Competition. Unless you’re Microsoft selling an OS for a PC you probably have some. And even then Microsoft has substitute products as anyone who has taken Econ 101 will tell you.
So if you’re raising money – from angels or VCs – you’re going to have to address the question of whom you’re competing against. And the reality is that if you have no competition it will likely be perceived as a negative, not positive. Why? Because if you’re truly that early / novel there’s a good chance that you’re too early and will spend lots of time / money educating the market. Remember: being too early is the same as being wrong.
More likely if you say you have no competition you’re either not thinking hard enough or you’re being coy and avoiding the question. With VCs my strong suggestion is that you be open & realistic. Leaving your real competitors off of you presentation to a VC is not recommended.
The “competition slide” of your investment deck is such a great opportunity to talk about how you’re positioned (premium product vs. economical product? which features do you believe your customers care about and where you’re try to differentiate? where do you need to make investments to make up ground and therefore need capital?).
Here’s some thoughts on the competition slide and also how to talk about it:
For starters, here’s the two most common approaches that startups take to discuss competition and also a section on the common pitfalls – even for experienced presenters.
1. Harvey Balls
One of the most common ways to present the competition slide is to show your company stacked against your main competitors, who will be plotted in vertical columns against each other. On the horizontal rows you will plot a set of features or key attributes of how you define your competitive differentiation. This is not only a way to talk about you versus your competition but a chance to reinforce two things: 1) what you see as the most important buying criteria for your customers and 2) how you believe your firm differentiates.
Harvey Balls look something like the graph I’ve attached here. Try your best not to make this a small-minded feature comparison in which you come out on top in each category. The best way to do it in my opinion is to really have this form the basis of your company strategy. Think back to the slides in the VC deck where you define the customer problem you’re solving and what your solution does. The Harvey Ball slide should in a way just be a depiction of this strategy.
Most Harvey Ball slides that I see presented to me have the presenting company with all the balls fully filled out and some weaknesses in your competitors. Why not take this opportunity to differentiate yourself in the VC presentation? Why not say, “look, I know most people just show themselves with all the benefits and competitors with all the weaknesses, but here is a realistic view of where we’re at today” and show some weaknesses. It will be a great chance to build rapport with the investor. Nobody is perfect. And showing some areas for improvement is also a great way to get a two-way dialog going with your investor.
You will be able to say why you’ve chosen to be strong in certain areas – these being the ones you believe your target customers care about the most – and how you will develop other features to match competition in the future. It is a great place to talk about your future roadmap. It is also a great place to emphasize that you think it is important not to just replicate every feature of your competitors but to build your product in a cost-effective way and building to the MVP (minimum viable product). I think the pro’s of showing a VC that you understand how to be customer and cost focused far outweighs the “were better at everything approach”.
If you can’t resist the temptation to be the best at every category the VC will probably forgive you (but not believe you) – it is the one place I think you can get away with it (even if I don’t recommend it). It’s the lie we know you’re telling (along with your hockey stick growth that we sort of accept for some reason.
2. Two-by-two matrix
The alternative to (or in addition to) Harvey Balls is the 2×2 matrix – the ones so popularized by The Gartner Group (and every consultancy out there). This is the one where you plot yourself on a 2×2 graph along vertical and horizontal dimensions in which you define what the measurements are. Often they are things like: functionally complete product, platform coverage, price, intuitive UI, geographic coverage or some other way of slicing the competition.
Here I would say 100% of presentations I see have YourCo as the leading player usually position in the upper right quadrant. Again, as per my comments on Harvey Balls it is probably OK since for some reason, maybe tradition, we just accept that you’re going to say this and you get a free pass. But even if you’re the best on your slide use this as an opportunity to really talk openly about what you believe customers want and why you believe your positioning will help you succeed in the long run.
“We have no real competition”
I hate when I hear companies say this. In some rare circumstances it is conceivable that this is true but it is very seldom. The first thoughts many VCs have when you say this (and many novices do say this) is that “if there’s no competition maybe it’s because there’s no real market?” or the variant, “if there’s no real competition it is going to take way too long to educate the market and adoption will be slow – yuck.” But the most common thing they’re probably thinking is, “of course there’s competition – you’re just either naïve I thinking there’s not or you’re not being direct with me. Either of these is a problem.”
Why do we want to know your competitors? Aside from the reasons mentioned above (with no competition there is either no market or long time to educate the market), we also want to know because if we get serious about evaluating your company we really want to understand the industry you’re competing in, which means researching the competition. We also want to hear how you think about your competitors and your market and how you will respond to the inevitable changes by your competitors. And frankly we want to know that you spend some time thinking about the competition and how you’ll differentiate.
“Our competition sucks”
So I know that no company pitching us actually says it this harshly but the disdain for your competitor is often felt in the word choices and how you position them. Having grown up in the US, I was used to this kind of “slash-and-burn” competitive positioning when talking to VCs, the press and even customers. This is the style of Larry Ellison, Steve Jobs or Marc Benioff.
But I lived in the UK for nearly a decade and learned a lot from them in being gracious to competition. It is simply “not the done thing” to be brash about competition as US companies would be and I find this to be a better way to position yourselves. Even though we tolerate these kinds of attacks in our society (think politics) – the people who seem to stay above it all I believe garner a better impression of themselves.
So I recommend pointing out the positive things your competitors do and giving an honest sense of where you differentiate (e.g. not a falsely positive comment about the competition but a true one). “Our competitor has been in the market for 6 years, which clearly gives them an advantage in terms of features and a large installed base. Where we hope to continue to differentiate with customers is in the simplicity of our design. Because our product wasn’t built 6 years ago we were able to take advantage of many of the Ajax-based toolsets that are newer on the market and thus have a more intuitive design. Had we been around 6 years ago we would have built more of a legacy system and, of course, once you have a large installed base it’s much harder to change your product.”