Whether you are the competitive type or not, if you’ve staked out your place in the world as an entrepreneur, you must become a competitive person. The core function of business is in fact competition: competition for customers, price competition, resource competition, and competition for the best employees, among others.
Many new entrepreneurs and veteran executives alike may find themselves creating tactics to compete against other firms who are not actually their competitors, however, if they choose the wrong metrics against which to define their competition. In this post, we will teach you how to conduct a competitive whitespace exercise, so that you can find your true competitors and allocate your resources to the proper places.
How Do I Find Out Who My Competitors Are?
The rise of the internet and eCommerce have made business competition a very different animal than it was just a few decades ago. According to the Small Business Association (SBA), 99.9% of all US businesses are small businesses with 500 or fewer employees. In the 1950s, this meant that most business competition was focused on local competitors, with a relatively small group of national and global firms competing against each other.
In those days only the big firms had the ad budgets and logistical means to reach customers and potential customers beyond their geographic area. Now social media, digital marketing, websites, apps, drop shipping, and other technological advances have become the great equalizer.
Small businesses across the world now have the opportunity to advertise and sell their products to customers no matter where they are, which can greatly open up the competitive landscape.
This leads to one of many questions that an entrepreneur must answer early on in their journey: what will be the scope of your competition? Will you be competing locally until you can grow beyond the confines of your region, or will you swing big from the start and compete on the national or global stage?
To begin the journey towards discovering who your competitors are, there are different first steps depending on whether you decide to compete locally or on a larger scale. Each option has a variety of resources (besides search engines) to conduct your research, some of which are outlined below:
Resources to Identify Local Competitors
- Your local chamber of commerce
- Small Business Associations
- Yelp or Angie’s List (now Angi.com)
- Internet searches
- Exhibitions, conventions, or trade fairs
- Social media searches
Resources to Identify National or Global Competitors
If you choose to compete on a higher level than your local area, or if you provide a unique product or service that doesn’t have a lot of customers and would require you to expand your reach to sustain your company, you can also perform a national or global search for your competitors.
While national or global competitor searches may be more difficult, there are still ways to find your competitors:
- National or global trade associations
- Industry associations and publications
- National business registries
- Government databases
If you are willing to pay or seek out the college that you attended to see if their business school has access (which they sometimes provide to alumni for free), the following platforms and databases can provide a wealth of information for entrepreneurs conducting market and competitive research:
- PrivCo (includes detailed company data for non-public companies who don’t have to file publicly)
- DMA Response Rate Book (marketing data)
- American Fact Finder (data sets, data profiles)
- Statistical Abstract of the United States
- Mergent Intellect (tickers, industry codes, company briefs, competitors, corporate family tree, financial details)
- NetAdvantage (industry classifications, filings & annual reports, company details, executive details)
- Business Insights: Global (global corporate information)
- Passport (global market performance, forecasts, consumer lifestyle reports, company insights)
- Mintel Academic (consumer information)
- Simmons OneView (highly detailed US consumer information)
As we mentioned previously, these sources of information may give you a treasure trove of potential competitors, but may not indicate who your true competitors are. For that, we need to dig a little deeper.
The Different Types of Competition
Competing on Price vs Differentiation
To begin with, there are different types of competition, even within the same industries. In the earliest stages of a new startup, there is one question that an entrepreneur must ask whose answer will inform a significant amount of future decisions: will we compete on price or differentiation?
To compete based on price, you must either sell your product for less than the competitors or find a way to produce or provide your product or service for less than it costs the competitors, thereby giving you a higher margin.
There is one major warning that should be given to any entrepreneur planning to compete based on price: price competition nearly always leads to a “race to the bottom.”
If the core competitive metric for any product or service is centered around price or cost, it begins a veritable arms race within the industry of firms who put their focus on either undercutting the selling price of their competitors (thereby reducing margins for all) or finding ways that their firm can provide said product or service at a lower cost to themselves.
