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How do you compare to the competition?

January 16, 2013

Competition is inevitable with any company. It begs the question, how does one company compare itself to the competition?  This is an interesting question and depending on your operating philosophy (whether your business is for social good or for profit) you may have different answers.

As you start to research your market you will come across a lot of metrics around your competitors.  The data may feel like you’re losing ground on the total market share.

You’ll see that your competitors:

  • May have raised more capital than you.
  • May have attracted a larger audience and are growing faster than you.

In each one of these scenarios, it’s completely possible that you are the dominant player.  Consider for a minute the following scenario:

  • Company A, has 500,000 users, is growing at 30,000 users per month and raised a Series A round of $10 million.
  • Company B, has 200,000 users and is growing at 10,000 user per month and $500,000 in seed capital.

It’s hard gathering anything truly meaningful when you’re trying to compare your company to this type of data. You may think Company A is the dominant player because it has the most money in the bank and is growing faster than Company B. 

It is truly possible Company B could be generating more revenue.  If Company A is only generating $50 per user and has a 1% paid conversion on 30,000 visitors a month they would be generating $15,000 per month.   Company B on the other hand could be generating $100 per user and has a 2.5% paid conversion on 10,000 visitors generating $25,000 per month.  Company B is generating 66% more revenue.

Beside revenue, Company B’s founders may still own 80% of the company where Company A’s founders own less than 5%.

In both cases, on the surface Company B looks like the worse performing business, but once you start peeling back all the layers it could potentially be the best performing business. You’ll read your competitors press releases and always think they are doing better than you.  Your competitors will do the exact same, they’ll read your press releases and think you are better than them.

The reality is it’s virtually impossible to know how you compare to your competitors unless you are intimately involved with their corporate structure and revenue details.  As Mark Suster says “Startups are all Naked in the Mirror.”

The only way to maximize your return is to focus on your business, not your competition.  If you truly want to maximize the opportunity of your business focus on:

  • Improving Learning & Development Cycles: How quickly you learn from your various feedback loops and make changes, will greatly affect how much further you can get than your competitors.  If you and a competitor both realize a new feature will add 15% to your bottom-line, the company who builds this feature faster will reap the reward.
  • Capital Efficiency: When investors say “Fail Fast”, they virtually want you to deploy the capital in most efficient way to start generating return.  If you’re burning $10,000 a month on marketing that is adding nothing to the bottom-line, and your competitor is spending $10,000 a month with a 100% return on investment – which company is deploying capital the most efficiently?
  • Optimizations: In the example above, one company is able to outperform other competitors even though the competitors have more traffic, simply because they are able to convert more visitors into paying customers.  Focus on optimizing funnels.
  • Revenue: A product that can attract a premium audience won’t have to work as hard to extract higher revenue per user.
  • Retention: Products with higher retention can work at monetizing their existing audience versus spending time and effort attracting a new audience.
  • Acquisition Growth: While it’s entirely possible for one startup to generate more revenue with a smaller audience, it is highly recommended that you maximize all channels for acquisition.  If you are able to outperform a competitor that has a larger audience, imagine what you could do by attracting their audience.
  • Lifespan: A company that can generate $500,000 a year for its shareholders over 15 years provides a larger return than a company that produces $1 million a year for 5 years.
  • Ownership: Gabriel Weinberg wrote a great article on “Paths to $5M for startup founders”.  If the founders wanted to walk away with $5 million and owned 60% of the company they would need to sell the business for $8.3 million.  If the founders owned 10%, they would need a $50 million exit.

Keep in mind with that last variable on ownership, even if your competitor exits at a higher price point it is entirely possible you walked away with more money and made your investors a higher multiple.

Comparing yourself to the competition is challenging, keep your head down and improve your own product – just continue growing.

From → Competition

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