How To Talk to Investors About Your Competitors

Posted on Dec 26, 2010 | 38 comments


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:

Competition

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

180px-Harveyballs.v2.svgOne 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 gartner-magic-quadrant-bi-2008define 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.

3. Pitfalls

“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.”

  • http://www.davidblerner.com davidblerner

    Mark- you literally 'have no competition'… no one else I know is producing this kind of content on Xmas day after eating a huge Chinese meal.
    This continues with theme I see you often reinforce of 'keeping it real' with everyone, including VC's, when you're an entrepreneur… just have the confidence to tell it like it is… this alone is a massive signal, ie. I know the market, I know myself- and I can win in this competitive landscape, let me show you why… next slide please….

  • http://bothsidesofthetable.com msuster

    thanks, David. Happy holidays! Yes, I agree with your positioning on how to handle the slide – quickly, confidently and transparently. Or you use it as a slide to intentionally kick off a discussion.

  • http://www.aaronklein.com/ Aaron Klein

    A lot of entrepreneurs tend to think about competition only within the method they propose to solve a problem.

    You may have a fascinating piece of technology that you can use to do ad targeting in a new and innovative way. Maybe it's even patented and there is literally no “direct” competition.

    But in this case, there's a blizzard of indirect competition: taste graphs, social graphs, demographics, credit history, purchase history, “like” history, etc.

    Sure, it might be complementary, but the market might decide that other methods provide superior or equal results, and your method isn't needed.

    Competition is anything that could make someone not need your product.

  • http://www.davidblerner.com davidblerner

    All the best for 2011 Mark…

  • http://twitter.com/wfjackson3 Willis F Jackson III

    I agree with your approach here (as usual) but I would summarize it differently. Just be honest about what you know and what you don't. Be honest about how you excel and where you don't. Be honest about where you are going and why it will work. If you are honest, at least you give yourself the chance to garner some respect.

  • Sal Matteis

    Another great one Mark.

    I am not a big fan of Harvey balls but this is the standard way a company would look at
    the competition.

    One suggestion there though is to focus on the top 3-4 feautres/products and show only that.

    Nothing more annoying that having to stare a chart with 15 features and listen to someone bragging about how their company is better than anyone else for 15 min.

    I normally say something like this: these are the 3 core elements that make us stand out and that's how we feel we rank v.s. the competition.

    Normally if you have gone through this exercise quite early in your start-up:produc development you
    would have made sure to excel at the areas you identified earlier as your Focus.

  • http://www.eqentia.com William Mougayar

    Well said,- “we want to know that you spend some time thinking about the competition and how you’ll differentiate”, is the money quote. I would add that having a specific approach for the top 2 or 3 competitors helps, i.e. Against A, we win by emphasizing X, and vs. competitor B by differentiating with the Y thing.

    A footnote is that I recall when I first joined HP in the early 80's, as part of the sales training, we were not allowed to say anything negative about the competition,- actually the rule of thumb was to not even mention them with clients unless asked specifically. We were taught to totally emphasize the features/advantages/benefits (old FAB approach) of the HP product for the customer, period. In today's over crowded, over messaged, hyper actively saturated information world, it would be good to stick to a FAB approach.

  • http://twitter.com/ebellity Emmanuel Bellity

    If you're a new entrant, would you say it's more interesting to talk about the other startups / innovators you are competing with or about the incumbents which currently “hold” the market ?

  • http://babsonmba2012.com Narayanan Venkataraman

    Mark,

    Thanks for putting up (yet) another extremely pertinent post. Your method of teaching us to build the overall picture is exemplary.

    I have a question regarding what level of detail about the competition an entrepreneur should consider pitching. For example, would you expect to know about the financials, current contracts and partnerships that a direct competitor has been able to get?

    Lastly, the point about being gracious to the competition is also something that resonated with me. Sure, competition is all around us, but competition where everyone can hold their heads high is a lot better than some of the jingoism on display.

    Narayanan

  • http://sigma-hk.com Mark Westling

    Any thoughts on how to handle that old standby, “What's to prevent Google [or Facebook, or Oracle, or Microsoft, etc.] from entering the market with same idea and blowing you out of the water?” (Assuming, of course, that your idea is really a product and not a feature.)

