Successfully navigating market conditions and the economic landscape isn’t done by accident, it takes hard work and careful planning. An important part of this process is carrying out a comprehensive competitor analysis.
Competitor analysis framework
If the marketplace a startup intends to operate in is crowded, this makes differentiating the offer more difficult for a new enterprise trying to become established. In this case, the business will have to stand out in some other way.
Crowded market conditions can be successfully traversed, either by finding a niche that established businesses have overlooked or by identifying mistakes or weaknesses in their business models. There are often opportunities to exploit, crowded market or not, however, before launching a startup, research must be done to ensure that any opportunity is not only viable but can be scaled.
Competitor research is an essential process that all startups need to work through. Not just in terms of identifying competitors, but in terms of opportunities and risks too. Competitor analysis is composed of evaluating a competitor’s offer (and their strengths and weaknesses) and then evaluating these with an understanding of how they operate. By analysing competitors in such a way, meaningful comparisons can be made. Competitor analysis also helps to detect the macro trends and activities that influence companies in any particular industry or sector, giving new startups the benefit of being able to cherry-pick the attributes and activities of more established (and experienced) peers.
In this article, we outline a brief competitor analysis framework that can be adopted by tech startups. Our framework is six steps:
- Identify competitors
- Describe top competitors (in terms of product offering)
- Describe top competitors (in terms of marketing and marketplace position)
- Identify competitor strengths and weaknesses
- Conclusions (opportunities for you, threats to you)
Each step is elaborated on and broken down further below. This framework is meant as a guide, and as such can (and should) be tailored to best suit the aims of the startup using it. Each step can be adapted, changed or removed as needed, as long as the process integrity isn’t eroded to the point that it becomes meaningless to complete it. The framework we have outlined can be re-visited as market conditions change and businesses mature, competitor analysis is a dynamic process that should be viewed as something that is an ongoing concern.
Step 1: identify competitors
Winning customers and capturing market share is not done by accident, but by following a meticulous process of competitor analysis that starts with identifying who your competitors are.
Strong competitor analysis provides support to all strong business strategies.
If you aren’t able to correctly identify your competitors and their marketing tactics, how does your startup differentiate itself and stand out as unique?
There are two types of competitors:
Direct: Being able to name your direct competition is important as these are companies that you will be competing with for customers. Until you know them, understand their offer and recognise their strengths, how can you expect to outmanoeuvre them?
Indirect: An indirect competitor sells similar products while targeting a different customer base, or one that offers different products and services but shares a customer base. Being able to identify indirect competition is valuable and can provide a different perspective and insights into your startup and target customer.
Identifying your competition is best achieved through in-house research. To ensure the process provides your startup with the highest quality and useful information at the end, you mustn’t rush this step. Google searching is a valuable tool, but it shouldn’t be the only tool used, and it should be done methodically. Searching “top 5 UK tech startups” and copying and pasting a list, will not be the foundation for a detailed strategic document, from which you will want to make decisions!
- Direct Competition – If you’re already operational, who are the companies you regularly compete with? Who are the names that crop up in customer conversations? If your tech startup is (or expects to) sell locally, regionally or UK wide…your direct competition should be similarly positioned. A new startup will not be competing directly with Apple or Uber. At least not yet!
- Use relevant terms in a search engine to help you visualise the businesses in your marketplace. As mentioned above, “tech startups UK” isn’t going to cut it! Depending on the nature of your startup, something more like “augmented reality app designers” would be appropriate. Whatever the key terms attributable to your business are, search them and find out who else is already in this space. This may take some time and it may be a case of reading industry publications or reviewing contributions to conferences, but this may yield important results and it’s worth taking the time.
- Similarly, you may want to look at key individuals in your industry or market segment. LinkedIn and other professional networks can be invaluable here. The nature of using networks allows you to gain insights into relevant connections, employers and businesses. From here it should be obvious to spot anyone in competition with you.
Now you’ve got your list of competitors…rank them.
You don’t want to waste valuable hours and resources researching companies that aren’t on your level. Rank your competition based on how much market share they have, how strong their offering is and what their online presence is like. (Your ranking might change later on as you learn more).
Ranking at this stage allows you to focus your research in the following steps below and gives you more relevant information from which to perform your analysis.
Step 2: describe top competitors (product offering)
Why? Having completed step 1, you now know who your competitors are, and you’ve ranked them in terms of just how much of a competitor you see them. Now it’s time to delve into the detail and explore what their product offering is. By doing this you will be able to pick apart the products/services that these companies offer and understand them.
