When was the last time you were asked to do a competitive analysis? Was it when a new project or product was being considered? Did it feel like you are just checking a box rather than providing deep strategic thought on how to succeed? Did they just end up as another orphaned document in the depths of your Google Drive dungeon?
Competitive analysis can help frame your own product context, discover other problems your customers have, and even bond the team together against a common foe. For all of these reasons and more you shouldn’t ignore your competition. However, if you don’t properly understand how they impact your organization’s strategy, competitive analysis is simply a waste of time.
Competitive analysis must inform strategy
An effective strategy enables you to more easily make difficult choices between good options. How and whether to react to competitors is an integral part of that.
In particular, strategy is how the team aligns so that decisions made at any level are likely to be better for the longer term goals of the organization. If you don’t have that alignment, you will be constantly struggling to move the organization ahead, together. A well-executed competitive analysis provides the framing for how your group is the best one to take on the challenges and opportunities ahead.
Competitive analysis is essentially how your strategy works in comparison to your competitor’s strategies in today’s world. They will go after the same challenges you are but their plan to solve them will be based on the ‘secret’ that they believe about the world. It is about the nuance of how each competitor will solve a problem.
Today’s world has your competitors that you ignore at your own peril. The canonical example I use is around Amazon. Anyone in retail that doesn’t pay attention to what they are doing is making a huge mistake.
Competitive analysis 101
When product people are first cutting their teeth they are generally asked to do a few things, probably for hazing purposes, including the ‘traditional’ competitive analysis. Basically, the creation of a series of checkboxes that puts our next set of features in a better light than our competitors.
There are countless more competitive analysis tools, methods, and processes out there:
- 5 Forces from Michael Porter
- SWOT analysis from Albert Humphrey
- Lightning Demos from Sprint
- Consideration Set from JTBD
- Disruption from Clayton Christensen
- Strategy Canvas from Blue Ocean
- Business Model Canvas exercise for each competitor — this is a technique we have tried out at Philosophie
- NPS for your competitors
- Assets, Boundaries, and Narrative assessments from Seth Godin’s altMBA
- Competitive profiles
- Competitive arrays
- Competitive benchmarking — which can include NPS
- Sales Safari from Amy Hoy
- Competitive reviews analysis — from Yelp (businesses), Capterra/G2 Crowd (software), etc.
- Technology stack analysis — such as with the site BuiltWith
- Traffic or other popularity metrics, as popularized by Alexa (not that Alexa, the original one)
Now for the bad news: most of these competitive analysis techniques don’t drive your strategy or help you build better products for your customers. It is what you synthesize out of these techniques that matters.
The best competitive analysis enables you to avoid competing altogether
As strategy was originally conceived and utilized during military conflicts, the biggest misconception is that you need to plan for an actual clash with your enemy. The great strategists from Sun Tzu to John Boyd advocated not fighting, but instead finding a way to bypass or otherwise make your enemy inconsequential to your goals altogether.
Originally, business strategy (and strategy consulting) would take the approach that you needed to understand the industry you wanted to compete in first. Then you would build your company around avoiding or clashing with your competition.
This emphasis on competition is related to the advent of game theory in the mid 20th century around the same time. The problem is that game theory is one mental model of many to help make decisions, not the only one (Ben Thompson from Stratechery has a good post on the Prisoner’s Dilemma that is a fundamental one). Even researchers are starting to point to the fact that there are no perfect solutions (such as a Nash equilibrium) to most situations.
The most referenced competitive analysis method from that era is the Five Forces pioneered by Michael Porter.
It simplified the ways that an organization can compete into four: cost leadership, differentiation, the focus on cost, and the focus on differentiation. Since the inception of Five Forces there has been a lot of discussion about how helpful the categories are, but it seems to be part of everyone’s strategy and competitive toolbox, especially for MBAs.
SWOT is another method that is touted as a way to understand your relationship to your competitors first. However, when was the last time you knew your real strengths or weaknesses (or your competitors) from an unbiased point of view? Most organizations will look at each category too optimistically, or lacking in any validation through research.
As the industry has progressed to be more human-centered (see Design Thinking) we are thinking more about the way that we solve consumers problems. This is really how we find product/market fit for our solutions rather than simply being concerned with our competitors.
How to do competitive analysis
There are real benefits to understanding how your competitors perceive the world and how your (potential) customers feel about them. It revolves around which problems they’re choosing to solve and how they think they can solve them particularly well.
When doing real competitive analysis you are diving deep into the real problems their customers have, how you can brand yourself differently/similarly to them, and generally evolve your product context in how to view the world at large. It doesn’t hurt the team to have a common enemy to rally around, as long as you don’t get too obsessed.
The journey to understanding your competitors in a meaningful way starts with four steps:
- Talk to customers
- Use the competition’s solutions
- Read press about them, especially interviews
- Synthesize their strategy
At the end of this process you should have a great understanding of your competitors for the right reasons rather than doing busy work.
