You might be so excited about your new business that you’re living in a fantasy land of self-deceit, blissfully unaware of the real threats your competition poses. No, you say. That can’t be. After all, you’re excited about starting your new business. It’s going to be awesome; it’s going to be brilliant; maybe even rival Facebook one day. You know you are destined to be a multi-millionaire and retire rich at 40. You’ve got it all figured out. You know the market. Maybe you’ve even worked in the industry or niche before. You’re confident that there can’t possibly be any hidden surprises because you know it all. Wrong! Knowing the market can be both a good or a bad thing, but it’s something you absolutely must do. To be successful, you must understand your limitations, accept that your knowledge may be flawed, and have a realistic understanding of what you have to offer.
Fixing an Ignorant Mindset
Wishful thinking and cognitive bias have doomed many start-ups before, and they can destroy yours, too. We don’t challenge what we believe because we’re tired of doing research and we just want to start already. When we believe we already know everything, what’s the use of doing more research? We focus on skill and neglect luck, giving us a false illusion of control. We think that we are more skillful than our competitors, and that will be enough. Sadly, success is not always directly related to skill. There is always a large component of luck. Take the music industry, for instance. It’s littered with poor performers whose skill and talent lag far behind the many talented singers, musicians or composers who never got the one lucky break they needed. It’s easier to rely on what we already know than to challenge it. Our brains are hardwired that way. When we don’t acknowledge what we don’t know and understand, it makes us overconfident in our assumptions, and we forget how much we don’t know.
Even Hollywood Does It
Every year, the Hollywood movie studios all release their big blockbusters at the same time. Sure, it’s peak season, but all their competitors also release films at the same time. The abundance of films crowds the landscape, and they all have to fight harder for audience attention and have to spend more marketing dollars. When asked about the practice, the famous screenwriter William Goldman once said that in the movie industry, “nobody knows anything… Not one person in the entire motion picture field knows for a certainty what’s going to work. Every time out it’s a guess and, if you’re lucky, an educated one.” He blames the situation on hubris–excessive pride or self-confidence–within the industry. The key decision makers don’t have the mindset to look for innovation and test other ideas against what they already believe. Like so many business owners, they are blinded by their own self-confidence.
Challenging our Flawed Knowledge
We focus too heavily on our own goals and plans, neglecting the ideas and skills of our competition. We let our overconfidence tell us that we can ignore the market because we’ll easily outperform the competition, even without a concrete plan or explanation.We assume that the public will love what we do, without ever testing this assumption by pre-selling or validating the idea with market research. We fail to understand that winning a new customer means we have to convince them to walk away from the competition.
Your competitors are not always who you think
Say you are a new digital news startup. You are looking to create a platform in a specific niche, maybe fashion. You do your market research and you find a few similar businesses, both online and offline. Still, you know that you have a different angle and something that makes your publication unique. Based on your research, you decide that two online news publications and one printed magazine are your biggest competitors. You’re also confident that what you offer is superior to these competitors, and think there’s a good chance you poach these customers.
Yet despite all your research, your biggest competitor may actually be Facebook! Yes, you heard me correctly – Facebook. If your perfect avatar loves fashion but also spends 40-50 minutes on Facebook each day, that means you are now in competition with Facebook for their attention. You must persuade potential customers to give up some of their Facebook time to spend time on your publication if you hope to be successful. If you don’t understand this concept, your idea is dead in the water before you even begin.
To be successful, you have to compete against all the other distractions that vie for your target’s attention. Many of your strongest competitors may be the ones you haven’t thought of yet.
Your Product Isn’t as Good as You Think
We are wrong to assume our little innovation or twist on an existing product/service will be enough to draw lots of users away from the existing options. It is wrong to assume that we can convince customers to accept inferior work just because we offer it at a cheaper price. Never underestimate your customers’ loyalty to a brand or their demand for quality. Our brains tell us that we are more skillful, have more intelligence, and offer better innovations than our competitors. It is wrong to make this assumption. Even being correct in those beliefs does not mean that you will be successful in swaying away business from your competitors.
In my last business, for instance, new competitors entered the market all the time. None of them really understood what the landscape entailed. Instead, they chose to focus solely on doing a worse job at a cheaper price. Eventually, they created a market that was unprofitable for new entrants and existing businesses alike. Even the customer loses as quality suffers when the margins are too low.
Three Key Steps
There are three critical components to honestly and accurately evaluating your competition when starting a new business: the mindset or bias that you bring to the project; the true amount of research required to understand your industry and where there are opportunities to acquire customers; and, finally, there is the actual product. Your product must be innovative or different enough for you to make a profit without relying on reducing quality to provide it at a cheaper cost.
Failing to take any of these three steps will almost certainly doom your business before it begins. We are all vulnerable to the overconfidence that stems from our confirmation bias. We all think what we offer is superior to our competition. Everyone thinks what they have to offer is special, perhaps revolutionary. When you become willing to accept that you don’t know everything, only then can you begin looking for new knowledge in earnest. Only when you come down from the high that is the excitement of a new business can you begin to understand your competition and measure the seemingly insurmountable challenges before you.