Competitive: Look wide, dig deep
This blog is part of a series on the key questions that climate tech companies should be asking related to their business strategy. As with the other blogs, this is not meant to be a comprehensive guide to competitive analysis and positioning, but rather a pointer to key aspects that are frequently overlooked or done poorly.
As climate tech companies ponder their business, product and market strategy, competitive research and analysis looms large. Of course, competitive analysis is essential to understanding and validating the market, and defining defensible differentiation. But startups also spend a fair amount of time on it because investors need it to also get comps– comparative benchmarks to set valuations and other key investor metrics.
Most startups do a fairly good job conducting product-level competitive analysis. But there are some key competitive questions that are often overlooked. And many startups struggle to articulate their defensible differentiation, even after they have completed their analysis.
What are all the alternatives (not just the competitors)?
Most folks do a pretty good job figuring out who their commercial competitors are and researching their products/services. But that is only a subset of the alternatives that customers have. Two key alternatives that are often neglected are:
Homegrown solutions. Customers may have their own custom-made, homegrown solutions. There may be a lot of issues with these homegrown solutions (costly, highly manual, hard to maintain, risk of losing access to the experts who built it as they leave the company/retire), but they are also typically deeply entrenched. And they are someone’s baby inside the company, and people don’t like it when you say their baby is ugly. It’s important to not only figure out the strengths/weaknesses of these solutions, but also to map out the political landscape around them. Whose baby is it?
Do nothing. This is the most overlooked alternative, but it can be the biggest competitive threat. Companies benefit from explicitly treating “do nothing” as a discrete competitor. Analyzing the “do nothing” alternative lets you think through what can motivate a customer to overcome the powerful inertia of doing nothing, which is particularly important in nascent market sectors.
Getting beyond feature lists. How do they do business?
Some companies have product managers conduct their competitive analysis, which leads to a deep but myopic view focused on feature and pricing comparisons. It’s important to dig into the broader business model, including sales/marketing channels, delivery models, expansion patterns and partnerships/alliances. This is particularly critical in more mature sectors. In early stage markets, competition is often based on product/service features. In more mature markets, buying criteria shifts from features and functions to usability, convenience and other factors. And pricing preferences can shift from best value and least cost to most predictable.
In other words, if you’re researching the competition, research how they do business, not just what product features they provide. Many markets are won not by the best product, but by factors such as superior distribution or a seamless customer experience.
How are you unique? And why can’t someone easily copy that?
Everyone knows they need to answer these questions, and everyone has some version of a positioning statement. But more often than not, the articulation of differentiation is weak. Three items you need to nail when defining your key differentiators:
Your specific, unique differentiated capabilities. The more specific, the better. Sadly, many statements have vague, generic descriptions that could be claimed by numerous other competitors. If someone else can claim it, work harder to define what is truly unique about your offering or approach.
Why it matters to customers. This is where customer understanding and more importantly empathy come into play. Why should a customer care about your specific, unique capability? Can you link it to a pain or benefit in a way that will resonate with a customer emotionally? Remember that in the end, your buyer is a human, even if they are part of a corporate team. If you can connect with them as humans, you are much likelier to win their engagement and their business.
Defensibility. This may be less important to customers, but it’s extremely important to investors and to your own long-term viability. You need differentiation that is not easily copied by competitors, aka a “moat”. The most obvious answer is protected technical IP, e.g. a patent. But that’s not the only way to build moats. Exclusive access to key resources (talent, supply chain, distribution channels) can be a big moat. A unique business model that is difficult for competitors to replicate, such as Tesla selling direct to consumers instead of through car dealerships, can also be a barrier to entry.
To net it out, when you research the competitive landscape, think broadly. Then go deep on your unique, defensible differentiation. It’s hard work. You may want to tear your hair out as you will inevitably go many rounds on this. But this is fundamental to everything else you do, so the only way out is through.