Don't Declare War. Respect Competitors, and Capitalize on Your Own Strengths.
As an angel investor, I hear many entrepreneurs making negative comments about competitors or asserting they don't have any competitors. They don't realize that knocking competitors is assessed as a weakness and denying that you have any competition suggests there is no market for your solution. The smart approach is to find competitors to highlight your strengths.
For example, if your new software adds innovative new features and mobile access to a classic offering, you could name and degrade current vendors for their lack of support, or you could highlight your innovative additions over the current market leaders. The first approach makes you look vindictive, while the latter will tag you as a positive thought leader in the industry.
Related: Don't Be the Cheapest, Be the Best
Smart investors, competitors and smart customers, will listen and watch carefully as you position your new offering. Don't let your passion and ego overcome good business sense and common courtesy as you educate people on other alternatives in the marketplace. Here are my thoughts on the right steps to prepare for these discussions and how to capitalize on your strengths:
1. Declare and file your innovations early as intellectual property.
Taking action to file even a provisional patent shows you have the conviction and skill to execute while others have no barrier to entry. Investors invest in people who take action rather than find the excuses that patents are not defensible, cost money or may be done later.
2. Position your solution as broadening the market, not killing a competitor.
Focusing on a competitor is dangerous, since you don't know what they plan to announce soon. Highlight one specific offering for rollout, but make it clear that this is just the first of a long line of planned solutions which will expand the market and keep you growing.
3. Quantify your value over current market alternatives.
When comparing competition, don't use fuzzy terms such as improved usability, faster, less expensive and more productive. Investors are looking for significant (20 percent or greater) cost reductions, training savings or expense reductions. Use real case studies and customer feedback.
4. Know every competitor but position only the top three.
Every investor hates those large competitive analysis tables filled with check marks and red dots. If your space is crowded, define three groups, and name a specific in each group, such as "Company X is the best of the cloud solutions." Dig deeper than Wikipedia for facts on key competitors.
5. Solidify your exit strategy by picking a competitor as a comparable.
The best way to support your acquisition potential for $100 million -- or going public -- is to find a competitor who has shown it can be done. Like selling your house, there is no valuation more solid than a comparable next door. Investors need a liquidity event to get their money out.
6. Highlight opportunities for 'coopetition' and strategic partners.
Pick the best of the competitors and explain how you could both win by expanding the market for both, reducing common costs or cross-referral agreements. Most large competitors no longer do new products internally and are looking to partner and invest if you don't declare war.
7. Define competition in the broadest sense and maximize your opportunity.
Saying you have no direct competitors implies a very small market. Investors want to see you in a billion-dollar transportation opportunity rather than a tiny-future market for cars that fly. Acknowledge that the real competition may be status quo -- but focus on how you can change that.
8. Capitalize on team experience and relevant business area strengths.
Previous business successes or recognized expertise is a tremendous competitive advantage that is often overlooked. Equally important are relationships with key suppliers, distributors and potential customers. Remember that investors invest in people more than the idea.
Entrepreneurs who clearly respect their competitors and know how to capitalize on their own strengths will attract the right investors as well as the right business partners. Denigrating competitors -- or ignoring them -- is a recipe for disaster. It's always smart to take the high road.
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