    A generic answer is that it's easier for a start-up to get a brand new product to market faster than a big company. Other answers that depend on the market might address the competitor's core competence, tendency to buy vs. build, and so on. Anything else that you think can or should be addressed?

    This is such a common question that I sometimes wonder if it's asked just to see if the entrepreneur knows the pat answer, rather like the “what's your biggest weakness?” interview question.

  • http://www.hypedsound.com jonathanjaeger

    I think it's important not just to talk about your competitors and how you are different/better/worse than them. Because YourCo is much younger than the other companies, you have to take into consideration how entrenched they are in the marketplace and the network effects that will prevent customers from using your “superior” product/service. The degree of network effects obviously differs from market to market.

    Not only do you have to differentiate yourself, but you have to convince investors that your potential customers have enough mobility to use your product instead or use your product in conjunction with your competitors.

  • http://twitter.com/blakewilliams Blake Williams

    I really like the last bit about not slagging your competition – not just to investors, but in general. Whether you're right or wrong, you ultimately come off sounding like an ass. If your product has a good market fit and your execution is strong, results will speak for themselves.

  • http://twitter.com/ChubbyBrain ChubbyBrain

    Mark -

    Great post as always. On the pitfalls side, what about the risk of saying your competition is Google or Facebook or Twitter, i.e., large, well-capitalized and huge incumbents. When you hear this, does it make you think the presenter hasn't finely tuned their view of the market (negative) or that they're swinging for the fences (positive)?

    Best for the new year.

    Anand
    http://www.chubbybrain.com

  • http://sheynkman.tumblr.com Kirill Sheynkman

    I completely agree with you, Mark, that the usual “we have no competitors” or the obviously stacked Harvey Balls approach show not only lack of thought, but a certain, intentional naivete. On the Gartner quadrants, the startups all feel they are “visionaries” even though very few really are.
    I have favored a more thorough, honest approach to the competition slide. I described it in a blog post a few months ago:
    http://sheynkman.tumblr.com/po

  • http://twitter.com/rahulgchaudhary Rahul Chaudhary

    Mark,
    In rare circumstances when there are really no competitors,

    1. How do you suggest entrepreneurs handle the questions about competitors so that the potential investors believe in what he is saying?

    2. As an investor, how would you evaluate such a startup while making an investment decision?

  • http://sheynkman.tumblr.com Kirill Sheynkman

    For an investor, the “no competitors” answer is almost always a deal killer.
    I would ask “I wonder why there are no competitors? Is it because this is such an amazing idea or because it's a bad one?” Usually, the answer is the latter.
    If there really are no competitors yet, the answer has to be “no competitors at the moment — but there will be because this is a great idea…. and here's how we are going to beat Google, Microsoft, Facebook, (whoever is the other big player serving your customer), when they decide to get into this game as well because they see what a great opportunity this is.”

  • http://www.adrianscott.org/ Adrian Scott

    Nice post

  • http://www.brekiri.com/blog/ Greg4

    It's good to talk about substitutes, like Aaron Klein mentioned above. People are satisfying the same need some other way right now, without your product, so talk about that. It also allows you to show that you've been thoughtful about how you transition people from their current approach. The corollary is the “why now” question – why are people ready to adopt your product now, and how can investors be confident that you're the iPad and not the Newton (i.e., way too early to market)?

    In general, I think it's better to treat the closest substitutes or pseudo-competitors as a competitor rather than try to support the idea that there aren't any.

  • http://www.brekiri.com/blog/ Greg4

    I very much agree with focusing on the top few (3-6?) competitive dimensions rather than a list of 15 features. If the investors want to drill down, you can take them to a backup slide that goes into nauseating detail. But if you put a feature list up-front, it raises the question of whether you're going to develop your product based on a feature checklist rather than strategic direction.

    Strategy is what you won't do, not just what you will do. Imagine if Google had tried to build a “better” portal than Yahoo, or if Salesforce.com had tried to be more customizable and feature-laden than Siebel. Showing a line of full Harvey Balls suggests that you haven't thought deeply enough about your product strategy.