Talk to customers
The main reason for talking to customers is that you won’t really know who your true competitors are. It isn’t who your boss, client, or even who you think they are…
This became clear to me when reading When You Define Competition Wrong by Alan Klement:
Talk with your customers! Your competitive model can come only from them. Models of competition and markets that don’t come from customers are almost guaranteed to be wrong.
Jobs to Be Done methodology makes a great point that even though you may consider yourself in competition with a particular business, your consumers may not feel the same way.
When I was working with BLADE, an Uber-like helicopter service, we wanted to know why people would pay $600 for a 5-minute long helicopter ride from Manhattan to the airport, but not the other way. In this particular case, our competitor was sitting alone in a black car in traffic back to the city. The benefit was that they weren’t really in a rush and they could catch up on things. It was the only time they could be alone with their thoughts.
In some cases, the competitor is just a simple conversation between people. The key is how you understand what parts of that conversation can be better solved through something you can build or whether you should just get out of the way of the conversation.
While working with PwC at Philosophie we worked on field-service operations platforms. Sharing of information between field techs was mostly done through a direct call. If you couldn’t be more convenient than that it was going to be hard to provide value.
To go further, you can discover through JTBD-style interviews what factors they considered when buying the competitive solution. Your customers are the ones that are making the purchasing decision so you should listen to them.
Use the competition’s solutions
Now that you know who your competitors are, it isn’t about pulling together a list of features that they have. It is about gaining a deeper understanding of very key aspects of their business.
How do their solutions work and feel? How hard they are to buy and maintain? Do you need other solutions to make a full solution (i.e. ‘cobbled together’ from a JTBD standpoint)?
It is key that you don’t just take a glance at their marketing materials but actually try to use the product for the test cases you use.
When I was working on my own startup, Complete Seating, we did this for OpenTable. I spent at least a night a week working as a host. What was most interesting was all of the other tools that they needed to get their job done: hardwired phone, discussions with waiters, discussions with the kitchen, POS access, and more. We saw some key differentiation with automating the communication through SMS and phone before a guest got to the restaurant. They were really powerful in showing how OpenTable was just a digitization of the maitre d book.
Read press about them, especially interviews
There are a lot of interesting things that you can learn from the people that are behind the competitor. They put their mark on every decision that is made at the organization.
How do they generally release their new products/features? Are they secretive or open? How much do they believe in partnering?
Uber is a great example of a company for which interviews in the press can explain how they will operate in a competitive space. In particular, they have a clear disregard for local regulations (which has worked out), but that extends to how they work day-to-day (sexual harassment claims).
Synthesize their strategy
After you have immersed yourself in their solution you should think about some very hard questions:
- Where does your competitor come from? What is their history?
- What does your competitor believe about the world that you don’t? Are they wrong?
- How does this change the problems they go after and the way they solve their problems?
- What bets are they making on the future?
All of these questions lead to the final, and most important one, what is your competitor’s strategy?
When looking at competitors for the PwC field service operations group there were lots of competitors (including paper printed out and stuck to the wall). What was interesting was that most of the competitors were originally independent companies, but then acquired by larger companies. What was most helpful was looking at how each organization’s strategy changed their end goals. In the case of Field Service Lightning it was originally about the CRM capabilities of SalesForce, but is now about the integration of machine learning for Salesforce’s Einstein.
If you can formulate a solid Business Model Canvas or a Good Strategy Canvas (aka Strategy Kernel Canvas) you have a good understanding of your competitor.
While Ender from Ender’s Game wasn’t a real strategist I think he succinctly states what understanding your competition means:
“In the moment when I truly understand my enemy, understand him well enough to defeat him, then in that very moment I also love him. I think it’s impossible to really understand somebody, what they want, what they believe, and not love them the way they love themselves.”
John Boyd, a famous military strategist, thought a lot about how competitors change the way that we strive for our own goals. The concept he popularized around the OODA loop talked about making decisions faster than your competition as a way to win. It was also key to understanding what your competitor values so you can find other ways than fighting directly.
Making too many choices because of your competitors, rather than for the outcomes your customers need, will make you more at their mercy than you think. No matter how they found their current product, you are fighting against their perception, not the feature list of your competitors.
Tightening the loop at which you learn about your customers and the strategies that your competitors are employing, the better you can continue to outmaneuver their ability to learn and change. This need is the real reason to do competitive analysis and requires an ongoing understanding of your customers and how they perceive your competitors.
Building yet another feature matrix gives people a false sense of security. Don’t waste your time otherwise.
Philosophie is a software design and development consultancy located in Los Angeles, New York, and San Francisco. We unlock innovation by eliminating the strategy-execution gap. Let’s get to work and make something that matters.