Competing based on differentiation is substantially, well, different. This means that either your brand, product, or service is inherently different from the competition. This can be your brand reputation, your Unique Selling Proposition (USP), or your very product or service itself.
Perhaps you choose to make your product or service different by adding a personal touch to an otherwise impersonal industry. Perhaps your firm spends more time educating customers than other firms who simply want to sell them something and move on to the next. Or, perhaps your product or service is uniquely different in a way that sets it apart from others.
This may seem like semantics if you haven’t spent a lot of time in the arena of business competition yet, but these high-level aspects of business can be the single thing that leads to success or failure if not appropriately considered. Especially if you are competing with an entrenched & well-capitalized firm or new entrants who decide to work towards taking away your customer base.
Direct, Indirect, and Replacement Competitors
Another aspect of business competition that new entrepreneurs may not consider is that of indirect and replacement competitors. Especially in a business that has a larger footprint than its local area, an entrepreneur must consider all competitors who run the risk of winning the customers’ dollars instead of your firm.
- Direct Competitors sell a similar product or service that is in the same industry as you. These are the competitors that entrepreneurs tend to focus on, especially if they are Subject Matter Experts (SMEs) in their respective disciplines rather than business school graduates who have been taught to focus on other types of competition. A great example of direct competitors is McDonald’s and Burger King or Coke and Pepsi – when they want a burger or a soda, most people (outside of the most brand conscious) will consider either option.
- Indirect Competitors sell a product or service that is in the same category as you but is different enough to potentially act as a substitute for your product or service. Think of the same examples as above, but the potential for a hungry customer to choose McDonald’s or Subway, or a thirsty one to choose Coke or Sunkist orange soda.
- Replacement Competitors are in a different category and type than your firm, but you still run the risk of a customer choosing their product or service over yours. Using the same examples above, a hungry customer may skip eating out altogether and eat a frozen pizza at home rather than McDonald’s, or choose fruit juice over soda.
Each of these competitors runs the risk of potentially earning the hard-earned money of your potential customers when it comes time to make a purchasing decision. And while the purpose of this post is to teach you how to use a competitive white space exercise to identify your true competitors, we’re going to let you in on a little secret: you can change the metrics in multiple ways to identify every single one of your closest competitors based on different variables!
What is a Competitive Whitespace Exercise?
Some entrepreneurs make the mistake of simply googling other companies that provide the same services or make similar products and immediately assume that those are their competitors. That can lead to poor outcomes, as there are a variety of metrics upon which competition can be based, and upon which prices, services, and competitive decisions should be set.
If you’ve been using this post as a guide, by this point you’ve identified your entire list of competitors on a local, national, or global level, and also identified who your direct, indirect, and replacement competitors are.
If you haven’t done that yet, you should, because now is when we get into the good part.
A competitive white space exercise is pretty self-explanatory once you understand what it is: an exercise to identify the “white space” or open area in which your competitors are not competing, or where you have an opportunity to position your product or service to meet unmet demands of the market.
That may sound like business school gobbledegook, so let’s break it down.
The Entrepreneur’s Job
An entrepreneur’s job is to fill an unmet demand in the marketplace. That’s it – whether you are competing based on price or differentiation, your job is to fix a pain point or provide a product or service at a price that isn’t available to customers as of yet.
The “white space” identified in the competitive white space exercise shows you exactly where that unmet demand exists by physically plotting the current offerings within the competitive space against each other.
That still may seem a little esoteric, and since the point of a white space exercise is to physically show the relationships between the competition to identify your open opportunities, let’s use a physical example to look at one:
The Chocolate Candy Competitive White Space Exercise
When you are hungry and craving something sweet, all chocolate candy may look alike to you. But from a business perspective, there is a deep relationship between the price, offerings, branding, positioning, and competition between candy bars.
The above competitive white space exercise shows competition in the chocolate candy space between two factors: price and quality. Moving left to right on the horizontal axis, we see the offerings move from low price to high price.
Likewise, on the vertical axis, we see competition move from low quality to high quality.
