Now the dumbest answer goes a little something like this:
VC: Who are your competitors
Founder: It’s amazing, we have no competitors!
“We have no competitors” is such a bad answer it’s actually in the top 5 dumb answers a VC would list when asked what dumb answers are (Like will you sign my NDA). It’s so common it’s a cliche.
If you take one thing from this blog it’s this: DO NOT say you have no competitors.
You always have competitors.
Inertia is a huge competitor. Market awareness is a terribly expensive competitor. Pen and paper and even Excel is a competitor. How you define competition matters.
Competition is a good thing
It’s really not very often that a founder comes up with a blue ocean opportunity, something where there really aren’t competitors. It’s a black swan. The reality is most startups are a twist on something else.
So when you go to an investor and say we’re totally new and have no competitors, the obvious response is BS, pull the other one, mate.
Competitors flock to opportunities. At one point there were over 5,000 Groupon clones in China! No competition implies the market is in fact small.
You actually want to have competitors. Of course, you’d just like those competitors to like, suck, and in an obvious manner. But life doesn’t always but life doesn’t always give you peaches.
So… even if you are doing something totally new, invent competition to make it easier for yourself. Hey, this isn’t a perfect example, but Salesforce went cloud and talked about the end of software. You can argue there was no competition in SaaS, but there sure as hell is in installs. Saying you have no competition in SaaS space is clearly illogical but technically true, the alternative is installed software which is your competition.
Better than competition though, is exits. Investors ONLY care about exits. You absolutely want to communicate that you have set up to exit and there are people waiting in the wings. But even better is to show that it has been done before.
Roger Banister was the first to beat the 4-minute mile and post hoc that is regularly achieved, why? Because people believed it could be done. You want the same for your startup. You want investors to believe that you will also exit.
How to respond when you don’t have any obvious competitors
Your competitors may not always be obvious. Facebook killed off Myspace, Friendster etc. But they compete on attention, so Snapchat, Instagram, Whatsapp and even Youtube are competitors. It’s all about how you frame competition. In this example, the competitors are around attention and communication.
Let’s say you are Buffer and no one else was doing social posting (there are many players). Your competition is going to be the following:
- Awareness that one needs to post to multiple social networks and save time
- Manually posting to Facebook, Pinterest, Linkedin and Twitter
- And everyone else that doesn’t even post socially as they simply don’t care
Take another example. Birchbox invented the whole beauty samples in a box concept (well, strictly speaking). Do you know how hard it is to do Adwords when NO ONE is searching for ‘beauty box’? They had to develop marketing strategies to build awareness. The main one that worked was ‘unboxing’ by beauty bloggers.
Everyone that has ever done something innovative had to change a behaviour and create awareness. That’s not only hard, but it’s often massively expensive if your marketing strategies don’t adapt.
If you are innovating, then you need to specifically address how you are going to create awareness and slay your dragons… and ideally how you create a sustainable competitive advantage (which is hard).
“We noticed this behavior that people are posting on multiple social networks more and were finding it really annoying. So we thought, what if we had an app where you could upload a link and it would post to all your networks? The issue here is that this is a new insight and no one is doing it yet and no doubt someone else will too, soon. We need to show people that Buffer is just so much more efficient and given content marketing is exploding, the timing is apt. So our biggest competitors are inertia and market awareness. What we have found to be working so far is to x, y, z and that seems to be working well. Our tests are that we can afford $5 to acquire a free user. We’re working on what the conversion from trial to paid is at the moment…”
How to respond when you have a million competitors
More likely than not, this might be your reality. You’re trying to 10x and do things better, faster and easier. So you have a technical/product challenge, but your real one is of differentiation. How the heck do you create mind space?
The idea to write this blog came from my friend Jeremy Agnew from A New Mission who sent this picture and the note ‘Oh, so you are a start-up with no competitors right? Riiiiiiight. (makes a good post for 50folds)”
It’s about how totally nuts the marketing technology space is. Check this out:
Yeah, there are 5,000 companies here!
I’m pretty sure if you are in the space you don’t have the balls and arrogance to try say you have no competitors, but my bet is someone will 😉
So what do you do if your competitor landscape looks like the above?
Acknowledge it. That’s fine. When it comes to illustrating it in the competitive landscape you pick the real ones and add a bubble or note that there are a 1000 others. Then when you discuss it you say this again and explain why you are only showing the key ones, but can talk about the others if they would like. No stress Mr VC! You aren’t hiding anything and clearly, you can’t list every competitor.
But if it’s clear you’re being honest, who cares? If they bring up one that not on the slide, then you just talk about them… this does mean you actually need to know all your competitors (which I know takes ages to do, right?).
Let’s take a real anecdote. It comes from Drew Houston the founder of Dropbox. He was pitching for his seed round and the investor asked him:
VC: “I know there are similar companies out there doing the same as Dropbox, why should I invest in just another similar company?”
Drew responded: “Yes. There are similar companies out there doing the same as Dropbox. But do you actually use any of them?”
VC: “Because they are bad.”
Drew: “Ok. That’s what Dropbox wants to solve.”
That’s certainly a good response and it sounds great in a story, but one can easily pull it apart. It’s a great story though so let’s leave it there.
How to respond when you have some competitors
This is easy, you list them all on the competitive landscape slide, or build them into the ‘problem’ narrative (The legacy guys are all install, they don’t do SaaS which is why we started Instasnapuber…).