  • http://twitter.com/mikeschinkel Mike Schinkel

    Thanks for this post.

    We are very early in my planning for our startup, and we are launching it by doing very profitable consulting that will segue into a startup, but your post made me stop and try to list our competitors. But unlike your hubristic entrepreneurs I identified tens if not hundreds including the ubiquitous “No decision.” But the number of competitors doesn't depress me at all; it tells me there's a huge market.

    Of course what fool would think his startup could tackle so many competitors? I guess that would be us, but we plan to approach it differently than the others. Most everyone else is viewing their offering as a product or a service. We're viewing it as a platform and more importantly an ecosystem, and we will be leveraging the current undisputed market leader to make it a reality.

    2011 and 2012 are going to be really interesting for me. :)

    Once again, thanks for the post.

  • http://arnoldwaldstein.com awaldstein

    Important topic…

    In early stage segments, like let's say interactive video chat for example, everyone is everyone's competitor because the segment is unclear, consumer's behavior undiscovered and models developing. Basically everyone is competing with everyone for any dollars and for customers to help clarify directions.

    Addressing 'competition' at this stage is an important exercise in focus and coming to grips with what you do best or what your vision is. Early stage companies are throwing a rock at a moving train. Where it hits is often the market and often where the market and competition stacks up.

  • http://opusomni.com Beth

    Hi Mark,
    Sometimes the landscape changes, or someone sees a fundamentally different viewpoint. (eg. Viewing a Dawn Redwood from a vista 200ft away is a very different view from the same tree than if you lay underneath it on a blanket and see the “underbelly” of the Dawn Redwood.)

    So, to extend the analogy, what if an entrepreneur showed two four-quadrant matrix charts? One with the metrics (quadrant names) identifying what the competition has focused on and clearly excels at; the other …..anticipates “skating to where the puck is headed.”

    How would this approach be received? I appreciate your thoughts.

    Beth

  • philsugar

    You always have at least one competitor. And that is the meanest, nastiest competitor of all: “No Decision”

    “No Decision” is a big ass hairy gorilla that rips companies heads off and takes a dump down their neck.

    At least if you have some other companies in your space they can help you fend off “No Decision” by having Buyers concentrate on which solution they will pick versus waiting and feeding “No Decision”

    So if you truly have no company competitors, you now must explain how you are going to deal with “No Decision” and that my friend is going to be tough because every VC has seen the results of “No Decision” with sales that push to next quarter, every single quarter into eternity and the busted balance sheets as a result.

  • philsugar

    Right for instance I see Groupon, Foursquare, Clear Channel, Vlasis, Yellow Pages, and Gannet as competitors.

    They are all fighting for marketing dollars spent by local businesses. Local businesses don't say great let me just spend more money you better believe you need to take it away from somebody else.

  • philsugar

    I think the reason its a deal killer is because time is the enemy of all VC investors.

    If you have no competition, you can go about building your business, but it will grow at its own pace. You can't really force it.

    VC money is very expensive (their investors dictate that) so you're hit with two killer problems as your business grows at its own pace: the compounding of interest (I'm not going to go into preference terms but no matter what they are in the back of everyone's mind the meter is ticking) and the brick wall date when the old fund needs to get wrapped up and a new one raised.

  • Kylepearson

    Well, after researching the Harvey Balls, I can see why they didn't use the poor guy's last name.

    Even the most stoic consultants couldn't contain themselves when they were forced to reference the “Popp-el Balls” slide in their ppt…

  • Lauri Hynynen

    Thanks for the insightful post!

    I agree on the comparisons for the harvey balls -part. Even if claims to be best in everything would hold true, either the scope of comparison would be too narrow or the strategy (building everything for everyone) unsustainable. Though imo in the 2-by-2 matrix having YourCo in the upper right corner actually makes sense, as you get to pick only two variables that are the most important ones and in which you obviously want to excel :)

  • Curious Entrepreneur

    Mark – If Larry Ellison, Steve Jobs and Marc Benioff talk brashly about competitors, and they've achieved great success doing it, then why should I avoid talking the same way?

