Whether you already own a startup or are planning to start one, market research is absolutely essential. If you've already mapped the terrain and found that you have no competition, you most likely weren't thorough enough. And that could be the beginning of the end.
Kateřina Manley, Head of Investment at Seed Starter in the Czech Republic, who has experience in due diligence of dozens of startups, describes how to properly map out your competition.
For every investor, a thorough analysis of a project's competition is a must before entering into a partnership. These are the arguments for verifying the sufficient quality and feasibility of the business.
Kateřina Manley, Head of Investment at Seed Starter in the Czech Republic, who has experience in due diligence of dozens of startups, describes how to properly map out your competition.
For every investor, a thorough analysis of a project's competition is a must before entering into a partnership. These are the arguments for verifying the sufficient quality and feasibility of the business.
The basic level - Googling and Asking
The fundamental rule of market research is: the more information, the better. The guidelines for researching the competition are always similar – understand their product, map out their pricing and business strategy, and identify their competitive advantages and weaknesses.
But where to find relevant information? There are many ways to gather information. Definitely don't skip the following:
1) The internet and social media
Yes, it's true that you can find almost everything on the internet these days. Search for keywords related to your product or business area. Map out your industry both in your home market and internationally.
Platforms like Dealroom or Crunchbase can help you find (mostly) international startups in your industry. Various publicly available research from consulting firms or universities can reveal market trends and entry barriers.
2) Interviews with potential customers
These are the most valuable insights! Find a few people (ideally not friends or family members, so they can be truly honest with you) who fit into your target audience, or various target audiences. How do they currently address their needs (problems)? Who is their supplier? Is there a substitute suitable for their situation?
What would motivate or, conversely, discourage them from using your product?
3) Surveys
Speed, simplicity, and low costs are advantages of online surveys, which can be another valuable source of information. You can find several freemium platforms on the web that you can use to create, distribute, and analyze surveys – you can use SurveyMonkey or Google Forms, for example. When creating surveys, refine a few short, well-thought-out, logically related questions and send them to respondents from your target audience.
Feel free to be even more thorough:
4) Supplier interviews
Direct competitors can purchase the same inputs. Although suppliers may not be forthcoming due to protecting trade secrets, they can steer you in the right direction.
5) Media monitoring
Companies in more advanced stages of business often present themselves in the media. By using the right keywords, you can primarily uncover established players operating in your own or foreign markets and often learn from their successes and failures. And when you set up a Google Alert, you'll have continuous insight into your competition.
The obligatory second level - indirect competition
In addition to direct competition, startups must also watch out for substitutes – products that may seem different at first glance but solve the same need for a certain group of people. A co-working space may have competition in a nearby café. A tool for managing internal finances may not outdo the entrenched Excel. A new micro-investment app will have to contend with a range of alternatives, from cryptocurrency investments to savings accounts.
Through interviews with potential customers and suppliers you can extract a vast amount of the most useful information. We highly recommend devoting significant time to them and exploring each one, as they can lead you to the best possible mapping of both direct and indirect competition.
How to summarize competition for an investor?
Finally, we recommend creating a clear overview of all the information and evaluating each direct and indirect competitor:
1) Risks and benefits of the competition for your startup
How many direct competitors currently exist in the market, and what competitive advantage do you have over them? Consider the future and realize that a new player may emerge to address the customers' needs just as effectively, if not better. Assess how difficult it is to enter the market. Is a high initial investment required? Is the market regulated?
2) Customer influence
How big is your target market? How strong is the customers' position? How easy is it to access them, and what options do they have to address their needs? How financially and time-consuming will it be for them to switch from their current solution to your product or service?
3) Supplier influence
Are there enough suppliers, or are you operating in a market where the shutdown of one supplier could paralyze you completely? How many suppliers do you have, which ones are critical to you, and which ones can you optimize?
Do they meet the quality you need? Watch out! For technology companies, a problem can arise right at the beginning – in the form of a limited supply of qualified labor in the domestic labor market.
Kateřina Manley, Head of Investment at Seed Starter of Česká spořitelna has been involved in the world of mergers and acquisitions (M&A) and private equity for over a decade, but in the past, she also worked for a Czech-American travel startup. She enjoys combining the energy and flexibility of young companies with the strength and long-standing expertise of Česká spořitelna.