it may seem a long shot from vacation rentals, it has common core components: listing geographically constrained items that you will find relevant and appealing. From SEO to user experience, there are lots of learnings that can be translated from one to the other. An even further example may be Uber. While they are not remotely in the same business as Airbnb, they excel at setting up a complex relationship between several suppliers, from a very simple mobile interface. There too, learnings are plenty.
This list is obviously not exhaustive, but I hope the examples provided help understand how parallels and alternatives matter, and how many more competitors these categories reveal.
Wrapping up
The Competition Matrix is easy to apply to many industries, and can broaden your perspectives on who you should take inspiration from. Below are a couple of other examples of it in use.
Netflix competes directly with other streaming services, and numerous alternatives also allow you to see moving pictures on a screen. Other services such as Steam, Spotify or Audible explored how to present content to their audience and can serve as inspirations
Slack competes with products such as Microsoft Teams, and is displacing alternatives such as email. Blogs and social media explored numerous ways to communicate asynchronously in text feeds.
To sum up this entire piece: the statement “we don’t have competition” is always, in every single case, flat-out wrong. Stating it does not make your company look good, it shows misunderstanding of what competition is.
Shutting your eyes to your real competition will not bring your product forward nor will it make it look more appealing to (quality) investors: however, it will lead you to miss the opportunity to learn from many people’s experiments, and will therefore slow down your progress that much.
So use the Competition Matrix to list out who your competitors are as broadly as possible, keeping in mind the parallels and alternatives. And then, make sure to take all of their good ideas and learn from all of their bad ones.
