Competition is often one of the most overlooked and misunderstood areas for entrepreneurs. In the broadest terms, competition is anything else vying for the attention of your audience…the alternatives your customers and stakeholders are using or could use to help them accomplish their “job-to-be-done”/solve a problem they want solved. You need to be more compelling, and your customers need to be motivated to choose to “hire” YOUR solution over the other alternatives available to them. You can learn a lot by striving to learn about your competition and the market. Good competitive analysis helps you find opportunity in the market and is vital for developing a strong value proposition.
Defining the competition is an important part of Customer Discovery and de-risking your opportunity.
It’s easy to think of direct competitors: companies selling the same or similar products or services, to the same audience at around the same price point. It is also easy to look around and think “no one is doing it the way I am” therefore I don’t have any competition.” There is always competition!
Many times, competition comes through indirect competition: companies with the same audience and comparable price points but are solving the problem in a completely different way.
In the simplest example, two local pizza shops are direct competitors. The pizza shop is also competing with indirect competitors such as the local burger joint, meal kits, at home pizza ovens, and simply warming up leftovers from the fridge. All serve the “job to be done” of feeding a hungry person, quickly and cost-effectively. Dining at a five-star down restaurant is really not a competitor. As an option, it is significantly different due to the price points and circumstances a customer would use when choosing a five-star restaurant — it is not cost-effective nor quick.
The advantage of broadening your mind to indirect competitors is that your market size increases. This video about McDonald’s and their Milkshakes, by Clayton Christenson, illustrates that McDonald’s discovered it isn’t really competing with other companies selling milkshakes; McDonalds and their milkshakes are competing with all other to-go breakfast options. The disadvantage is that it is very easy to overlook indirect competitors and be surprised that your customer’s job to be done may be very different than you think, and therefore, you have to look at your competition in a completely different way than you might initially believe.