You talk about the competitors in general terms (so as not to drag the pitch on) and respond properly when and if investors probe you on them. You don’t have many, so this is easier. You may want to add in market awareness etc if that is a concern and then address how you deal with market awareness in your go to market slide.
How to respond when you blatantly are a copycat
Come on, you’re copying some US company, right? 😉 Come on, if you’re pitching a VC that’s been in the game a while, they’re going to have come across almost every interesting business model. They read TechCrunch too.
95% of startups are copies of some US or possibly EU company. Don’t get me wrong, that’s actually smart. Executing in Asia is way harder so why take on business model risk too? But it just needs to actually make sense in the landscape of Asia.
I’ve had so many companies pitch me and I ask them what they do and they go on explaining like it’s their idea. I just respond ‘So you’re copying x?.’ They typically blush and say ‘yeah, um,’ and sometimes ‘people don’t always know that.’ It cracks me up a little.
If you’re in Africa, Asia etc and you’re copying someone just say it. It saves so much time explaining. If you just say “we’re doing Airbnb in Asia” then I get it. Now I just want to figure out why this makes sense and how you are executing. Again copying makes sense, but not always. I don’t get why you’re gaming like I don’t know who is doing what.
“We saw what Airbnb is doing in America and we love the concept. Their take rate, barriers to entry etc are genious. But it’s not ideal for Asia. I’ve been in property for a decade and I know the market. So we started with the concept of Airbnb and redisigned the business model and strategy for it to work locally. Here’s how we’ve changed the model and why we can win Asia…”
Sell all your real competitors (then why you are different or better)
You don’t want to gloss over your competitors. VCs are going to search and find out about them all. They do this a whole lot, even if they don’t have the industry knowledge that you do (Note, increasingly VCs are focusing and having people on staff who might actually know more than you). When they find a competitor you didn’t mention, you aren’t going to be there to add footnotes- they’re going to make up their mind if that competitor is better than you, even if they aren’t the same. You aren’t there to tell them, right, because you tried to hide some…
That’s just a terrible idea. Be confident. Name all the demons in the closet that investors should know about so they aren’t afraid of them and can be confident that you are the best. Investors need to be confident in you. They’re investing in the best, not an also-ran.
There’s just no smart reason to try hide competitors (unless you are raising angel from clueless people and that fits your ethics).You can also be a little selective with the competitors you choose to highlight; you can pick competitors which accentuate your strengths 😉 Of course, raising is sales so you can choose the companies you choose to really talk about, so long as you aren’t dodging the obvious ones an investor would want to know about.
Now, in terms of pitch decks, no one likes the competitor/feature matrix which has a load of ticks and crosses. It says nothing. We all know you are arbitrarily picking variables that suit you, and a lot of the time they are erroneous and not informative in the least.
Don’t trash talk competitors
You aren’t as smart as you think. Your product isn’t as good as you’d like and it may be good, but it’s not better than your competitors in each and every dimension.
Classy people don’t say nasty things. Your mother taught you that ‘if you don’t have something nice to say then don’t say it at all.’ There is some truth to that.
The more negative things you say about competition, the more feeble you come across. A giant has nothing to say about an ant. He might commend their ability to bear multiples of their weight, to work together to build homes but all these compliments still don’t enter the reality of the world a giant inhabits. It’s simply another species.
If you really are exceptional (and that’s what’s VC fundable) then you should be able to opine on the positives that the competition has achieved… because it’s just not in the same ballpark you are playing. If you don’t have confidence, you won’t win.
Understand that VCs want to have a play in a hot sector, so if you have competition that has raised big, that can be helpful so long as you have a secret to share as to why you can win too. There is not often one big winner like Facebook (Though VCs would like that as would you). Big raises can indicate to the VC they are looking in the right sector, and honestly, VCs assume others know something they don’t all the time and they want to be in hot sectors.
You aren’t going to be best at everything and a lot of what you are doing might be similar. That’s fine, but you can explain how you are the same and in different manners.
- The vindictive approach: They suck because of 1, 2 and 3.
- The classy approach: The competition represents the status quo. They do a great job at delivering a solution the way people know it now. But we see the world very differently as to how it will evolve and our product development roadmap is focused on expanding the market in a different way. We have conviction in our approach which is why we have filed provisional patents.
And if you aren’t elegant with words then you can let other people talk for you. They’re called your customers. If you want to say something mean about competitors do it in a customer quote. Maybe not even say it, just write it on the deck so investors read it.
You really need to know the industry
I mentioned you need to know your competitors. You really do which is why I am taking the time to labor the point.
If an investor talks about competition and you:
- Know nothing about them
- Haven’t heard about them
It looks really bad. People in industries do and should talk to each other. As an insider, you ‘hear things.’ How is it you don’t ‘hear things?’ VCs naturally want to invest in the insiders, the people who know everyone. If you don’t know who competitors are or any info on them then you either are a neophyte or are not paying attention.
Sure, if you’re young and promising, doing blue ocean, this doesn’t matter as much, but you sure as hell better know what is going on in the space.
If you don’t know, then I really recommend you make a point of taking out pen and paper and writing the name down and then try pumping them for information to show you are eager to learn. That’s not great, but at least it sends a positive signal- and you learn something.
You’re going to be asked this question so prepare for it. Don’t just say you have no competition.
Think about the specifics of your startup and the landscape. Understand the evolution of the industry and the future impact on your growth and margins.
The question isn’t just who are your competitors? It’s how will the industry evolve and how will you compete and win? You need an answer to raise, but more than that you need to know if you are going to cash out!
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