The Real Competition

What is the actual competition that an innovating startup faces?  It is probably not the product that most closely resembles what you are offering to the market!

Investors commonly expect startups to describe their competitive landscape. The typical approach is to identify similar products, define a set of dimensions for comparison, and then do a table that shows that the startup’s product compares favorably with the competition on those dimensions.  There are significant limitations to this approach – and many decisions to make regarding how you want to tell your story. What dimensions to compare. Which competitors to highlight. How to evaluate the relative performance on the dimensions of interest.  All are nuanced and tricky. And, in the end, this traditional approach bears little relevance to the true nature of the competition that a startup faces as it embarks on its commercialization journey.

The reason the traditional competitive landscape analysis is not enough when developing and executing a commercialization plan is that, fundamentally, competition is in the customer’s mind.  Most likely, your most significant competitor – in the mind of your potential customer – is their status quo. In other words, since trying your product requires change, what you are most likely to “lose” to is the existing state of affairs. Overcoming that fundamental and most difficult of competitors (the status quo) requires generating enough interest and motivation to embark on the difficult work of trying a new way in hopes that it proves to be a better way. 

Beyond the status quo, be aware that many pressures on your potential customers also represent competition. As you plan your innovative product launch, learn as much as you can about your true competition in your potential customers’ minds. Who or what else is competing for the priority attention, the available funds, and the limited motivation and capacity for change available?  Think broadly, as there is a good chance that at least a significant portion of your “competition” is not even in the same product category as your innovation. 

For example, suppose your product demands a significant investment of funds and other resources. In that case, you may find that you are competing with all the other potential uses of the limited pool of funding available or the limited capacity of the organization to absorb change.  From the perspective of the customer’s leaders, they have to choose which project to undertake to accomplish whatever their most important objectives are. Is your product a solution to their most pressing and painful problem?  If not, you may find that implementing your product takes a backseat to addressing the crisis at hand. 

We have seen this play out during the pandemic in healthcare systems. As healthcare resources are stretched to breaking point by the demands of wave after wave of critically ill patients filling up hospital beds, hospital executive management enters crisis management mode where they de-prioritize everything that is not directly connected to surviving the next day, week, month as they try to navigate the crisis overwhelming their system. If your solution addresses their immediate problem, you may get a boost of motivation and interest. If your solution is a more systemic improvement, you may have to wait until the current crisis passes. Remember that potential customers have to decide how to rank their problems and how much value there is in solving those problems. Frequently only the highest-ranking (most painful) problems will get the attention they need to solve them.

Of course, the amount of effort, motivation, and risk depends on the scope and scale of the required change:

• An example at the low end of the spectrum would be adopting a time zone calculator app. Trying out a few time zone calculator apps on my phone involved one user (me), a little bit of “shopping” in the app store to examine options, and a few free trials to discover which app met my needs. It was a focused problem with a limited impact, so the activation energy was fairly low relative to the pain of trying to manually figure out how to schedule cross-time-zone calls and making mistakes (my motivation). In the end, once I decided an app could solve my problem, I could quickly evaluate the options, choose the one which best fit my minimal set of needs, and implement it.  All readily accomplished in an afternoon, with low risk. For the app seller, a well-designed app, easily accessed in the typical app stores, with a free trial to lower the major barriers to customer acquisition.
  
  
• At the medium end of the spectrum, life scientists who wanted a flow cytometer for their lab needed to evaluate instrument performance capabilities vis-a-vis their science requirements and budget.  Once they determined that they did enough flow cytometry to consider buying one of their own rather than renting time on a core lab flow cytometer, the real perceived risk was making sure that the instrument’s performance would be sufficient for the science they were doing. Since this was the major risk and dominant concern of most potential customers, a free side-by-side comparison demo with their existing solution (typically one of two market leaders) on their site to demonstrate equivalent performance became a primary step in our sales process to rapidly reduce the customer’s risk. Once the performance question was addressed, the remainder of the sale – based on a budget comparison — was easy because we priced an Accuri cytometer at a fraction of the cost of the equivalent performing market leader. For the startup, these realities of competition with the existing status quo (rent-time-on-a-market-leader-in the-core-lab) and the common need to secure grant funding caused us to design our sales process to get performance-establishing demos done as quickly as possible and then not waste too much effort trying to accelerate an inherently long, grant-dependent sales cycle that was not amenable to being shortened. This kept our customer acquisition costs relatively low.

• At the high end of the spectrum would be committing to a new patient deterioration surveillance software product in a hospital.  The scope and scale of the required change involves many clinical caregivers, department leaders, and other support staff deciding to adopt a new method for prioritizing patients for additional care. This means changing nursing workflows, installing new software after it has been carefully reviewed to ensure it meets high-risk health privacy cybersecurity standards, and navigating the paperwork challenges of a complex and bureaucratic organization. These challenges raise the bar for leaders to commit to making a change, so the benefits have to be significant and clear to get leaders to tackle a pilot reference site. To tackle such high risks for customers requires sales strategies that include securing credible reference sites, offering limited low-cost pilots to minimize the portions of the barriers to trying, and investing in the highest level of third-party cybersecurity certification to reduce risks as much as possible while simultaneously building up a strong selling story around the importance of the problem we are solving and the unique value we bring to solving it. This approach boils down to layering on as many ways as possible to increase the perceived importance of the problem being solved while reducing whatever risks you can affect to enable your potential customers to experience the benefits you have on offer. 
  
  

Now, ultimately, I am not suggesting that you skip over the traditional competitive landscape analysis. It helps communicate with investors and understand your direct competitors.  Just don’t believe that is sufficient for solving the challenge of differentiating your product in the minds of your customers and persuading them to take the risk of trying something new. And tailor your sales process to address the realities of the questions that your customers are likely to be wrestling with as efficiently as you can.