Raising Venture Capital, Tips for Entrepreneurs, Post 4

In our last post we took up part 3 of the executive summary; do you have a keen understanding of the market you intend to compete in? This is critical since the addressable market is really the point that we are looking to understand. In this post, we deal with competition, often a “trip-up” point in many plans.

4. Who is the competition, both obvious and not so obvious? I find that many plans fall into two distinct camps on this issue. In the first case, we get descriptions of large competitive markets with many players; some are sizeable, others are small and fragmented. Typically, we get a description of the major competitors that are then broken into many sub classes, explaining how they don’t really compete but instead take pieces of the addressable market. This is helpful, but often doesn’t recognize the power of established parties. Regardless of whether Google, Cisco or some other major player is only going after a small piece of the market, They Are Google and Cisco for Pete’s sake! Don’t ever underestimate the resourcefulness of these organizations. They didn’t become the great leaders by accident. They have relentless competitive instincts and will kill their own young to keep that position. In this case, its better to come right out and say, “We compete with X and here is why we will prevail in this space. We have a cheaper, more efficient solution, and we believe that our focus on this part of the market will make us an attractive candidate for them at some point…” or something along those line. Admit where you stand and now convince me why you will succeed. There is plenty of opportunity to win market share from these ensconced players.

The second case is those plans that claim virtually no competition. This is always confusing, because in the odd and rare chance that you have literally invented something so novel and new so as to have no current market for your product, it immediately sends up a red flag. This is typically a lazy way out of dealing with the real issue; who are the buyers and whom do they perceive as the competition? If for some reason you can’t answer this question, please ask your buyers. This will tell you in a second whom you are dealing with. It may come as a surprise to you, but that is ok. You need to understand where the dollars are going to be spent. This applies directly to your product or to how the buyers are going to solve the problem, assuming you have answered part 2 of our blog series (explaining the problem that needs to be solved). I will repeat this again; if you think you have no competition, think again, rinse and repeat! Dig deeper. Fundamentally break apart the industry. Do whatever you can to find out where those dollars will be spent. I have literally seen plans that have no competitive assessment section in them. In most cases, this disqualifies an entrepreneur. It shows a lack of understanding of the end customer and market, both of which are critical for successful start-ups.

Next post: 5. Who are the people running the show?

About cavacapital

Cava Capital is a venture capital firm targeting go to market stage investments (series A and B) in next generation marketing solutions companies primarily in the Metro New York region. We are business builders, actively assisting our CEO's in the critical areas of Sales, Business Development and team building, bringing our exceptional and deep network to each and every portfolio company to help drive success. We prefer enterprise facing companies, but aren't scared off by the new consumer models.
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