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Competitive Research for Startups

7 September 2009

If you’re launching a web startup, you’ll need to do competitive research. This article will tell you how to do it.

You’ll learn about five web sites that are your best source of competitive insight about new web startups. Chances are, you’ll want to bookmark these sites and add them to your collection of essential resources. But first, let’s consider why competitive research is important to any startup.

Billboard in Cienfuegos, Cuba

Why Do Competitive Research?

Conventional wisdom suggests that you should do competitive research for two reasons. First, as part of your business plan, to show your investors you’ve considered risks of competition and are justified in anticipating success. Second, by looking at what others are doing, you’ll refine your mission, your market positioning, and your product’s feature set. But there’s a third reason to do competitive research. One that’s more important than the others. A reason that is so important, you must do it as early as possible in your planning.

If you’re going to launch a new business, you need to find similar established businesses. Here’s why.

If you can find an existing business that others know about, it’ll be easier for others to grasp your idea without seeing it fully deployed. Whether investors, business partners, or anyone else, it’s easier to explain what you want to do if you’ve got a common reference point. Are you launching an online auction site for the produce industry? Tell them, “It’s eBay for truckloads of tomatoes.” Find a way to define your objective by describing it in contrast to others.

The best reason for doing competitive research is to make it easier to describe your project to other people.

How Special Are You?

Here’s what’s difficult. Most people want to be special. How about your business concept? Is it totally unique and special? If it is, you’ve got a problem. Either you haven’t done your research to find similar businesses. Or your business concept is truly unique, which means it’s going to be very difficult to explain and market. Ideally, your business concept is sufficiently similar to existing businesses that people will easily recognize it. And unique enough that it is defined by contrast with others. If you can’t find anyone doing something like you, look harder. Or else you might be in trouble.

How To Do Competitive Research

If you’ve already identified a well-known business that is similar to yours, you’ve got a head start. If not, you’ve got to do preliminary research. Start with keyword research. Define your keyword universe (see my article How To Do Keyword Research). Use Google to find related sites. As my article suggests, use SpyFu to see if any companies are advertising with the keywords that relate to your business.

Once you’ve found one or two possibly similar companies, try searching the following databases of startups. These are the sites that provide a definitive index of all the startups that are launched or recently funded (and some that are still in pre-launch, as well!).

CrunchBase

If you’re launching a web startup, get serious and check CrunchBase. It’s a project run under the wings of the TechCrunch blog, which is the closest thing to a trade magazine (or gossip column) for the web startup industry. The CrunchBase staff closely watches SEC Regulation “D” filings to track newly funded tech companies. CrunchBase is not complete (the newest and unfunded startups are not represented) but it’s got great profiles of all the web startups that have received significant venture capital funding. You can search CrunchBase by keyword or company name.

The best part is the CrunchBase “Competitors” coverage (in the lower left corner of any company profile). Find the profile of any company you know about and you’ll find all the similar companies that have received venture funding. With each CrunchBase profile, you may find a different set of competitors. Browse them all to see how the CrunchBase contributors view the competitive environment.

YouNoodle

Like wine and cheese, CrunchBase and YouNoodle make a good pairing (CrunchBase displays charts taken from YouNoodle but go directly to YouNoodle for a full profile).

Don’t get distracted by the YouNoodle Startup Predictor. It’s just a fun game that claims to evaluate any startup’s chance of success (don’t worry if your startup scores poorly).

The real value is the YouNoodle database of early-stage startups. YouNoodle’s database is the outgrowth of its collaboration with university entrepreneurship clubs and competitions (YouNoodle offers tools to manage business competitions, events, mailing lists and startup community development for various entrepreneurship organizations). It’s a good database of startups that have received support from established funds and mentorship organizations.

YouNoodle is easy to use. Enter your keywords into the YouNoodle “Search” feature to find businesses similar to yours.

ChubbyBrain

ChubbyBrain is a “crowdsourced” database of startups. The project was initiated by a group of analysts at a large financial services company. They’ve said they want “to democratize startup and investor information to make it more widely available.” It relies on the enthusiasm of volunteers, so it’s uneven and can be idiosyncratic. But (as of February 2009) ChubbyBrain claims its user-editable database contains over 13,000 startups and over 900 investors (VCs, angel investment groups, corporate venture groups and individuals).