    Shouldn't I emulate the most successful people – i.e. Larry Ellison, Steve Jobs and Marc Benioff?

  • http://twitter.com/AlonBenShoshan Alon Ben-Shoshan

    Mark – this was very helpful and informative. I think the same goes not only for start ups raising capital but also during customer acquisition (specifically in very competitive areas like enterprise software).

    By the way – I really liked your tip from this week in venture capital where you recommended to start posting comments on relevant journalist's articles in order to build rapport before you start nagging them for an article about your own company. Thanks for all of the free advice!

  • sigmaalgebra

    Mark, you are making a big, huge mistake: You are standing cold and hungry in a blizzard saying how bad your frozen sandwich is while friends are inviting you to a big buffet in the private room of a three star restaurant.

    Broadly you are paying WAY too much attention to averages and WAY too little attention to crucial extra information that is available.

    I can believe that you've looked at thousands of 'foil decks' and that for those what you are saying is true. What you are doing is essentially taking a simple average to estimate a probability.

    Actually, and important for making many decisions, this simple average is in important respects the 'best possible' way to use the data: This is a classic result from when P. Halmos (had recently been an assistant to von Neumann at the Institute in Princeton) was at U. Chicago and is in

    Paul R. Halmos, “The Theory of Unbiased Estimation”, Annals of Mathematical Statistics, Volume 17, Number 1, 1946, pages 34-43.

    So, what you are doing is from okay up to quite good and even in some important respects 'best possible' in many parts of decision making but, still, a huge mistake in evaluating new projects in technology and looking for winners.

    Here I extract the statements where you go wrong and emphasize the key words 'probably, likely, chance':

    “Unless you’re Microsoft selling an OS for a PC you PROBABLY have some.”

    “And the reality is that if you have no competition it will LIKELY be perceived as a negative, not positive.”

    “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.”

    “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.”

    Here in two steps is why paying attention to those statements is a huge mistake:

    First, you are looking at that frozen sandwich of the empirical probabilities from thousands of foil decks instead of that three star buffet readily available to you. Here's how to get to the buffet: Look closely at the details of the project in the foil deck.

    If the entrepreneur believes that his project has essentially no competition (or close substitutes, whatever), then just let him explain and then evaluate the extra information in his explanation. For understanding the issue of competition, this extra information is like the three star buffet that makes those averages as irrelevant as that frozen sandwich. That is, the extra information in his explanation can totally blow away the relevance of the empirical averages from past foil decks.

    There is a more powerful (but more advanced) explanation: You don't want to estimate 'the probability he has no competition'. Instead, much better is 'the conditional probability he has no competition given all the information available including his extra information'. This conditional probability has some nice (in business, valuable) 'best possible' properties: This result is from the Radon-Nikodym theorem (with a famous proof by von Neumann in Rudin's 'Real and Complex Analysis') and the foundation of 'conditioning' in probability as in, say, Loeve, 'Probability'. Yes, from some of their quotes, it appears that Andreessen and Horowitz like von Neumann. They should.

    Second, in such decision making, you are necessarily looking for exceptional cases. Then the empirical averages, that is, probably, likely, chances, from past foil decks are essentially irrelevant.

    And what we've covered here for 'no competition' also applies to “too early” and “educating the market”. Again, you are looking for an exceptional case and, since you are in direct communications with entrepreneur, what is crucial is the extra information the entrepreneur supplies on these questions, and, then, the averages from past foil decks are meaningless. So, sure, the entrepreneur needs to explain why he's not “too early” and why he won't have a tough time “educating the market”. Given his explanations, the empirical averages from the past are irrelevant.

    Yes, there is a seeming paradox here: Yes, the averages are relevant. It's just that these averages are irrelevant given the additional information. This situation is not only possible but common, and a standard generalization is the Markov property. Do we ever see the Markov property? Sure: A busy server farm can see it in the user arrival times. I'll, uh, omit the details!