This information should be collected without bias or assumption, it feeds into a bigger framework that allows you to draw conclusions later on, for the time being, we’re carrying out factual research and we want to collect as much as possible (as long as it’s relevant). At this early stage of competitive analysis, avoid looking at elements of these businesses that you feel are particularly strong or weak, this comes later.
All we need to do in Step 2 is collect information.
Later on, this information will combine with other Steps in the framework to build a bigger picture that can be used to make business decisions and build a strategy for marketing and development.
What? Describing the product offering is a short phrase that can mean a lot of different things. At this stage, you want to collect information on the products and services that are relevant to your business. However, you should also ensure that complementary products and services are also included, this is because these value-added elements to the business may be one of the reasons a company provides strong competition.
You will have to use a bit of common sense here, clearly, you don’t want to waste time collecting data and understanding parts of a business that do not connect to your industry or customer base in any way. But be careful to challenge your thinking before completely dismissing things. Would my customers' value this product/service? If the answer is yes, then you need to understand why.
How? There are many ways to get this information. We’ve described a few below, but in practice, certain ones will be easier for you to complete and you should choose the methods that provide the best fit.
- Google search them. Simple as that. It’s likely that products/services will be marketed online, so take this information straight from their promotional materials. You’ll be able to find data on their website, social media, professional networks. They may write blogs or do press releases. Have a look to see if they have a YouTube channel that may contain product launch videos, these are likely to include stats on products and can be particularly useful.
- Contact them. Don’t be afraid to contact them directly and ask them to describe what they offer. This doesn’t have to be clandestine, reach out to them, explain that you work in the industry and you’d like to understand more about the services they offer. You’d be surprised about how forthcoming some companies can be!
- Customer base. What do your customers say about them? Customers in your network may have come across these companies before, or you may have lost out to them in a bidding process. Ask for feedback. Find out why they chose you over them, (or visa versa), this can help you understand what they offer, how it performs and what customers think of it.
- Obtain the product/service. Buy it. If your competitors manufacture something tangible, buy one. If it’s an app, download it. If it’s not possible to do this you may be able to visit someone who has benefited from the product/service and see it in action. Use your imagination here. There are no substitutes for physically having the product in front of you, allowing you to test it out and understand its limitations in practice.
Step 3: describe top competitors (marketing and marketplace position)
Marketing is the name given to all the undertakings by a business to promote them buying or selling products and services. The marketing a company does includes all forms of advertising, online and offline, and sometimes this marketing can be carried out by a third party company.
The purpose of marketing is to get the attention of (or reach) certain audiences. Companies have an idea of who their target demographic is, and they will channel their marketing materials to target them. This might be through celebrity endorsements, paid adverts on social media, product packaging, slogans and other advertising opportunities such as on radio/tv/posters.
Marketing can also include such things as loyalty schemes and others designed to increase customer retention.
To be able to describe the marketing offered by a competitor you need to answer the following questions:
- How are they targeting their audience
- Who are they targeting?
- How successful are they?
Once these are answered you should have a basic understanding of the marketing carried out by your competitor
What is “marketplace position”?
A company positions itself in the marketplace to help establish its brand and product/service and to connect with customers.
Companies talk about the four P’s when it comes to positioning.
These four things combine to help position a company.
For example, a manufacturer of wireless speakers might see itself as a premium company with a luxury product. As such, it may:
- Price each unit in a way that puts it at the top end of the price bracket for speakers.
- Sell its speakers through premium retailers.
- Market the speakers in a way that targets wealthy customers.
By acting in this way, the company has deliberately positioned itself at the top end of the market and has chosen not to compete with lower quality and lower-priced speakers currently available.
The position of a competitor within its marketplace is important and it’s this position that in some way decides how much of a competitor a company is. In the short term, if a company has no interest in selling to your customer base, there is no threat. However, they can’t be discounted as this may change in future!
You should be able to review the online and offline presence of each competitor and describe their marketplace position. If it isn’t obvious, work through the four P’s above and this will give you a broad picture of how they are presenting themselves.
SEO: At this stage, we should also discuss search engine optimisation, (SEO). Assessing SEO for competitors can provide valuable information on how seriously they have taken their online presence, strong SEO also suggests the involvement of a third party who would be paid to ensure that online content is driving customers to them.
Increasingly for tech companies, the priority for marketing is online and very little will exist outside of this channel. SEO (and SEM, Search engine marketing) are therefore likely to make up a large proportion of the marketing resources for some companies.
