Differentiation is another topic where founders can lear a lot from considering the perspective on the otherside side of the table. As a founder you often have a relatively narrow focus: your specific company operating in your specific market. When a founder looks at their competitive landscape, it's easy to take a cynical perspective of any other company. I used to do this myself all the time! Of course you believe "you're doing it better"! So do the others guys. So let me tell you something that should sound pretty obvious in retrospect. Telling an investor (or customer for that matter) that your competitor "doesn't have the same technology" "is all hype" "has an inferior product" or "doesn't have the same vision" is not exactly an original statement.
Understanding your competitive landscape is more complex than that. Resist the urge to simply trash talk competitors and establish concrete customer centric ways that differentiate yourself. The best differentiators for early-stage companies are those rooted in customer value and customer segmentation.
Here's a hypothetical example. ABC startup has a SaaS platform for daycare providers to organize all of the important compliance information for the Office of Children and Family Services. Let's assume competitor DEF startup has entered the space. Here are a few ways in which ABC startup might differentiate itself:
Market segment: DEF startup is better suited to daycare centers while ABC startup is focused on in-home daycare providers.Customer problem: DEF startup is really more of a Quickbooks plug-in that has some compliance capability whereas ABC startup was designed from the beginning as a compliance software.Locking out competitors: ABC startup is the only solution integrated with OCFS software to help make the inspection process that much easier for licensed providers.
Hopefully you'll notice a pattern here in that each of the above examples is not trying to argue that ABC is "better" than DEF. Each takes the perspective of the customer and describes the circumstances under which they are making an objective decision to purchase ABC instead of DEF. This is an important distinction because it's the more accurate description of reality.
Creating a legitimate differentiator is about more than just answering a standard investor question. This has a very meaningful impact on the likelihood of your success as an entrepreneur. In my experience, the entrepreneurs that have figured out how to scale their businesses are directly correlated to those who have a very deep and objective understanding of their competitive landscape. All of that being said, eventually you will very likely run into a direct competitor. The goal however is that by positioning yourself correctly and focusing in on the best target market in the early days, by the time your competitors emerge you'll already be miles ahead of them.