    Uh, IBM was the first big success in using computers to handle routine business record keeping. Similarly for Intel for microprocessors for desktop computers, Microsoft for desktop operating systems and personal productivity software, Cisco for 'networking networks', Google for Internet search, etc. Each of these successes did something big for the first time so that, necessarily, there were no examples from simple past averages.

    A little more generally, part of the challenge of entrepreneurship is working effectively with new 'technology'. Doing this without looking directly at the technology is unpromising.

    Many technology projects have to face this challenge, and a good solution is looking at the technology. Again, when the Wright brothers were busy in the back of their bicycle shop, they had no competition and likely knew that, and the reason is that they had the world's first good wind tunnel, good lift, drag, and thrust calculations, and a good solution to three axis control. But to know, have to consider the back of their shop.

  • sigmaalgebra

    Yes, there are many ways to do ad targeting.

    So, from the first part of your post it seems that you are saying that a new way to do ad targeting must have “competition”.

    Okay: There are many ways to make a phone call. One way is to use a 60 year old black dial phone with a four foot cotton covered cord. It appears, then, that you are saying that such a phone is competition for an iPhone? I doubt that you believe that.

    Your statement, or definition, “Competition is anything that could make someone not need your product.” is closer to correct.

    Then, the old black phone is insignificant competition for an iPhone, as we would expect.

    Then back to ad targeting: Suppose some new technique to do ad targeting to, say, a few hundred million Internet users, is significantly more effective than any other technique. By more effective, we mean, say, a higher rate of 'click throughs' per ad displayed. So, for some site serving those users, does this new technique have competition? Well, back to your definition: Why would one “need” any other ad targeting technique?

    So, no competition.

    How might we be able to construct such a technique with high promise early on that it really is so much better? Ah, I'm trying to be brief here!

    There is a curious nihilism in this thread and in many such discussions of entrepreneurship. Other examples are:

    “Whatever you are working on, many others are doing the same thing.”

    “Ideas are easy. Execution is hard.”

    “There is nothing new under the sun.”

    “And if you are doing something new, then you will still have competition, you will have a tough time educating users, and you will be too early.”

    “So, one of meager abilities and accomplishments, be meek before reality and know that there is never a first because there is always someone who was there before you.”

    Uh, to publish a paper in a peer-reviewed journal of original research, the usual standard is, in the opinion of experts in the field the work is “new, correct, and significant”. Moreover, a common criterion for a Ph.D. dissertation is “an original contribution to knowledge worthy of publication”. This nihilism seems to say that no such work could exist. As someone who did get a Ph.D. and has published peer-reviewed papers, I disagree.

  • http://www.aaronklein.com/ Aaron Klein

    I'm not of that mind and agree with you completely that there can be new work which, while integrating and building on old concepts, is “new correct and significant.”

    The thing I'm talking about with ad targeting actually is really unique and has no direct competition. And boy is it patented. :)

    But there's no doubt that other approaches to solving the same problem are very serious competition.

    Betamax was superior to VHS in a number of ways, but VHS won hands down. I'm quite sure that the Sony folks sniffed and compared VHS to an old rotary phone when they discussed competition. (Er…maybe not, since we did use rotary phones then!!) Yet they were whipped soundly by inferior competition.

    I think what VCs are really looking for is realism from entrepreneurs. Are you the kind that thinks you have no competitors and “simply” need to seize 2% of a gargantuan market to make them billionaires?

    Or do you understand how real companies are built through differentiation, rigorous competition, and a serious strategy to seize one market after another with your technology?

  • sigmaalgebra

    Uh, maybe the 'ad targeting problem' is:

    Given a 'consumer Internet' Web site, a user who just connected, some data on the user, some ads that might be displayed, and some data on the ads, use the data to select the ad to display to maximize the probability that user clicks on that ad.

    Or, if the ads pay different amounts per click, the maybe maximize the expected value of displaying the ad.

    This problem statement assumes a LOT of narrow, particular context — the Web site, the data, and the ads — so that not just any ad targeting technique can work for that context. Still, within the context and the available freedom there, maybe it can be significant bucks to have an ad targeting technique that makes the most money. If the difference is large, then in that context it is fair to say that the targeting technique has “no competition”.

