Five Years Too Late

February 26, 2009

Pitching 101: The Competitive Matrix

Filed under: Pitching — Tags: , — fiveyearstoolate @ 8:21 am
Eric Wiesen

Eric Wiesen

Pitching 101: The Competitive Matrix

In the last installation of Pitching 101 I applauded a company who had applied the best practice of doing research before pitching investors. Today’s chapter is about a practice of which I’m less fond.

As background, it goes without saying that we’re going to want to talk about competition in your space. We’re going to want to have this discussion first because we’re going to need to know whom you’re dealing with as a competitive set, but equally importantly, we need to get a sense of how you think about competition and about your competitors.

To this point, it has somehow become commonplace to include a “Competitive Matrix” slide that looks like this:

competitive-matrix

On the one hand, we get what you’re trying to say – you’re doing something very differentiated and very special. And in a sense, you’re trying to make good on the general investor worldview that if you’re going to compete with incumbents, your offering needs to be not just incrementally superior to them but a significant step forward.

But … come on. We know and you know that in only very rare cases is this slide even remotely accurate. In very rare cases can you legitimately cluster all your competitors, large and small, into the lower-left corner of the competitive matrix slide.

Most investors essentially ignore this slide except for the names of the competitors, about whom they’ll do their own research. At best, it’s a non-factor. But it also looks like you are hiding a scary competitive set of threats through chest-beating hyperbole. And at worst, it signals to investors that you don’t actually understand your competitive challenges. And that’s not something you want to communicate.

My suggestion for best practice is a willingness to have a frank conversation with investors about your competition. Below are some good answers I’ve heard from companies who do this well, answering the competitive question from different angles:

“Yes, XYZ company has raised a lot of money and was a year ahead of us, but they’ve executed poorly, their technology led them down a dead end, and we have won 10 out of 12 customer wins from them in the last six months, which is the real proof that even though they’re the big name, customers are looking for an excuse to leave them”.

“Sure, ABC company is the big name in the space, but they invested tremendous resources in building out a big global platform, and we use cloud services for everything we do. Until and unless they scrap everything they’ve done, we have a major cost structure advantage”.

“It’s true that Google could come around and crush us, but that’s true about almost every B2C web company. We’ve looked at what they’ve done in areas around our space, have talked to people at Google, and we’re comfortable this is not a high-priority area for them. But you’re right, you can never totally control for this.”

Ultimately, if you are really scared to give investors the true answer, and if that true answer is that you’re doing something incrementally better than an entrenched incumbent (or incumbents) or something without a lot of differentiation other than “we’re smarter and will do a better job”, you may be in the wrong business. Investors are going to figure that out whether you tell them upfront or not, but you’re much more likely to get constructive feedback and form a good relationship with investors if you play it straight with regard to competition.

7 Comments »

  1. Nice post. At first, I was a little confused because the image didn’t make it to Tumblr. Speaking of which – you should add comments, or a blurb to link back to your WP blog!

    On the post – I think it’s helpful for entrepreneurs to remember that many of the great recent startups had major competitors that were obvious threats. Facebook has Friendster, MySpace, Tribe, and others. Google had Alta Vista, Yahoo, and Microsoft. Thinking of East Coast companies, Kayak had Orbitz, Expedia, Hotwire, and a bunch of others.

    As you discuss, the goal here is not to prove that there is no competition. The goal should be to prove why you will win. And talking about competition in a serious way makes that conversation more concrete and shows VC’s that you have a real appreciation for your competitors’ strengths, weaknesses, and likely plans to retaliate.

    Comment by Rob Go — February 26, 2009 @ 10:46 am

  2. Amen! Admitting a competitor’s strengths shows great confidence and conviction in one’s own competitive advantage. An analogy to the dating world: back when I was single, if I were on a date with a girl and another guy’s name came up, I would always speak highly of that guy even if I was indifferent to him. Why? Because it exuded confidence, and that confidence eclipsed whatever message came out of my mouth. It worked every time (if that guy also happened to be her ex-boyfriend, it was a slam dunk). I know this example sounds trite, but wooing an investor (or a potential customer) is not all that different from wooing a date.

    Most importantly, though, if a company does not exhibit an awareness of their competitor’s strengths, how can they be trusted to know which battlefield to fight them on.

    Comment by Andres Moran — February 26, 2009 @ 11:16 am

  3. Great post!!

    To often competitive threats are not addressed early on or they are ignored due to ego and fear; this was great!!!!

    One issue I have with this capital raising process is that companies with far superior products, services, and technology are not given the opportunity due to a lack of buzz or referral. Their still exists companies that chose to enter a market behind their competitors because they made a choice to build a sustainable competitive advantage that could not be caught up too in a small amount of time, rather than focus on PR, Marketing, and Branding.

    I see it all the time and it’s frustrating to see companies with a real opportunity to win and lead a market left behind because they went to market quietly while all the noise made by other entrants won them excessive rounds.

    Comment by Deborah — March 1, 2009 @ 12:56 am

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