You Compare Apples to Oranges Every Time You Buy Fruit

I was having a conversation with an aspiring entrepreneur recently who came to me for advice on honing his pitch to raise money. His app had some decent traction developing, but he had a very narrow focus on what he considered to be his competitive set.

I kept bringing up alternative tools that people may consider instead of his tool, and he kept telling me that “I was comparing Apples to Oranges.”

I quickly became impatient and informed him that people compare apples to oranges every time they buy fruit. As I mentioned in my article on competition, your competitive set extends far beyond your narrowly defined market. If nobody’s buying apples, it doesn’t matter that you have the best apple on the planet.

There’s an interesting game that companies play at different phases in their lifecycle. When your company is small, you benefit from convincing everybody that you have a monopoly in some large, untapped market. You define your competitive set to be as small as possible to convince stakeholders that there is no competition, that it’s easy pickings, that you get to set your own prices and terms

You find a detailed way to define your market, so that the set of competitors is small, while balancing against the need to define it broadly enough that it is still big enough to be worth talking about.

This is a dishonest assessment of the competitive landscape. The reality is that your customers don’t care how you define your market, they care about some particular need that they have, and they’re going to be comparing all firms that satisfy that need. If I want a sweet healthy fruit, apples and oranges are both on the table.

As companies grow larger, the dishonesty takes a 180 degree turn. They begin to define their market as broadly as possible, which serves two purposes. The first purpose is that it is fundamentally necessary to show that growth is possible from an already large starting position. The second purpose is to avoid antitrust attention.

Google has a de-facto monopoly in internet search. In fact, you could go as far as to say that Google even has a near monopoly on general-purpose intent-driven content discovery. That’s a pretty massive space, and there are essentially no competitors. It is also still the principle business of Google as it accounts for about 2/3 of their overall revenues.

And yet, if you look at how Google positions itself, it purports to be a competitor in the broad space of “technology”, a space that has many, many competitors. Yet, only about 10% of their overall revenue comes from non-advertising sources, a relative pittance compared to their core business.

These dishonesties may sometimes be necessary when interacting with the outside world to achieve a particular goal, investors, regulators, customers, colleagues, etc. But to make the mistake internally of being dishonest to yourself is a death sentence.

When designing sales pitches, it is necessary to know what your customers consider to be your competitive set, not what you consider it to be. For different customer classes, for different use-cases, this may even be a wildly different set!

The key is understanding all of the myriad ways that competition plays out in driving economic behavior, and to truly offer real solutions to customer problems that other firms can’t solve. Or if they can solve it, you need to find a way to solve it more cheaply (either in time or money). If you do this, you’ll be successful. If you fail, well, then you’ll just fail.