You can use the ChubbyBrain Advanced Search to search for a company. Or just search by tags (like “music”). You won’t find every startup but you may find some interesting ones you don’t know about, plus commentary by volunteer editors. There’s a tab for “Competitors” for each profiled company but many profiles don’t include this information.

VentureBeat Profiles

VentureBeat Profiles is another “crowdsourced” database of startups. You’ll find spammy and adolescent garbage mixed in with the real companies because VentureBeat Profiles relies on volunteer submissions, but the real startups are there and it can be a gold mine for competitive research.

Use the VentureBeat Profiles Advanced Search feature to search their tags for your keywords. When you find a company profile, take a look at the “Similar Companies” box (middle of the right sidebar). There’s a link to “View All Similar” that will display “Competitors”, “Related Companies”, and allow you to compare the web traffic of any competitors.

KillerStartups

KillerStartups is a blog that reviews a dozen or more web startups a day. That’s thousands a year (yes, there are that many startups!). Many of the startups are of the unfunded, kitchen-table variety. You’ll see many startups that are failed, abandoned or gathering cobwebs. You might find it depressing to see how many valiant attempts never gained traction. But you may learn something from what’s there.

To do your competitive research using KillerStartups, go to the KillerStartups Tags page and enter your keywords for a tag search.

Dig Deeper

The services described above will help you find similar or related startups. You may want to dig deeper and find the names of people who work for your competitors, their web traffic stats, and what people are saying about them.

There’s always Google. But start with specialized searchable databases such as Domain Tools for domain registration (”whois”) information. LinkedIn for resumes of principals and employees. And check Quantcast, Compete.com, and Alexa for web traffic estimates (or use AttentionMeter.com for an all-in-one view of web traffic estimates). Oh, and don’t forget to search Twitter. It’s your best source for genuine comments and current opinion.

See You Later, Aggregator

You’ll want to know about three services that aim to aggregate all available business information for any web company. These services pull together business profiles, news, financials, web analytics, social footprint, marketing strategies, and other business information from a variety of online databases. Quarkbase was one of the first of this kind. KillerStartups has its Dataopedia, a very similar information aggregator. BizShark is a more recent automated information aggregator. Unlike wiki-style sites that rely on internal databases and human volunteers, Quarkbase, Dataopedia, and Bizshark pull in data from across the web, so some of it is useful and some is downright irrelevant.

These sites are worth a quick check. BizShark prominently displays competitors for any company it knows about. Quarkbase lists “Similar Sites.” And Dataopedia lists “Related Sites.”

What To Do Next?

If you’ve followed the steps outlined in this guide, you’ll likely have been compiling a list of relevant startups. Now the task is to begin to differentiate them from what you intend to offer.

Here there’s no technique that is ideal for everyone. You might use sticky notes on a whiteboard, index cards on your desk, a yellow legal pad with lines and arrows, mindmap software on your laptop, or a spreadsheet. Your goal is to organize what you’ve discovered in a way that suits your own cognitive skillset. As you arrange and rearrange your discoveries, you’ll develop an intuitive sense of the market niche.

If you use a spreadsheet, you can set up columns that quantify amount of funding, age of the company, web traffic statistics, or product price points. Sort and resort your list based on various criteria and see what picture emerges.

If you use sticky notes, index cards, or mindmap software, you can organize your discoveries by clustering similar companies and using distance or direction to indicate degrees of similarity or difference. If you are a “visual thinker,” this approach may give you the greatest insight.

Your most important analytical exercise will be to list key product or service features for each company or what’s unique about their business model or market positioning. Ultimately, you should be able to reduce your research to a company name plus one key differentiator for each company.

You’ll want to express your insights verbally, or in writing, if you intend to add to a business plan or investor pitch. As you complete your competitive research, you should be able to point to one or two companies and say, “These guys are doing something close to what I’m going to do. Here’s what’s similar and here’s what’s different.” Then you’ll be in a position to describe your plans in terms of established businesses and explain how you intend to offer better value.

When you’ve completed your competitive analysis, you’ll be well-prepared to write a business plan, make an investor pitch, and guide your startup to launch.

A Final Thought on Competitive Research

With the tips offered here, you should have no problem identifying your closest competitors. Don’t be arrogant; exercise humility and make the assumption that these competitors are at least as smart as you and that they know what they are doing. Don’t just dismiss them. These are companies that have poured resources into something very similar to what you want to do; make an effort to learn from them.

Want to help others with a suggestion? Or let me know this was useful? Leave a comment. Thanks!

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