What’s one of the fastest ways a founder can turn a potential investor into the world’s biggest sceptic? 

Tell them you have no competitors. 

(I can already hear some founders talking back to their screens, ‘No, but seriously, this is a world-first! No one else is doing what we’re doing!’) 

But we review more than 2,500 businesses and pitch decks every year. And while there is certainly no shortage of incredible founders who are disrupting entrenched industries, innovating new solutions, learning from mistakes and gaining traction, the reality is that many of those industries are being disrupted from multiple angles, those solutions are in different stages of development elsewhere and other businesses are also picking up steam.

That’s okay!  

When an investor asks founders, “Who are your competitors?”, they are trying to understand a few different things. 

First, they likely want to understand how crowded the market is and whether there are better-funded companies that are in a position to gain a significant share of the market. 

This is often why founders try to minimize the focus on competitors. But it’s here where founders might need to adapt their perspective. Investors want to understand how you are positioning yourself in the market and your awareness of where you sit in relation to your competition. They want to see evidence that you will be able to differentiate your business and stand out from the crowd. But they also want to see that you’ve done your research, you can back up the credentials in your CV and that you have a deep understanding of your industry. 

In fact, there are some instances in which facing a tough competitor is a sign of future opportunity. Asking about your competitors may give investors additional insight into potential M&A or trade sale opportunities. More mature competitors may also provide investors with a ‘sanity check’ on key metrics in your business assumptions and financial models, and help provide context around fundraising targets or exit valuations that may be achievable. 

You have more ‘competitors’ than you think!

The reason why my eyes narrow when I hear ‘We have no competitors’, is because it’s often a warning sign that the founder has not done the appropriate level of research. Similarly, many founders list only local competitors and reveal they have not thought about additional competitors that may come into play if they scale the business internationally or into adjacent product areas.  

Even worse, having no competitors could be a sign that there may not be a need for your product or that you will have the difficult task of creating the market from scratch, rather than building on an existing market. That’s definitely NOT the impression you want to give investors! If you fail to demonstrate a good understanding of your industry and how you will protect and differentiate your business from the competition, a simple question becomes a major red flag.

What to say instead 

If you really have few or no competitors, you can strengthen your pitch by pointing to a business that is doing something similar, even if it’s in a different industry. This might be a company with a similar business model or one that’s targeting a similar customer segment or if you are a ‘fast follower’ of a large, overseas competitor. In those instances, you can also talk about their traction,  the amounts they have raised or their latest valuations to help spark comparisons to your company.  But you would also need to be prepared to discuss whether they are likely to expand into your geography or industry and take the early momentum out from under you. 

Founders will be more successful in raising capital if they view the ‘competitor’ question (and all investor questions for that matter) as an opportunity, not an inquisition. You’ve got their attention; grab the opportunity to answer with confidence and demonstrate your grasp of the industry, technology or domain in which you are operating.

This article first appeared in Tech in Asia.

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