I often hear entrepreneurs say that their company doesn’t have any competitors. This is never the case - it just means that they haven’t defined their competitor set broad enough.

Paul Bassat

Your competitors are all solving the same problem

Entrepreneurs often define their competitors narrowly. They may only look at others who are solving the same problem in the same way. The better approach is to think about competitors as everyone solving the same problem even if they’re doing it in a radically different way.

For example, when you look at the addressable market for Seek a narrow definition would be anyone looking for jobs or staff online. A broad definition would be any way that people find jobs or staff - online, through a notice in a shop front window, word of mouth or networks. The broader definition includes all of the real competitors because many jobs are still filled through a job being posted on the window of a retail store or word of mouth. If you defined the competition too narrowly then you would eat into the true size of the market opportunity.

Another example is a company Square Peg recently invested in, Athena. Athena is competing in the mortgage market in Australia - a $1.7 trillion market with $440 billion of new mortgages written every year. While many non-bank players in the mortgage market are operating in a particular part of the stack - they may just do origination, lead generation or be a broker - Athena sees their competitor set as everyone trying to solve the problem of originating and financing home loans to homeowners.

If you define your competitive set narrowly you won’t focus on organizations that really are competitors. For example, if you were investing in a music download service 10 years ago you might’ve looked at iTunes as a competitor but disregarded Spotify because they aren’t a download service.

If you define your competitive set narrowly you won’t focus on organizations that really are competitors. For example, if you were investing in a music download service 10 years ago you might’ve looked at iTunes as a competitor but disregarded Spotify because they aren’t a download service. That would have ignored that streaming is actually a far superior mode of listening to music compared to downloading and your decision would’ve been based on a market that was about to be disrupted.

Entrepreneurs often try to steer investors towards a narrow competitive set. They’re trying to position and market their business for investment. Investors often accept this because they don't know enough about the area. They just accept it at face value - like believing that music streaming and music download are two different things. If you’re in doubt, always define the competitive set broadly.

Paul Bassat is a Co-Founder at Square Peg Capital.

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