Here is why, and how to do it:
You have to know who you're up against.
Most entrepreneurs are incredibly passionate about their idea. If you're starting a new venture and are not passionate about the problem you are solving, perhaps consider another career option. However, with passion comes the desire to run ahead, build a product, launch it, and not wait for anyone or anything. Big mistake.
Before you write one line of code or speak to one investor, it is crucial that you know who you are up against. It is not enough to know your direct competitors--companies doing the exact same thing as you--you also need to know your indirect competitors, companies targeting the same audience as you, or companies with a similar value proposition to yours.
Who failed? Who succeeded? Why?
Why is it so important to know your landscape? Well, for many reasons, the main one being that you can learn from other people's mistakes or successes. Knowing of another company in your space that failed miserably because they went after the wrong audience or built the wrong kind of product is gold for you. On the opposite end, looking at companies that did it right and succeeded will also give you food for thought on how they did it and how you intend on differentiating yourself from them.
First thing? Define your competition.
This sounds like such a trivial task, but in reality, it is not. First of all, what is your space? Is Red Bull just a beverage company or are they much more? You need to ask yourself who you are and what space you operate in, and sometimes, the answer is not as obvious as you might think.
Once you define your space, you can define your competition. Who else is operating in that space? Who else is pitching the same thing you're pitching? These are all questions you need to answer before proceeding with your startup.
Research everyone in your space, then research some more.
Now comes the fun part, and I say that with the ultimate sarcasm. Most entrepreneurs I have spoken to skip this part and pay the price later on. Spend a month researching your landscape. At the end of this process, you should have a map that gives you a comprehensive view of your entire industry.
There is one very important point I must mention here. I just got off the phone with a startup CEO who admitted to me that when he hears of a new competitor, it scares him. I told him that his reaction should actually be the opposite--he should celebrate every competitor.
If you think you have no competition, it is because of these three reasons: You didn't do the research, you defined a competitor wrong, or there is no demand for your product, no market, and that's why no one else has tried it.
There are many resources available, use them all.
So how do you do competitive analysis? The answer is that you use any and every resource available to you for free or for pay. If ever there was a time to pay for something, now is the time. You don't want to find yourself two years down the road with a product that's been done a hundred times, and you had no idea.
Use search engines, use social platforms, use existing databases, and speak to people. Here is the thing, though: Don't do this competitive analysis in order to prove to yourself that you are unique and there is no competition. On the contrary, you want to find as many competitors as possible. Nothing impresses an investor more than an entrepreneur who comes to the meeting prepared with a landscape full of tens of competitors.
In summary, it's great that you have an idea for a startup and it's great that you're passionate about it, but slow down, do research, and don't go into this already challenging journey blind. A month of competitive analysis will better prepare you and your team for ultimate success.