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.
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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