If I had a dime for every person who told me they have an idea that is going to be the next Facebook, I would be able to fund all the ideas without taking out a loan. Ideas are worthless, they are a dime a dozen. If I am going to be honest, my mom has ideas, but she is not going to be the next Mark Zuckerberg, and if all you have is an idea, neither are you. Ideas are not enough to create a successful business.
Among the many steps you are going to take as an entrepreneur over the life cycle of your company, perhaps the most important one is the very first step-- knowing your market. Build yourself a comprehensive landscape of everyone in your space-- including any company doing the same thing as you, targeting the same audience as you, or solving the same pain point as you.
This step of competitive analysis is crucial for so many reasons. Here are four:
1. You have to decide how feasible your idea really is.
Here is the thing with entrepreneurs. We are all nuts. If I told you that doing anything else in your life would yield a 95 percent chance of failure, you wouldn't do that thing. And yet, we spend years of our lives, millions of dollars of someone else's money, all for the five percent chance of succeeding.
In order to lower the risk, don't fall into the trap of taking your idea and running with it. I get it, you are passionate about it. You think it could be huge, and maybe you are right, but at the risk of bursting your bubble, the chances of you being the only human being on earth who thought of this brilliant idea? Close to zero.
So while your idea might be great, it is crucial for you to know who else had this idea, who tried, who failed, who succeeded, and why.
2. Figure out who has tried before you, who has won, and who has lost.
By conducting deep competitive analysis, you can easily learn from others' mistakes and wins. Why did that other company fail? Were they too early? Were they too late? Did their execution lack polish or maybe it was their marketing strategy?
The only way to pave your own road to success here is by looking at the roads others have walked before you.
As an entrepreneur, it is our instinct to believe we are special and unique. In fact, as humans, that is our instinct. But as someone trying to build a sustainable business, you need to fight that urge to convince yourself how unique you are, and actually set out to do the opposite, build that map of every other company who shows you that you are actually totally not unique.
3. Nothing impresses an investor more than a comprehensive landscape.
If not for yourself or your company, make that landscape for your potential investors. Yet another instinct you might have, is to respond to the question about your competition by declaring that you have no competitors. That is literally the last thing an investor wants to hear. If no one else is trying to do what you are doing, chances are, there is no demand, no market.
When asked by a potential investor about your competitors, the best thing you can do is take that landscape out of your back pocket and show the investor how you mapped out 50 to a 100 other companies in your space.
4. It is the most effective way to decide if and when to pivot.
Out of all the reasons to do comprehensive competitive analysis, this one is the most fundamental. A good entrepreneur is one that knows when to pivot and when to call it quits.
If you have an idea and then you spend a month studying the market only to realize that 300 other companies tried to do the very same thing as you, and they all failed, perhaps you need to reconsider your next moves.
Alternatively, if after doing that research, you realize there are actually a few companies who have been extremely successful and have pretty much taken ownership of the space, that is also something to take into consideration.
The point is, whether no one has succeeded in executing on your idea or if some have and have dominated the market, no one is telling you that that is a reason to quit. But if you don't even know who you are up against, well then you are operating in the dark, which means, your already low chances of success just decreased significantly.
Turn on the lights, do competitive analysis before investing time in money in your idea.