Investing Against Your Competition

You need to remember that the competition doesn’t stand still, especially when you are entering a market with existing competition. Competitors are making investments and looking to improve as well. 

It sounds simple, almost common sense, but it is often overlooked when making an investment in a new product. 

Some of the ways this is overlooked:

• Competitor analysis is done based on where the competition is currently without taking into account where they are likely to be once your new product is ready.
• Competitor analysis downplays the competence of the competition rather than assuming your competition is as good if not better than you. 
• The executive, board or senior stakeholders take the view that they just need to do what competitor X is doing (which usually implies “is doing today”). 

There are instances where a competitor underperforms, makes a mistake or even fails entirely—but assuming or requiring this for your investment in your new product to succeed is a bit too hopeful to form a sound plan. 

Instead, a sound plan needs to take into account what will most likely happen. Which is that your competitors will continue to pursue the direction they have momentum in and have stated or indicated they will move. You can get quite sophisticated with your analysis of where they will go but, in many instances, a simplistic view will suffice. 

A sort of formula

In the simplest terms, your competitor will continue to invest and, if they’re doing well, then it will be at the same or higher to what it has been to date. Let’s call their investment $I for the time period P that it will take you to build your product. Therefore, assuming average competence, your competitor will have added at least $I in features and benefits to their product and go-to-market strategy over the period P. They also have the benefit of being in market, so they’re going to gain some additional momentum. 

Meanwhile, you are going to also invest $I over period P to release your first version of the product to market. Your product, if you’re following the ‘replicate the competition’ playbook, will almost match the features and benefits of  your competitor at -P (by the time your product launched). So you’re still a full time period behind and need to invest another $I or more to catch up. 

The reality is also that, usually, the new entrant under invests. That is to say, they usually invest lower than $I (the amount the competitor in market is investing). This is because the new entrant doesn’t have the momentum or validation and want to manage their risk.  

If you don’t take into account that your competitor will also be investing, then by the time you launch you will be behind. Your competitors will have continued their investment and it will be mathematically challenging for you to catch up in this scenario.

You can try to overcome this by:

• Investing more than $I – two times the investment your competitor is making. The challenge here is that you don’t have the momentum they have as they are in market and you aren’t. Incumbents in very adjacent spaces entering a new-ish market do have momentum worth considering.
• Competing on different dimensions.

Competing on different dimensions

Everyone is also likely thinking about their strategy and where they want to win with some kind of four quadrant view. The trick is working out what the dimensions are that your competitors are claiming or wanting to be the leader on, and whether you want to tackle them head-on or compete on different dimensions. 

A very simple look at you competing with a competitor going after easily distinguishable strategic dimensions. Rarely is it this simple.

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