Analysing SEO can be difficult and sometimes requires external professionals, and therefore is beyond the limited scope of this article. However, some free tools are out there to help rank websites (and individual pages) for certain searchable keywords. Describing the SEO of competitors may become an important part to add to your competitor analysis depending on the nature of your industry.
Step 4: identify competitor strengths and weaknesses
Following the previous 3 Steps should have resulted in a list of competitors (ranked), an understanding of these companies products/services and a description of their marketing, target consumers and how they position themselves (their brand) in the marketplace.
In Step 4 it’s time to perform some analysis and assess this information in terms of what these competitors are doing well, and what they’re not doing so well.
For strengths, the aim is to specifically identify what the competitors are excelling at and what is it about these businesses that make them able to perform so well in certain areas.
When we talk about weaknesses the aim is to identify what competitors could be doing better. Do they have a weak brand? Do they lack an online presence? Is their SEO non-existent? This is the type of information that can give you a competitive advantage in Step 5.
The aspects of a business that can be ‘strong’ or ‘weak’ are numerous. It could literally be anything from the location of its head office to the logistics company it outsources picking and packing too. Some key areas to think about are summarised below, but your research should in Steps1-3 have brought to light aspects of the business which obviously stand out for some reason, (good or bad), these are the areas you will want to concentrate on.
If you’re not sure, work backwards. If a competitor is going something very well (or badly) ask yourself why? What lies behind this part of the business? Is it people? Is it infrastructure? Dig into the detail.
Quality: Basically, how well a product has been made or how impressive a service is. An example of quality would be in taking a flight from London to New York. A commercial airline will get you there. So will a private jet. The private jet however provides a much better quality of service. Quality can be evaluated in many ways, online reviews and customer feedback are useful in determining the quality of products and services.
Pricing: How much are your competitors charging for products and services? How do these prices connect with their target customers? If pricing is low and quality is high, this is a clear strength. Alternatively, if competitors are positioned as a luxury brand a high price may be a strength as it helps align their product with their brand. This area of analysis is subjective, and judgements should be performed fairly and without assumption or comparison to your startup at this point.
Product Range: This refers to the number and type of products/services that a competitor offers. If a competitor only sells one product, this could be seen as a weakness, due to the limited ability to connect with the market. In contrast, if a competitor business has a wide range of products, this could be seen as a strength.
Product Development: Are your competitors able to continually bring new products to market? Have they got a proven track record of offering updated or unique services that connect with their customer base?
Along with product range, development is also important. It shows whether a company is forward-looking and able to react to changes in customer behaviour and habits.
Customer Relationships: How well do your competitors connect with the marketplace? Is their marketing and brand image engaging with their target audience?
Social network channels can suggest how well customers respond to companies, as can review sites.
Strong customer engagement is a strength as it builds loyalty and often leads to repeat custom.
Step 5: conclusions, opportunities and threats
The hard work has been done, Steps 1-4 were all about research, data collection and analysis. Based on this you can now make some strategic decisions.
Your review of your competitors has given you a good understanding of the marketplace. How they operate and what makes them successful. At this stage, you can review your startup business model and decide whether you’re differentiated in a meaningful way, or perhaps it’s time to take a different direction to stand out.
By systematically reviewing your competitors in this way you can highlight any opportunities in the market that may have been neglected by the competition. It may be that you can take advantage of these opportunities, as long as they’re not too niche and give you the ability to scale them up as your startup grows.
Likewise, the weaknesses of your competition allow you to adapt your business plan to move into these areas, and by being better than them, you have an advantage.
By following this framework you’ve essentially performed a benchmarking exercise, and you’re now able to assess how you fit into the market. You can see how your strengths and weaknesses stack up against those of your competition. This is useful as it indicates how successful your journey so far has been, providing a real opportunity to reflect on how well your business leaders have performed and whether there are any aspects of your competition that you could adopt to ‘level-up.
The process of competitor analysis provides complementary information that can help you develop your startup’s business model. This opens up new areas and opportunities and makes you as competitive as possible by ensuring your business is equipped to respond to the strengths and weaknesses already operating in the marketplace.
Another important aspect of this competitor analysis framework is it highlights immediate and future threats to your business. This is important as if you can see your competition coming, you’re able to develop your startup in a way that negates the risks to it. In this way, you can turn your weaknesses into strengths!
And this is why performing a comprehensive competitor analysis can be so powerful.
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