In the last few years, I launched several companies, some achieved good results, and some failed. One of the things that I learned, in this period, is that by analyzing market players you can get a reasonable insight into the results that your company may achieve in this market.
As an example, if the companies in your target markets were born several years ago, they are still small and they raised only small rounds, then, this means that this market can’t support high-growth companies or is not ready yet for scaling (and building unicorns). On the other side, if in your market there are some examples of high-speed growing companies, then, probably there is a small chance to build something that can scale. Of course, this is not a universal law, but it works quite well.
In my opinion, competition mapping is one of the key strategic activities that every entrepreneur should perform before and while running a business.
The motivation doesn’t reside in the will of copying, following or being worried about competitors but in the need to understand with real data if a market exists, its profitability, the growth rate of the companies, the trends and hidden opportunities of an industry.
Some time ago I watched a YouTube video of a lesson by Peter Thiel at YCombinator, named“Competition is for Losers”. In this video, Thiel focused on the importance for Startups of identifying a specific market niche and becoming its monopolist of this small market instead of betting on wider markets and being insignificant. In his mind, this is the only way to assure consistent growth and potential interest from larger companies interested to acquire new markets.
The math behind his mind is easy:
Reaching 4% of 10B but competitive market with plenty of horizontal solutions is much more difficult than reaching 80% of 500M ultra-targeted niche market with a super vertical solution (ie. a solution designed specifically to solve a problem). The potential turnover is the same but the probability, the complexity, and the costs to reach this are not.
Discovering hidden market opportunities is then, also, one of the motivations why a good mapping can be a really important task to be performed before launching a business.
This doesn’t mean that you won’t find competitors but it means that they will be mainly indirect competitors instead of direct ones.
Before performing competitor mapping, whether I have still just an idea or an established business it is important to have a quite clear idea about our value proposition and our business model. For that motivation, I suggest spending time on this only after an initial data-driven validation with landing pages. The risk, otherwise, is maybe to track companies that are not the competitors that we will really face on the market.
How to identify and tag competitors
Identifying if competitors are direct or indirect is quite easy:
Indirect competitors: They are a) companies that target your same customers or b) companies that employ your same solutions (in different niches). They are not in direct competition but maybe they will become so.
Direct competitors: These kinds of competitors are companies that have both previous characteristics, ie. same customers and same technologies. This doesn’t mean that they have exactly the same solution but that there are probably some features in common and your product will be frequently compared to them.
I will try to make an example:
Assuming we want to build a marketplace for P2P physical storage space between privates, in this case, our competitors could be:
Indirect: Airbnb — P2P home rental (same solution, different customers) or Uhaul — Storage Box Rental (different solution/business, same customers)
Direct: Neighbor — P2P physical storage space between privates (same solution/same customers)
Indicators to be tracked
But, what are the right indicators to be tracked? And How?
I recommend starting by creating a table on a spreadsheet with different columns representing the indicators to be analyzed:
Name: of the company.
Website: to be able to check its proposition easily.
Direct/Indirect: Track if it’s in direct or indirect competition against your solution.
Type: Try to differentiate some main classes of the competitors (ex. P2P home rental, Box rental, P2P physical storage space between privates).
Value Proposition: What is the value that they are selling to their customers?
Country: Where is the company located?
Market Presence: In which countries is the company selling?
Employees Count: Analyze how many employees work in the company, and if possible also track the employee count trend. This is important to understand if the company is already large and if it’s growing fast.
Foundation Year: It helps you to understand how much time they need to reach an actual state of development.
Funding: It helps you to understand if they raised money, which round, and how much they raised. This is really important to understand the conditions of the market. If investors are betting on those companies probably there exists an opportunity, if rounds are closer it means that the growth is strong. You can confirm this data by analyzing the employee count.
Revenues: It helps you understand how the money raised is performing. This is not a law but small investments, short times, and high revenues mean that probably the market is very profitable.
Pricing/Business Model: This helps you to understand how other companies are approaching the market. Learning from other experiences can be a good starting point to understanding your pricing.
Product Features: for each competitor track all the features and compare them with yours.
