Essentially, there two types of start-ups: the ‘pioneers’ that create a service, product or process that is unique and where there is no known competition; and the ‘settlers’, the more common type of start-up where the business enters a market where there are already many competitors.
The more mature a sector becomes, the greater the likelihood a significant number of businesses will be competing in that market, with a few, increasingly dominant businesses (sometimes called ‘Gorillas’) leading the pack.
What is key is the number and strength of competitors in relation to the overall size of the market you decide to target, along with your market’s rate of growth. If it is growing at twice the rate at which new competitors are appearing, your chances of success are high. However, pitch your startup against a growing number of strong competitors in a market that is stagnating or shrinking and your task of winning market share is much harder. And while it’s not impossible to do well, it means your offer has to be extremely compelling.
Market size is not something that increases or decreases in isolation. It is also influenced by the businesses that operate within it. For example, Europe’s air travel market was considered mature, with many established airlines operating within it. Then came along the low-cost carriers such as Ryanair and Easyjet, which not only took market share off the established players, but actually grew the market they served by encouraging people to take trips they might otherwise not have done if it had not been for the cheap fares on offer. In this way you can change the dynamics of the market you enter if your offer is significantly different.
My own business, Message Horizon, has entered a market that has many established competitors, but the market is still growing, albeit at a slower pace than previously. Here’s what I’ve learnt:
- Study your competitors. Decide which parts of their offer you want to emulate. What are the things your customers will expect you to offer, too?
- Then differentiate your product from theirs. This can be achieved through a combination of product innovation, market innovation (eg finding new types of customer not served by your competitors) and economic innovation (eg pricing plans).
- Think differently from your competitors. If you can’t think of any obvious weaknesses in your competitors, search online for postings made by their disgruntled customers voicing complaints, criticisms and suggestions for improvements. You might be amazed to find that what you considered to be a mighty competitor actually has a significant number of unhappy customers, perhaps because of its service, technical problems or other ways it is failing to live up to its customers’ expectations. If you can nip in and cover the gaps left by your competitors, you will start to pick up the business they neglect.
Jonathan Rodger is managing director of email marketing service Message Horizon.