Knowing Your Competition and Establishing Your Market Niche to Set Your Startup Apart

By Robert Adelson on 11 July 20   Startups

This article was published on page 12 of the October 2021 issue of The Reflector.

For the founder and entrepreneur launching a startup company, it is important understand the market for your products or services, and to understand your competition when you enter that market.

When you are seeking angel or VC investment or trying to recruit co-founders and first employees or contractors, all will be looking for your competitive analysis and how from your knowledge of the market, you can set your startup apart, including the following:

  • Knowledge and mastery of the place your company’s products or services fill in your target marketplace;
  • What market niche you intend to enter and can dominate
  • Your plan for how your company will penetrate the target
  • Identity of your chief competitors, both direct competitors and indirect competitors that could be substitutes for your product or service
  • The value proposition that you offer that will enable you to overcome the normal tendency for no change
  • Strengths of the competition and your plan to overcome those
  • Weakness of your competitors and your plan to avoid those same weaknesses
  • Barriers to entry you would seek to create to surmount new competition once you gain market traction

If Your Product Fills a Need, You Are Not Alone:
There will be Competition

Too often, entrepreneurs believe their product or service is unique, and that it is just intuitive to them, that if they provide that product or service, customers will flock to them, the product will be profitable and their company a great success.

Under those circumstances, a prospective investor will invariably ask – “Well, what about the competition?” To which many such entrepreneurs often reply, “Best of all. There is no competition”. That is always the wrong answer to potential investors.

Investors always assume, that if this is truly a good market, with a real need for your product or services, there will be competition. If you don’t understand and recognize who your competition is, that is a bad sign to the investors, that you do not understand your market. Thus, it is incumbent on the entrepreneur to understand that competition and be in position to provide a compelling competitive analysis.

On the other hand, if there truly is no competition, then yours may be what investors like to call – a product or service in search of a need. That conclusion is not good either. When an investor feels there truly is no competition, that no one is now satisfying this market need, the investor is likely to then also conclude this is just not a market worth entering and not a business opportunity worthy of investment.

Knowledge of Your Marketplace and Niche You Fill

Before you launch your company, you want to do your homework. You want to access all public information available on the internet and elsewhere about your market and current industry trends, The more you learn, you want to keep your eyes open toward profitability, to identity a smaller segment, a niche in the overall market where you can develop a competitive edge.

As part of this due diligence process, you will want to visit websites of potential competitors, sample their products and services, make inquires to customers and suppliers, to fully assess how your own company’s market entry would impact the market.

A competitive analysis is incredibly useful because it reveals your company’s true position within the market. It shows you what your competitors are doing and demonstrates to potential investors how you are unique from the competition. After completing a competitive analysis, you will have a better understanding of your competitive advantage and be able to foresee any potential barriers your startup has to enter the market.

At the same time, your competition can be one of your greatest sources of new ideas when starting a business. There is no need to reinvent the wheel. The successful companies have figured out what works best through years of testing and copying what works.

Finally, in seeking out your market niche, don’t focus solely on displacing known alternatives. Often your biggest competitor is “none of the above” – that is, customers doing nothing…sticking with the status quo. Thus, it is just as important to tailor tailoring your messaging to address the status quo. To get the customer to move, your value proposition needs to be sharpened and compelling. Fear, uncertainty and doubt need to be overcome by detailed ROI calculations, part of a sharp focused pitch, as you focus on and try to “own” your niche of the market.

Identification and Analysis of Your Competition

But beyond using the competition to aid you in the determination of your product differentiation, value proposition and market niche, knowing your competition is critical to your successful launch, to gaining the traction you will need if your company is to be a success.
You need to aware of the rival’s strengths and weaknesses. You need to find out their costs structure, management, and organizational systems, mission and objectives, size, production methods, and sales performance.

Your competitor’s analysis should incorporate the pricing history of the competitor’s products and the changes that caused a modification in pricing strategies. Also, when do your competitors perform their promotional activities?

And while you are doing that you need to take a broad view of who are your competitors. How are their products, services and/or applications different and similar to yours? This will help you understand your point of difference or unique selling point, that is what makes you better than your competitors.

In making this analysis, you cannot limit yourself to just direct competitors. You need to take into account others who are well positioned to potentially enter your market.

In an excerpt from her book “How to Start a Life Science Company”, Founder and scientist Leah Cannon, Ph.D. gives the following example of that point of in-direct competition you need to take into account:

“Your life sciences startup is developing a new therapeutic for lymphoma, but what about companies developing therapeutics for other cancers? Could any of these also be used to treat lymphoma? Are there any companies creating medical devices to either help treat or diagnose lymphoma? What about companies developing medical devices or diagnostics for other cancers? Does anyone have a cancer diagnosis platform? These are not direct competitors today, but might become such in the near future.”  See also:

As a startup, you want to know who else is providing the product or service that you plan to offer in the market, and who might potentially provide it. You want to be able to give the investor a sense of confidence in your market know that your startup knows and can surmount its likely competition. Investors don’t need to see every single potential competitor, at least in your initial pitch, but they do need to know that you know about every competitor and you know how you are different and why you are better. It will also help you work out appropriate pricing for your application and put a dollar value on your company when you are ready to look for investment.

Barriers to Entry and Sustaining your Market Position

Competitors will consistently try to offer better customer service, product quality and marketing. In healthy markets, buyers will demand the best solutions for their specific needs.

To maintain your market position, once you have established your niche, it is best to build a barrier to entry based on customer loyalty and consistent delivery of a quality product or service.

Serial Entrepreneur Firas Kittaneh, writing in Entrepreneur magazine, quotes Dharmesh Shah, HubSpot co-founder and CTO, as follows:

“You are often your biggest competitor. You should not completely ignore your competition, but the biggest battle happens inside of the four walls of your startup’s office. Startups come down to pure execution of a strategy on a daily basis and maintaining the faith for the long haul. Most startups don’t lose to competition, but because they lose the will to fight.” See also:

Instead of focusing your energy on outdoing the competition, invest in becoming a customer-centric organization. This way, you will boost buyer loyalty and easily defend against aggressive suppliers or vendors intent on stealing your clients. At the end of the day, it is your users — not your competitor — who have the power to make or break your business.