Dear Digital Health Startup: You’re doing Competition Analysis Wrong (let me help you)
This is the first of two posts I want to make specifically for new founders in the healthcare technology space, as well as the VCs who potentially support them.
Let me tell you two brief stories on competitive analysis…
Recently I participated in a webinar where an emerging founder asked the question: How do I assess my competition?
One VC on the panel said: You need to know everything — what local startups are doing, what foreign startups are doing, what corporates are doing, what incumbents are doing, and what stealth startups are doing.
How is anybody supposed to do that?
Story two. On a different panel I was participating in a startup give their pitch. Then when it was time for the panel to respond I asked: How is this idea any different from Butterfly?
The founder said: Who?
Um… only one of the most well funded startups that is pretty much exactly what you are describing…
Both stories show two extremes that I frequently come across when I see startups examine their competition, and both extremes are the incorrect way to approach competitive analysis.
It is practically impossible to know what every one of your competitors is doing, and an impractical time suck to try and figure it out. On the other hand, not knowing the leading incumbent in your space is also a major error.
More importantly, both of these examples fail to address the core purpose of competitive analysis. Competitive analysis is not about making a big fat list of everything remotely in your space. Competitive analysis is also not about highlighting what esoteric feature you have as compared to the leading incumbent.
Competitive Analysis is about understanding your differentiation as compared to the next best existing option.
So I want to share with you some thoughts on how to do this…
How many startups have something like this in their deck:
I get the need for this — you want to show how you are better that competition in some visual way. But at least put some thought behind this.
Here is my suggestion… Make a big table in Excel or Sheets or whatever. For the columns write down any competitor you can think of — startups, incumbents, MNCs, etc. Just make sure to think more broadly than just your specific region.
This isn’t about some other startup that is building a similar tool — this is about thinking of the next best existing alternative. How you define your next best existing alternative will be critical for the differentiation of the product.
For example, RunKeeper can define their next best existing alternatives as other run tracking apps/devices.
RunKeeper can define their next best existing alternative as running without any tracking app at all.
I cannot stress how important this tiny step is — and it may have great ramifications on your product. It will help define both your competition and your differentiation.
With this in mind you can now fill in the rows with characteristics of these competitors in the broadest sense. Think way outside the box — not just features or tech stack. The possibilities are numerous: Tech stack, demographic focus, marketing channels to gain users, messaging, language, strategic partners, core services, ancillary services, feature set (main and secondary), pricing, market share, geography, etc…
I would actually recommend making the list quite detailed and extensive.
Then you start your research — reading up and digging — while at the same time filling in your matrix.
What emerges from this are specific areas where you can start to recognize your differentiation. This differentiation can be as simple as just hitting up a different demographic — like JSwipe vs. Tinder. Or the differentiation can be geographic — like Careem vs. Uber.
This is a simple mental exercise, but can give key insights:
- A different perspective on competition is going to have a profound impact on how you define your product, how you build it out, how you present it, and how you build a company around the product. Think about how RunKeepers definition of their next best existing alternative can potentially affect their marketing, their branding, their positioning, etc…
- A different perspective on competition is critical to understanding who your potential customers really are and what drives their behavior. The root cause of a decision between using one running app or another is different from the root cause of using a running app in general.
- Most importantly A different perspective on competition is critical to understanding what your true value-add is.
The point is this: A competitive analysis is not about being better than some other company according to some metric or some feature or some widget. It is about recognizing the difference between what you are doing and what the next best alternative is, and maximizing the potential of that difference.
Next up in the series: A completely fresh take on how to look at Market Analysis — stay tuned!