Fererro Roche, in the top right quadrant of this matrix, offers high quality at a high price. In the lower left quadrant, we see that Chomp candy bars offer low quality for a low price.
In the middle, we see four competitors that are reasonably similar in price, each offering a different level of quality for the price that they charge.
If you were bringing a new chocolate candy or candy bar to market, you would plot these competitors on a matrix and make a key decision: do I want to compete directly with one of these products on price or quality, or do I want to find an open white space in which I want to position mine?
The top left and the bottom right quadrants seem to be the most devoid of competition but deserve a closer inspection. For the lower right quadrant, it would be a difficult business case to sell a low-quality candy bar at a high price. It’s been done, but it’s not easy!
In the upper left quadrant, we have high-quality at a low price. Surely customers would love the ability to buy high-quality chocolate candy cheaply, but could you afford to make it (and stay in business)?
This would drill down to a business case: do you have a way that you can produce such a chocolate candy or produce the required materials at a lower cost to yourself than the competitors?
The Differentiation Aspect
We mentioned above that competition by price alone almost always leads to a “race to the bottom,” so there is another key introspection that could be taken from the competitive white space matrix listed above. While each of these products listed has the same core attribute (chocolate candy), there are a multitude of differences in addition to price and quality.
Ferrero Roche and Reese’s Peanut Butter Cups aren’t even candy bars. Some of these bars include nuts, others nougat, some are crunchy and some are smooth. While these aspects may seem minimal to some, each of these provides a level of differentiation that may be used for competition at the same price point.
Changing the Variables
We don’t want to lead you into an area of “paralysis by analysis,” but the competitive white space exercise can be an incredibly useful tool to inform everything from your price to branding and positioning within the market.
The variables used for the two axes may be changed in accordance with your particular product or service, and you can conduct multiple competitive white space exercises to take a look at the full scope of the market in which you have decided to compete.
The chocolate candy example above is used to highlight a product, but the competitive white space exercise can just as easily be performed for a service. Perhaps you provide a professional service and determine that there is a large unmet demand in your marketplace for CPAs or lawyers who spend a lot of facetime with their clients, or wealth managers who offer estate planning on top of investment advice.
If you’re a tech startup, you can look at price versus user base. Do you offer real-live customer service agents or a bot? Do you offer an app and/or a mobile-responsive website? Can users tailor their experience when using your product? The possibilities that you can analyze can be pretty extensive and eye-opening.
Once you identify your competitors within the space, you can use any two metrics by which you may compete to determine where the opportunity resides, or where you need to provide an enhanced form of differentiation.
Price, service, quality, facetime, unique services, a white-glove personal touch, or any other metric can be used through a competitive white space exercise to determine where your greatest opportunity is.
The Competitive White Space Exercise Takeaway
Nuts and nougat aside, the post, matrix, and lesson above are all meant to open your eyes to a core understanding of business competition: the firms who you think that you’re going to be competing against may not be your actual direct competitors.
Even if you are in a niche that doesn’t have many competitors, there may be a wide-open white space that exists within your competitive matrix in which unmet demands in the marketplace currently exist.
And what did we say the job of an entrepreneur is? To fill an unmet demand in the marketplace.
The competitive white space exercise may seem extremely low-tech and sophomoric to some, especially in our high-tech and computer-aided world, but you can never underestimate how powerful it can be to see the physical representation of data right in front of you.
As humans, our brains often try to make sense of patterns or data, but more often than not we are just terrible at it. There is a reason that data visualization software has become so popular of late: smart companies understand the value of being able to see a physical representation of trends or data rather than just staring at thousands of lines on an excel sheet.
You’ve already made the decision to be an entrepreneur and turn your dream into a reality. While that in and of itself is an amazing thing, there is still a very long road ahead of you to bring your product to market. Take the time to ask the right questions and conduct the right discovery exercises (like a competitive white space exercise), and you may just be the next successful unicorn startup that we are reading about on the front page of Tech Week!