4: Competitive Analysis
Now we’re going to talk about your solution a little bit. Not its features. Not its UX. Not whether its Rails or Node.js or an iOS. We want to talk about how customers will identify with your solution in a marketplace full of other options.
Note: You’ll need to have talked to a few customers first in order for this lesson to help you. If you haven’t done that yet, go ahead and re-read Customer Problem Interviews, and then come back.
Step 1. List all of the competitor solutions you heard.
Perhaps you noticed during your interviews that, while you were validating your customers’ problems, you hit upon several solutions that they are currently using to solve their problems. We are going to list out all of the solutions that you heard from them. Make a list of all of the different solutions.
Keep in mind that some of them may not be products. They may be workflows in other tools, like a spreadsheet. Customers aren’t always solving their problems with other paid products, but you will still have to provide enough value to dislodge them from whatever free and hacked solution they are using.
Step 2. Research each solution.
Go to the website, and read their materials. Compile a list of keywords that characterize how they differentiate from each other. Is one more enterprise-focused, and another small-business? Is one more automated, and the other manual or concierge? Do they operate in different geographic areas? Are they more up- or down-market in their pricing? You want to capture all of the most important aspects that differentiate the solutions in your space.
Step 3. Rate each solution on the keywords.
Consolidate all of the keywords into a main set of differentiating points. Rate each of the solutions with each of the keywords. So, imagine you have a spreadsheet with your solutions down the side, and all the keywords in columns along the time. Give each solution a numeric score for each keyword according to what you can tell from your research. Be sure to use the same number range for all the rating, say 1 - 10.
Look at the scores. Do you see any patterns. Are there keywords that cluster most solutions toward one end of the scale? That would be interesting to take note of. You’re not doing data science here. Just trying to get a sense of the landscape.
Step 4. Pick the two most important keywords for your domain.
This is going to require a little creative thinking you your part. Maybe it will be obvious. Maybe in your domain, enterprise customer focus vs. small business customer focus a big difference. Maybe it’s something else. Try to pick the two you think are the most important.
Step 5. Build a 2 x 2 matrix.
Take those two most important aspects from the last step, and plot them on a X and Y axis. You can do this on a plain white piece of paper. Don’t have to get fancy.
Now, using the scores, plot all of the solution companies and tools on the matrix according to their scores for these two most important dimensions. Finally put your own solution on the matrix where you think you’ll fit according to these two dimensions.
You are looking for two things. First, how crowded is the space, and how clustered are the players around one or another quadrant on the matrix? The more crowded a quadrant, the harder it will be to differentiate a new player in that quadrant.
Second, you want to look at who else is operating in your quadrant. Analyze those solutions or companies more closely a second time. Get a good sense of what they are doing to acquire customers, to market their services.
Remember, this course is about validating whether or not this business idea is even worth pursuing. If you haven’t found a painful enough problem from email #2, you may need to rethink this idea. And now, if you find a lot of competitors operating in the quadrant you want to be in, that’s going to push up your customer acquisition costs. It’s a lot to think about.
Next, we’re going to start looking at the market opportunity itself. The exercise is similar to the one you just did for competitors, but it focuses instead on industry trends and consumer data. If you haven’t done this sort of thing before, you’ll probably find it fun and interesting.
Next: Market analysis.
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