Customer Reviews: Analyze what their customers are saying about their products. This is also a gold mine to identify potential business opportunities.
Keywords: Analyze the keywords they are using to position and promote themselves on the market and for SEO scopes, there are several tools to perform this analysis. Probably it’s the result of long data analysis and testing. You can cut your path by learning from them.
Social Accounts: Analyze the type of content that they are using to promote themselves, probably it’s the result of long data analysis and testing. You can cut your path by learning from them.
For a complete analysis I recommend using some market available tools like SemRush, Keywords Everywhere, Similarweb, Spyfu, Moz, Google News, etc. to track Media exposure, Searches on their brand trend, Acquisition channels, and Estimated ADV budgets. That information can be useful when you will design your Marketing Strategy.
After the creation of the mapping table you will be able to complete your Market Competition Analysis using several methods:
1- Performing a SWOT Analysis
to identify your product’s Strengths, Weaknesses, Opportunities, and Threats.
If you want to read more about SWOT you can read this article on Business News Daily.
2-Performing a Competition Qualitative Analysis:
by comparing qualitatively your product’s strengths and weaknesses against each competitor mapped.
- Does XYZ have the same customers?
- Does XYZ have the same solution?
- Which are my strengths against XYZ competitors?
- Which are my weaknesses points against XYZ competitors?
- How can I protect my position against XYZ?
3- Performing a Five Forces of Porter Analysis
The Porter Five Forces are a collection of factors that explain why various industries are able to sustain varying levels of profitability. The five forces are frequently used to evaluate the competitive intensity, market attractiveness, and profitability of an industry or market. This methodology analyzes:
a) Competition in the industry: it refers to the number of competitors and their ability to undercut your company.
- How many competitors do you have?
- Which is their dimension?
- How can you protect your company against them?
- What are you better than them?
- What are they doing to protect their position?
- How complex is it to switch from your competitor’s solutions to yours?
When a market has low competitive rivalry, companies can charge higher prices and negotiate better terms to achieve higher sales and profits.
b) Potential of new entrants into the industry: it describes the impact of a new market player entry,
- Which is the probability that a new company enters your market?
- What is the complexity for a new company to enter your market?
- What are the effects of new entrants into your market?
- What is your strategy to prevent new entries?
- How difficult is it to switch from your solution to a new one?
A strong entry barrier in an industry is ideal for existing companies within that industry since they can charge higher prices and negotiate better terms.
c) Power of suppliers: Describes how suppliers can easily drive up input costs
- Which is your purchasing potential?
- How many customers does your supplier serve?
- How many suppliers are available for your components?
- How big is the technical gap between your potential suppliers?
- How difficult could it be to switch from one supplier to another?
A company would be more dependent on a supplier if an industry had fewer suppliers.
d) Power of customers: Their ability to influence price reductions
- Which is your supply potential?
- How many customers do you have?
- How is your turnover balanced?
- Can you serve any parallel markets?
- How big is the technical gap between your product and others?
- Which is the impact of losing/acquiring a customer?
If a company has many independent, smaller customers, it will be easier for it to charge higher prices to increase profitability.
e) Threat of substitute products: The threat posed by goods or services, originally designed for other applications, but that can be used to replace your products or services.
- Are there any products used in other markets that can be used to solve your same problem?
- How complex could it be for a company in a different market to enter your market (business model, regulatory, brand awareness, barriers, etc.)
- Which barriers can you design to prevent other market players from entering your market?
A company that produces goods or services for which there is no close substitute will be able to raise prices and lock in favorable terms.
If you want to read more about Porter’s 5 Forces this is a good article by Harvard Business Review.
4- Defining Market Positioning
What is your company recognized for?
Market positioning is the process of influencing consumer perception and recognizability. In other words, it is the process of establishing the brand’s image and identity. By doing so, a company can attain superior margins compared with its competition.
All your marketing activities depend on the market positioning.
If you want to read more about Porter’s 5 Forces this is a good article by MagePlaza.
Competition mapping is an ongoing very powerful activity that could be used during the opportunity validation phase. It's also a vital marketing planning tool for running companies to track and protect positioning since new players are continuously emerging and existing ones are continuously evolving their value propositions.