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Finding your competitors and the importance of supply and demand

Posted by on December 18th, 2013

Finding your competitors and the importance of supply and demand
In the early days of finding product/market fit, it can be difficult to decide how you are going to position yourself in the market. When you are first starting out, your target customers, your product and the problem you are trying to solve are all likely to be unclear.

Building a product to perform an action is all well and good, but you need to be solving a real problem. It’s funny when I talk to people and they say, “we have no competitors, there is nothing else like us”. Whilst your competitors are not always immediately obvious, if you really don’t have any competitors then you don’t have any customers either.

Supply and demand should also play an integral role in the product and the market you choose to go after. If you don’t make the conscious decision to pick a particular path you are going to end up in a situation that is out of your control.

This post is going to look at finding your competitors and the importance of supply and demand on your decision of what path you wish to take in building a product and selling it to the world.

Your competitors are not who you think they are

One of the big hurdles for any new product is to understand exactly who their real competitors are. It’s easy to look at the big market leaders and accept that you are competing with their products. Making this rationale is easy, but it is often wrong.

For example, If you are creating a Customer Relationship Management application you might think that the incumbent Salesforce is your main competitor. Salesforce is clearly the market leader and so rationalising that the market leader must be your main competitor is an easy assumption to make.

In reality, Salesforce is not your competitor. The kind of customers that use Salesforce are not going to be making a choice between Salesforce and your product. Therefore, Salesforce is not your competitor.

The fact of the matter is, your customer should already be solving their problem with a makeshift tool. This means they are already getting by day-to-day with something that they have cobbled together from the tools that are available to them. Your product should be the prodification of that makeshift solution.

This means the most obvious competitors are usually not your real competitors. Your real competitors lie in the habits and makeshift solutions that your target customers have created to solve their problems.

Excel is the king of the makeshift solution

It’s really amazing how many small businesses are getting by with their makeshift solutions. If you have ever worked in a small business this won’t be a surprise to you, but in my experience, Microsoft’s Excel is the king of the makeshift solution.

Excel is a spreadsheet application, but due to Microsoft’s strategy of adding everything and the kitchen sink to their software, it now offers a huge array of functionality.

Excel offers a number of opportunities for small business owners to use it as a makeshift solution to their problems. For example, Excel allows extremely simple programming, data collection, and user interface design. This allows anyone to create a simple interface that allows them to input data, do calculations and output the results.

A general rule to look out for is, if you see an Excel spreadsheet with colour, the person who made it is not using the right tool for the job. Spreadsheets don’t have colour, makeshift solutions have colour. So whenever you see this, there is an opportunity to turn the makeshift product into a productised solution.

Jobs to be done

When trying to fit your idea to the solution of a problem and how it will come together as a product, it’s often useful to think about it in the context of the Jobs-To-Be-Done framework.

Customers buy products and services because they are trying to accomplish something. The job to be done is the outcome of using the product.

Therefore to differentiate yourself from your competitors, you need to frame your product as the best way to do that particular job.

Understanding the job-to-be-done is closely tied with selling the benefits and not the features. Your customers aren’t buying your product for the fancy features that you have created, they are buying it to solve their problem.

The importance of supply and demand

Supply and demand is an economic model for the price determination in a market.

This basically means, when there is lots of supply but little demand prices go down, but when there is lots of demand but little supply, prices go up.

To read more about the ins and outs of supply and demand, take a look at the Wikipedia page.

Whilst the economic model of supply and demand is important to business for a lot of reasons, when thinking about product/market fit I like to think of it in slightly different terms.

Markets with lots of supply

When a market has lots of supply it can be easy to convince yourself that it is a big market. There will already be established market leaders who have already created and captured a large enough chunk of the market to make this seem like a huge opportunity. If you can achieve 1% of that market you will have a really big company.

Established markets are sometimes really good. Generally speaking you will already know how you think the problem should be solved. It should be really easy to find a subset of customers who are underserved by the market leaders and you don’t have to convince customers that they have a problem that you can solve.

However targeting competitive established markets can also be really difficult. There will likely be high barriers to entry and it will be difficult to establish yourself as a genuine competitor. Any marketing initiatives you take on can be easily thwarted by your much larger competitors and the cost of switching to a different product is often too much for most customers to make the change.

Markets with lots of demand

On the other hand, markets where there is a big problem that hasn’t been solved offer a really good opportunity to create the market and establish yourself as the market leader by being the first pioneer.

This is the case where your potential customers are solving their problem with weird off the shelf tools (probably Excel).

However just because you don’t have competitors, doesn’t mean this is going to be a free ride. Your customers are solving their problem with a cobbled together solution that solves their problem. Your competitor is the inertia of moving away from a makeshift solution to taking a chance on your product instead.

Potential customers who have solved their problem with a makeshift solution also often need to be convinced that there is a better way to solve that problem. When you create a makeshift solution to a problem, it’s easy to forget about it now that you have something that works. Marketing to customers who don’t think they have a problem is a difficult task to take on.

Conclusion

So hopefully you will see from this post, finding your true competitors is an important first step towards achieving product/market fit. It’s really easy to convince yourself that your competitor is the biggest company that sits in the vicinity of you in the market you are looking to enter, but in reality, this is often not the case.

Every product should be the answer to a problem. Every problem has a competitor whether it be an established company or a cobbled together makeshift solution. If you don’t have any competitors, it’s you that has the problem.

When looking to enter a market, it can be difficult to go after an established market or a nascent market.

An established market is already large, you have defined market leaders and a problem that customers are well aware of. However established markets are already highly competitive and usually have existing high barriers to entry.

A nascent market is a blue ocean opportunity where you have the chance to set the standards and be the pioneering market leader. Running in to open space can be tempting, but you will also have to do all of the ground work to establish the market as a real customer problem.

In either case there are both positives and negatives. The real point of this post was to say, go into the opportunity with your eyes open. Know who your real competitors are and what kind of market you are entering so you can best prepare for the challenges you will face.

Philip Brown

Hey, I'm Philip Brown, a designer and developer from Durham, England. I create websites and web based applications from the ground up. In 2011 I founded a company called Yellow Flag. If you want to find out more about me, you can follow me on Twitter or Google Plus.