“Startup culture” has become so much dominant since past few years that people prefer it as their career option to conventional choices. The everyday news of startups getting funds and expanding their business have motivated a lot of young people to jump into their own business ideas and making it a huge success. Any business is started with two major objectives in mind –
[A] To become a leader in some domain and acquire small business models
[B] To become a competitor in some vertical and get acquired by some big player
The clarity of these objectives and developing your business strategies around those objectives is very crucial since the startup idea phase itself. A recent survey comprehended that startups are failing because of lack of clarity on their vision. Once the target of startup business model is clear, one can easily align all the strategies as per need.
To estimate the level of competition that startup is going to face is one of the most critical step of “Startup – Idea Evaluation Phase” because it gives the complete insight of idea acceptance in long run. Also, the required setup changes are determined by the business model analysis of startups running in same domain.
As per Jatin (changed name) founder of few startups, “Our initial startups failed because we underestimated our competitors. As soon as we were trying to penetrate into the market volume of a competitor, they changed their tactics based on consumer response on our model. So, I analyzed all of competitors business tricks, changed our strategies to reach our consumers and focused on our strengths more rather than running behind our weaknesses. And finally, the lessons that I learnt during my journey, I was able to utilize it in new venture.”
Never underestimate your competition. It may totally crush you if you are not careful. Startups based around an idea generally get too sure of their success and they start ignoring the market trend and start neglecting to keep watch on market. Unless you ensure that your startup is different and you service is more appealing than the thousand other startups out there in market, nobody is going to pay any attention to whatever you do.
Here is FS Analysis on startup competitions that need to be considered since initial phase.
Each incoming startup faces two type of competition- Direct and indirect. Direct competitors are those which share any of the following with your business model – product or service, distribution channel, geographical area, key concept. Indirect competitors are those which are either working in some other geographical area, are having altogether another product to serve the same need (which is being served by your product or service).
To understand the entire scenario of “startup expected competition level”, let’s divide all the competition into three categories based on their strength to stand against you.
Level 1 – Same Domain Startups with Limited Funds and Reach
These are the startups/ventures that are limited in terms of access to customers and are having limitations in terms of resources, funds, geographical limitations, marketing tactics, and can be considered as direct competitors of your startup. These startups/ventures have made a move in the market ahead of you and target customers for them and you is common.
Level 2 – Same Domain Startups with Huge Funds and Moderate Reach
These are the startups that have passed the initial “establishing the business” phase of startup, have achieved some operational excellence, have enough resources and funds in their kitty and are trying to expand their presence, business model, market volume, and can be considered as the biggest short term challenge for your startup. In some way you are trying to breach the loyal customer base of those grown up startups.
Level 3 – Big Players getting Diverse
There are players in market which have already said bye to the evolution phase. Now they have billion dollar sales or revenue and are commanding quite a big league of loyal customers. These are the startups that have established a lot of verticals in there business model and trying to get diverse by introducing more verticals and can be considered as long term challenge for your startup.
The only motive of all of these competitors is to stop you from penetrating into their market volume. So it’s necessary to decide tricks and strategies to be able to stand against them.
Strategies to Stand against Competitors
A comprehensive competition analysis is must to make a great start in market. This allows you to assess the strength and weakness of your competitor and to devise strategies to improve your competitive advantage. Here are some strategies to tackle different level of competition –
Level 1 Competitors –
The only reason why these small players survive in the market is because of their operational excellence and loyal consumer base. Why would you prefer to buy fruits and vegetables from a nearby shop rather than placing order online? It’s just because you have already evaluated the quality and cost of their products. Plus the excellent customer relationship management by the shopkeeper is forcing you to go there.
Strategy for tacking this group of competition could be as follows –
Do not limit your product or service to a particular area. Showcase the extra feature that your startup carries over and above the existing model of same domain. Try to provide the best CRM as possible. Try to grab the seed funding ASAP. Pump enough money to provide little more discount than the existing startups.
Level 2 Competitors –
Grown up startups have large funds at their helm. Customers are attracted toward these startups due to the lucrative deals which they offer. “Cash burnt” technique of market capturing is common in these days. Why would you book a hotel offline if some startup is offering you say 40-50% discount.
Tackling this kind of completion requires lot more than timely funding and following cash burn tactics of the startup game. It requires target marketing – selecting a set of customers and focusing on their requirement. It requires constant review and rate type of engagement with customers. It requires selecting the area of your operation more carefully. It would be better to grow in an area which has poor presence of other big startup.
Level 3 Competitors –
The competitors are mostly underestimated and never evaluated at initial stage. Once your business model is live in the market and starts attracting consumers, big players also start showing worry on how you are breaching into their customer base. Their huge funds, resources and tactics are sufficient enough to kick your model out of the market.
Say your model is just an addition to the existing verticals of a big startup, that they can easily introduce in their model, why do you think the probability of your survival in market is high.
So, one of the appropriate approaches to handle such situation in future is by comparing your business idea with others that are running near around and developing your business model around the anticipated expansion of these big players. Based on their acquisition trends of past years, analyse the anticipated verticals in which it might grow its business. Then target that business as your option and begin the proceedings.
FS has evaluated the trajectory of lot of startups, and found that the expected level of competition is never evaluated at initial stage. Newbie entrepreneurs get so much fascinated with their concepts that they declare it instant hit. When faced by stiff competition from existing market players, they are seen running out of business after burning their funds.
FS Labs emphasizes on making a move after proper competition analysis and devising strategy for complete business growth. Direct as well as indirect competitions must be evaluated for your startup idea and then the business model should be molded as per the best strategies of survival.
Wish you luck for your startup. Stay tuned with FS for more updates.