    For my Web site, that is just what I have in mind! Uh, sounds like a math problem? I think so.

    Yes, the fight between VHS and Betamax illustrates that having a 'superior' product doesn't really mean “no competition”. Or, back to your definition, why would one still “need” VHS? Because it was cheaper!

    Yes, likely some people, even in the US, are still using black, rotary phones. So, why “need” an iPhone and can't use a four foot cotton cord? Uh, to take really important calls while driving down Sand Hill Road, or Winter Street?

    For your:

    “I think what VCs are really looking for is realism from entrepreneurs. Are you the kind that thinks you have no competitors and 'simply' need to seize 2% of a gargantuan market to make them billionaires?”

    “Or do you understand how real companies are built through differentiation, rigorous competition, and a serious strategy to seize one market after another with your technology?”

    Okay! Easy enough!

    You are reminding me of lessons I learned too late to do as well as I might have when I was dating teenage girls: They can say things without making fully clear just what they mean! Yes, it can be something of a stretch to be good at understanding well both teenage girls and computer software!

    My real goal here is just to push back, for entrepreneurs, at this claim that it's hopeless to work to achieve 'no competition'. For a significant time, the Wright brothers, Xerox, and some others did it. Clearly, then, it's not impossible.

  • http://www.aaronklein.com/ Aaron Klein

    Well, other than the fact that I think you just called me a teenage girl, we generally agree. ;)

  • sigmaalgebra

    No, no! Teenage girls didn't understand me, either!

    You were giving me an explanation of what the VCs REALLY mean that they are not clearly saying and that I didn't understand!

    So, it was the VCs who were analogous to the teenage girls!

    Now you've got me on one of the most popular VC blogs on the Internet explicitly calling all the VCs as obscure as teenage girls! Gee, good I'm not seeking a check soon!

    Ah, but the title here is “BOTH Sides of the Table”!

    If they are going to be as obscure as teenage girls, then they are at risk of losing out in 'competition' to teenage girls usually MUCH nicer to listen to and, especially, look at! Besides, a pretty teenage girl is about a likely to fund my company as the VCs!

  • http://twitter.com/Aaronontheweb Aaron

    In markets that are relatively new and have a long ways to go before reaching maturity I'd argue that an influx of competitors is a positive thing overall. Facebook wouldn't have achieved its success so quickly were it not for the work of predecessors / competitors like MySpace who helped define the concept of the “social network;” ditto for Apple and the iPod (Archos, Sony, and many others were already active in this space for years before the first iPod was ever sold.)

    Competitors help educate the market and act as cats' paws for your own ventures' market development efforts when you enter – the more people who are aware of what a social network / iPod / your thing does, the easier it will be to differentiate yourself and position yourself against the rest of the market.

  • http://twitter.com/Aaronontheweb Aaron

    In markets that are relatively new and have a long ways to go before reaching maturity I'd argue that an influx of competitors is a positive thing overall. Facebook wouldn't have achieved its success so quickly were it not for the work of predecessors / competitors like MySpace who helped define the concept of the “social network;” ditto for Apple and the iPod (Archos, Sony, and many others were already active in this space for years before the first iPod was ever sold.)

    Competitors help educate the market and act as cats' paws for your own ventures' market development efforts when you enter – the more people who are aware of what a social network / iPod / your thing does, the easier it will be to differentiate yourself and position yourself against the rest of the market.

  • http://co2partners.com/blog Gary B Cohen

    Martin,
    Helpful post. A great tool as well is that offered by Blue Ocean Strategy. I was introduced to this by Chuck Hangel at Marketing Architects. It is a strategy Canvas folks can find an example of this at http://blogs.salon.com/0002007… comparing McDonald to Starbucks. What I like about this concept is it provides great insight not only what to optimize around but what to sub-optimize. In the world in which we are constantly looking for the next new new thing it appears that the best thing to do is find your thing, differentiators and focus on that and be willing to sub-optimize other aspects of your offering letter you competition have those wins. This is a similar premise to that of The Discipline of Market Leaders. I really like the Harvey Balls – never new what those were called, Gary