“You can’t look at the competition and say you’re going to do it better. You have to look at the competition and say you’re going to do it differently.” – Steve Jobs
Many entrepreneurs are loath to talk about competition when pitching their company to investors. The reasoning goes: “My product is unlike anything else on the market, therefore I don’t have competition”. However, the better way to think is: “My product is unlike anything else on the market, but many alternative options still exist for customers.” The second way of thinking is the way a smart investor will look at things, so it’s also the way the entrepreneur should pitch their venture.
This is true even if your product is genuinely novel. Back To The Future Part II was set in the distant, faraway year of 2015, and in this movie we were promised fantastical inventions such as flying cars. Imagine, for a moment, that you are the one to invent a flying car, and what’s more: your patents are rock-solid. No one else in the world has invented anything else like it, and you’re ready to start producing and selling them. What do you think – does your flying car have any competition?
I argue the answer is yes. Even if you produce the only flying car in the world, you still need to compete with traditional ground-bound cars in the market for personal transportation. Your flying car may be faster and way, way cooler, but traditional cars will likely be much cheaper than your new invention, plus have the advantage that the public know how to drive them (at least until flying car drivers licenses become commonplace). Also, other car manufacturers will not sit still, and you ought to anticipate how long it will be before they are able to develop a rival flying car of their own.
Do not ignore competitors or assert that you have none. Competitors are competitors even if they target the market in a different way. A great pitch document will show which competitors are most important within the target market(s) you have identified and point out how your venture is different. For high growth and early stage companies, I usually recommend naming your five to ten most similar competitors and how your business is different to each. It is also useful to compare your venture to the largest incumbents in the market, even if they are quite different from your company.
A grid table is my preferred format to present all this – competitors on one axis, differentiating factors on the other. Based on precedent investor presentations, common themes emerge from those who have successfully raised capital. They differentiate themselves from their competition based on:
- Features (versatility? convenience? environmentally friendly? easy to use?)
- Price (better value? premium pricing? different pricing model?)
- Branding (target customers? marketing channels for your product?)
- Development Progress (are you closer to having a working product than others?)
- Traction (well-known users? well-known partnerships? user uptake? media exposure?)
- Barriers to Entry (intellectual property? regulatory hurdles? first-mover advantage?)
If directly naming each of your competitors is not desirable (such as your company not being particularly novel) or possible (such as naming competitors being prohibited by law), a fallback position is to use the same above list and list out your ‘competitive advantages’ in each field instead.
It is a dangerous (but common) mistake to assume potential investors would prefer to hear that your company has no competition. In fact, nothing could be further from the truth. Investors will actually give you MORE credibility if you outline who your competitors are since it shows that you have thought carefully about the others fighting for a slice of the pie, and have a strategy in place to survive and thrive in their presence.
Nathan Rose is an experienced investment banker and author.