It's been rumored that during the recording sessions of Thriller, Michael Jackson hung up posters of Prince. Michael was pushed by his contemporary to create the best work of art he could--because he knew his rival would be doing the same. As an entrepreneur I understand that you have a lot on your plate such as building a product, hiring talent, and iterating on the vision of the company. But, there is a key understanding that I am surprised to see that seed and Series A founders don't have a great handle on how do you stand up against competition.

I'm pretty disappointed in founders and question their credibility in succeeding in an industry when they don't have an answer to "How do you compare to your competitors?" The following are 3 pointers I have for answering this question when speaking to a venture capitalist.

The answer is never "I have no competitors."

Competition can come in different shapes and sizes but as a startup founder, it always exists. Even if you are creating a new industry through your startup, you should answer the question by stating who the legacy providers are. You should provide a clear picture of who your target customer uses to provide a similar or not so similar solution as yours. This could be a legacy provider that has been around for decades or another startup that is attempting to address the same problem. But if you are creating a new market the question you should answer is what activities are your target customers doing now to solve the pressing problem your startup will solve. Many entrepreneurs don't think about the status quo as a key competitor. Sometimes your biggest competition will be to shift consumers or enterprise customers from using other people or an inefficient spreadsheet.

Display how your company compares to the legacy players and direct competition.

So you have acknowledged your competitive landscape and maybe grouped them based on size and focus but it is also important to display why your company has a competitive advantage to scale in the respective market. Some entrepreneurs graphs or tables to explain why their venture has more of the key features required by customers in a given market. It is a helpful visual that an investor can quickly view to understand what the founding team believes in their secret sauce. Now it is important to make sure that you can back up your claims with a track record of industry experience, technical advances, and market trends.

Elaborate how your company can address new trends and new entrants in the market.

A founder's work is never done because you have to constantly thinking about emerging trends that could be a risk to your business strategy. One question I love to ask founders to possibly trip them up is "what emerging trend could derail your venture?" There are three ways you could answer this. One option is to be overly confident and state that no emerging trends could stop your train to success--I'm not really a fan of that answer. Your second option could be to state a number of buzzword worthy trends that could impact your business without sharing ways in which you would possibly mitigate those risks. The third option, which I prefer, is for you to state a few emerging trends that could cause your business strategy to change and explain how you would mitigate the risk or pivot to leverage the opportunity. Early stage investors understand that many of their investments will look differently than their original pitch. Venture capitalists want to know that the people they are investing in have the balance of vision and adaptability to succeed no matter what the competitive environment throws at them.

So make sure as an entrepreneur that you not only zero in on your business venture but also are aware of the changing factors in our competitive landscape. This will position your startup to quickly adapt and leverage its strengths.

Published on: Nov 17, 2017