December 28, 2020
Positioning and Competition

The most common positioning mistake I see startups make is how they define “competition” or who they are positioning against. We are used to thinking about our competitors as being other solutions that look like ours. If we are a purpose-built software product, we see our competition as other purpose-built software solving more or less the same customer problems. However, this view of competition is often either too narrow or too broad and can seriously weaken your positioning.

Positioning Against Competitors vs. Competitive Alternatives

When working on positioning, I think it’s helpful to think about “Competitive Alternatives” rather than “competitors.” To win business, the first competitive alternative we need to beat is the status quo. Customers had the problem your product was designed to solve before you showed up - how were they solving it? Often they are using things like spreadsheets and documents, or manual processes, or making do with the limited functionality included with their current “monolith” platform (the existing CRM, ERP, or Accounting platform). These status quo solutions are chosen because they are easy to get started with, cheap or free, and frequently do the job good enough in a pinch. 

Status Quo Wins One Deal in Four

A better way to think about competitive alternatives is to ask yourself, “What would a customer do if your offering didn’t exist?” Sometimes the answer to that question is “Do nothing.” What that really means is the customer would stick with their current way of solving the problem. That could mean using a spreadsheet, using a manual process, or hiring an intern to do it. In enterprise software, we typically lose between 20% and 30% of deals to “no decision.” You need to position yourself as clearly superior to the status quo if you want to convince customers to act. 

Not Every Competitor is an Alternative

Beyond the status quo, you will need to consider any competitors that your prospects look at when actively hunting for a new solution. In this case, I see startups making the mistake of considering every solution on the market that could possibly be competitive as an “alternative.” The reality is that many of these solutions simply aren’t on the radar of your customers. That could be because the company targets a very different type of customer. It could be because the company is very small and is simply not known in the market outside of their specific niche.  Whatever the reason, these “phantom competitors” should not be considered when working on your positioning. You’re watering down your positioning by trying to position against them. Positioning shouldn’t involve a test of your internet research skills, and just because a company could compete with you doesn’t mean they ever will. The product team might want to keep an eye on them as a future competitive threat, and if you do start to see them in deals, you can adjust your positioning at that time. Until then, you will weaken your positioning by trying to position against competitors your customers never even consider. Your goal is to strongly and clearly present your solution as a clear winner for your prospects versus the other solutions on their shortlist. 

Considering your product’s competitive alternatives is a key component of positioning and the starting point for understanding what differentiates your product in the market. The more deeply you understand your prospects’ status quo and which other solutions land on a shortlist with you, the stronger your positioning will be.