Entrepreneurs know to expect questions about the competition in every investor pitch. And differentiating yourself is key – not only by the content of your answer (how your company is different), but the method of delivery (how you talk about those differences).
The world of startups is quick to offer advice on how to format your competitive landscape analysis. It’s a standard slide recommended in any deck (the trusty 2×2, the petal diagram, etc). But there is a striking lack of guidance around how to talk about that competition. Here are three tips on how to get it right:
1. Don’t trash talk the competition
Yes, you need to communicate why your product is different from competitors. However, the age-old advice “show don’t tell” is key.
Focus on your company. Whether you highlight your differentiated product, first-mover advantage, or unique expertise, stay away from insulting another company. Specifically, steer clear of negativity toward another founder, sharing any breaking scandals, or disparaging their culture.
The more time you spend talking about a competitor, the less time you are talking about your own company. You want to keep a potential investor’s attention on you, while also demonstrating you have a firm understanding of what it will take to be successful.
At a recent startup festival this spring, Stripe cofounder Patrick Collison demonstrated his maturity in this exact situation. While Collison was explaining the founding story of his company on stage, the moderator jumped in to share a personal horror story about Stripe competitor Paypal. The moderator then asked Collison point blank: “Did a similar experience lead to you founding Stripe?”
Collison’s answer was telling: “Well, I don’t want to speak about any particular competitor. With Paypal in particular, we owe them a great deal for having done so much to create the online payments space.”
It would have been easy to trash the competition here. But Collison’s smooth side-step allowed him to come across as a class act, while simultaneously directing attention away from a big competitor and toward his own impressive achievements.
2. “We don’t have any competition” doesn’t cut it
Yes, of course your product is a special snowflake. But “We don’t have any competition” is not the answer that will satisfy an investor.
Do your homework. What need are you meeting? How do people meet this need currently?
As you will need to come up with a list of companies vying for the same customers, you will similarly need to come up with a strategy for how to talk about them.
What’s more, having competitors proves to investors that this is an attractive space. If dollars are flowing into similar companies (especially if the investor you are pitching missed out on a successful earlier entrant), they may be even more likely to invest.
At a recent startup competition, I saw the founder of a housing startup give a compelling pitch about their smart home solution. However, his answer to the competitor question – “We really don’t see any other competitors in this space” – landed flat with the judges. While differentiated, the company certainly has direct competitors.
All companies face some form of competition. Refusing to acknowledge this signals either ignorance of the competition or arrogance. Moreover, talking about the growth of the industry could have demonstrated that this is an attractive space for investment. (Of course, it’s a balancing act — you also don’t want to convey that a market is overcrowded.)
3. Talk about predecessors with humility
Every company’s entrance into a market is paved by somebody. Speaking about predecessors with humility and grace shows the maturity, vision, and leadership needed to steer the ship.
At a recent conference, I saw the founder of a glasses startup exemplify this approach perfectly. As a glasses company, the inevitable question is, “How are you different from Warby Parker?” The founder’s answer spoke volumes.
“Warby Parker is a great company. They have done a ton for the industry and showed the potential to rethink this space. But let me tell you about what we do and how we’re different.”
He went on to explain how their product – 100 percent custom, made-to-order glasses – competes with expensive designer glasses and addresses an entirely different market segment than Warby Parker.
While this founder certainly appeared to have a fantastic product, it was the way he spoke about Warby Parker that stuck with me. His ability to articulate and frame the problem enables the audience to not only understand the difference between the two but to understand the need for both. His response sounded like that of a seasoned tech CEO, one who is not lacking for confidence in the product and vision.
For entrepreneurs out there, the pitch is everything. And investors are buying into both the idea for the company and a partnership with you as a founder. By doing your homework and speaking about your competition with respect, insight, and humility, you’ll communicate maturity to set that relationship off to a great start.