It's crucial for entrepreneurs to establish credibility with investors by knowing their competitors very well

I am Scott Johnson and I am here to give you some insights about the vision of competition as a venture capitalist. First of all, it is crucial for an entrepreneur to establish their credibility with an audience by knowing their competitors very well. Many times, entrepreneurs come in and try to claim that they have no competitors but then the investors start to point them out many examples.

There have been also the opposite cases, and this is the type of entrepreneur you want to back, the one who really understands the competitive landscape and can articulate their differentiation to the competitors very well. That is an entrepreneur who is going to be able to do the same thing for their customers and therefore make more sales and grow faster and scale.

Gaining a very good understanding of the competitive landscape is pretty hard. There are two reasons for that. The first one is, you just never know what other startups are out there because it is hard to see all of the big and small competitors without really digging for them. The Valuer platform is very good at doing this digging for companies that are obscure.

The second reason is that it is very hard to measure the strength of competitors because some of them might spend a lot of money on marketing, but their product isn't very good, or it is very far along. So, do not always trust the noise a company makes because it does not necessarily reflect how strong a competitor they are. Usually the competitors that matter are pretty visible, so you can create a competitive landscape document in one or two forms, or both, where you have a feature list and competitors.

The ones that have a certain feature will have a sort of different indicators such as how strong that feature is for example. So, when the entrepreneur shows you that they have every important feature and their competitors only have a couple, then they are obviously the one that you should pay attention to. It is hard to weight these features, so try to figure out which of them the customers truly care about and will pay for and pick a company that has exactly these features.

The other way I see competitors displayed is in a quadrant. Gartner has their famous Magic Quadrant in which they put different companies on and then they have their axes. You might choose fully-featured versus cost or something like that, so the axis you choose should be the ones that the customers care about.

It is very important to understand the competitive landscape, so if you want to dig even deeper, join our community and learn how to invest smarter!