We are at the half way point in our 7 Step Guide to Assessing Start-Up Success. Step 1 addressed the importance of defining the problem your idea will solve whilst Step 2 explored the important question of determining if the solution to the problem would actually create value for the end user. Then in Step 3 we did a first pass assessment of whether a suitably sized market existed to make the venture feasible. It was noted that this was a first pass, so on the basis a big enough market existed, you would progress to Step 4 to then determine if anyone else would be competing with your solution.
Now, competition can take many forms and they can be classified in three broad groups:
- Solving the problem in the same way
- Solving the problem in a different way
- Solving a similar problem that could readily adapt to solve this problem
The first group of competition to be addressed is someone else solving the same problem in the same way. An example of this would be Taxis versus Uber. Although Uber have shaken up the way this service is managed and delivered the underlying solution of providing transport to small numbers of people in motor vehicles and charging rates per kilometre are the same. For the competitors in this group you need to assess the following:
- How long have they been servicing this market?
- How much market share do they have in our target market?
- Where are they located?
- How effective is their solution and service delivery?
- What is it about your solution that will differentiate it from their solution and why will the target market care about this differentiation?
The second group is someone else solving the same problem in a different way. This is often referred to as a product substitute. Following on from our last example of Taxis and Uber, an example of this would be public transport. It solves the same problem of transport services from one point to another but addresses it in a substitute format. You need to assess the competitors from this group asking the same questions as you did for the first group.
The third group is someone else solving a similar problem with the capability that their solution could be adapted to the problem that you are solving. Further exploring the theme from above let’s look at Uber and the courier industry. The problem the couriers are solving is transport for goods rather than people. Could Uber adapt their platform to disrupt the local courier industry? To assess this group of competition, brainstorm the following:
- Are there problems being solved that are similar in nature to the one you are solving?
- How easily could any of the solutions to those problems be adapted to your problem?
- For the providers of those solutions that could be adapted:
- Are they big enough to have the resources to adapt their solution?
- Do they have history of diversifying?
If you identify a competitor in this third group that meets the conditions above, it might be useful to consider them for a partnership or strategic alliance.
Now that you have assessed the potential competition you should circle back to step 3 and re-assess your potential market share considering the competitive environment. During that re-assessment it would be useful to consider why an existing customer of a direct or indirect competitor would switch to your solution, are those reason enough to motivate a behaviour change?
We encourage you to follow our Start-Up Series of articles to work through this 7 step guide to assess if one of your ideas could be a start-up success. If you want to delve into all 7 steps in one sitting, please download our Guide here. For assistance with any of these steps, please contact Matthew Beasley on 3218 3900 for a no obligation discussion.
Please note that this publication is intended to provide a general summary and should not be relied upon as a substitute for personal advice.