One of the greatest challenges of any investor or entrepreneur is deciding what to invest in.
Business ideas (and investment opportunities) are like the bus – there’s always another one coming. So we’re all stuck in a constant state of evaluation, left to our own devices trying to decide which ones will succeed and why.
Of course, most businesses change their course more than once in their lifespan.
Men I enjoy reading like Nassim Taleb might have you even believe that we can’t predict anything in life, so why bother trying so with businesses. This philosophy aside, how do you know where to put your money and your time?
At Growth Partner, we’re working on a guide right now that outlines how we evaluate a potential deal or new business. One thing I believe investors and businessmen seem to have a conflicting opinion over is the level of competition in a given niche they’re looking into.
Are competitors bad? Does that mean there’s less chance of your investment succeeding?
I’ve heard people say as much. I’ve also heard that competition (on the SERPs or on the street corner) is no more than a validation of the business.
That is, if you’ve got an idea, and someone is already doing it and surviving, all the better. That means you’ve got a good idea. Invest with gusto!
Let’s look at it more closely.
Breaking Down Both Sides
1. Competitors are Bad News Bears.
Too much competition means you’ll be fighting for pennies on the dollar. Established companies are hard to unseat. They have everything in place and we have nothing.
To draw from my own thought process, note that I’m purely an online guy. I invest in web-based businesses.
Say we’ve got an offer to work with AutoInsurance.com (we talked to them a few months ago, so this is legit).
To evaluate this opportunity, I go off to Google and start doing keyword research. I search on some of those terms like “auto insurance quote”. All the big brands are there, in the organic rankings and the paid. A bunch of lead aggregaters are there too.
So, should we work with this guy or is he going to be over his head?
It’s interesting and complicated. First off, brands have been getting more love in Google lately. So even with a killer exact match domain like www.autoinsurance.com, you’re fighting the brand-love.
Also, if we want to go in and compete for paid traffic, those keywords are some of the most expensive online. We’ll need to really kill it on conversions and on backend monetization to do well.
Fighting for pennies on the dollar? Maybe.
Let’s do another example. What about something easier, like “San Antonio lawn care”?
If I’m going to start a lawn care biz in San Antonio, I’m pretty sure there are a lot of competitors. It goes without saying. High school kids that work their neighborhoods, all the way up to corporate-type providers with businesses all over town.
Searching that set of keywords brings back a different type of competition (cause again I’m looking online). You’ve got the OneBox local results to fight with, and it looks like most of the top-ranking sites are directories and aggregaters.
Good business to jump into, with these cited competitor types? I think so. I’d go try to buy http://sanantoniolawncare.com, get in those local results, and push ahead of the directory sites. They are spread thin, and San Antonio can be your market, when they are dealing in 250 others.
Granted, I chose two fairly conventional business types, but they do represent various types of competition both online and off. The thought process is similar no matter what niche or business you’re looking at.
Competition from big brands can be a problem, as can a crowded marketplace for lawn care providers in your area. But it can also be a sign that somewhere, someone is running a similar business and making money . . .
2. Competitors Mean this Business Will Work.
The presence of a few established competitors shows that this business can work. We can capitalize on mistakes they’ve made, or market segments they’ve ignored. Their track record can mix right into our blueprint to success.
In short, competitors show you a business idea is not some pie in the sky idea.
Existing search traffic can show you people are looking for a particular service, but it’s really the guys you see in the top 10 organic results and the top few paid results that give it this validation.
(Note of caution: Just because a company is bidding on a keyword, it doesn’t mean they’re doing it on purpose, or they’re doing it profitably. But that’s another discussion.)
Consider this example, one of which I think is interesting and common amongst all “big thinkers.”
Tell me if you’ve done this – you have an “ah ha!” moment in the shower, on the plane, or on a lazy afternoon. Some genius idea just came to you. You’ve never seen anything like it, and you know it’s money.
After a few hours searching online, you put together a one-pager on the idea. You pick out a domain name. You’re all ready to go.
The next day, you bring it up to your buddies and one says, “Oh you mean like ABC Company?”
Shit. Someone else already created this? And marketed, and sold it? You’re ingenious concept is now a lot less sexy than it was the day before. Now there’s competition. Bad thing?
I don’t think so. I think that’s a great thing. Too many entrepreneurs get bent out of shape over an existing competitor. They should appeal to concept #2 here, that existing competition validates the idea and the business.
Sadly, at this stage, some might abandon the idea. You’re forgetting that you don’t need a revolutionary idea to have a successful business. You might need an interesting angle, or “in”, or marketing strategy. But as far as original ideas go – There aren’t any! There are only iterations.
It’s a Constant Battle, but Keep Your Head Right
Like I said, starting a business or choosing which ones to invest in will always come with a dose of uncertainty. You are obligated to research the competition and the “competitive landscape” before making any decisions one way or the other.
While some will shy away from crowded fields, count me as one that sees competitors as a positive. Especially when you are marketing online. I sleep much better when I have some active competition in the SERPs.
Without it, you’re more susceptible to two things that kill any business – being too content, and being caught by surprise.
Image: Eric Wolfe