You have competitors. Don’t try to hide them from investors

What’s one of the fastest ways a founder can turn an investor into the world’s biggest skeptic?

Tell them you have no competitors.

(I can already hear some founders talking back to their screens, “No, but seriously. This is a ‘world first’! No one else is doing what we’re doing!”)

But we review more than 2,500 businesses and pitch decks every year. And while there is certainly no shortage of incredible founders who are disrupting entrenched industries and innovating new solutions, the reality is that many of those industries are being disrupted from multiple angles and those solutions are in different stages of development elsewhere.

That’s OK!

When an investor asks founders who their competitors are, they are trying to understand a few different things.

First, they likely want to understand how crowded the market is and whether there are companies that have more funds or are in a position to gain a significant share of the market.

This is often why founders try to minimize the focus on competitors. But it’s here where they might need to adapt their perspective. Investors want to understand how you are positioning yourself in the market and your awareness of where you sit in relation to your competition. They want to see evidence that you will be able to differentiate your business and stand out from the crowd. But they also want to see that you’ve done your research, you can back up the credentials in your CV, and that you have a deep understanding of your industry.

In fact, there are some instances in which facing a tough rival is a sign of future opportunity. Asking about your competition may give investors additional insight into potential mergers and acquisitions or trade sale opportunities. Knowing about more mature players in the space may also provide investors with a “sanity check” on key metrics in your business assumptions and financial models as well as help provide context around fundraising targets or exit valuations that may be achievable.

You have more competitors than you think

The reason why my eyes narrow when I hear founders say, “We have no competitors” is because it’s often a warning sign that they haven’t done the appropriate level of research.

Similarly, many founders list only local players and reveal that they have not thought about additional rivals that may come into play if they scale the business internationally or into adjacent product areas.

Even worse, having no competitors could be a sign that there may not be a need for your product or that you will have the difficult task of creating the market from scratch, rather than building on an existing market. That’s definitely NOT the impression you want to give investors.

If you fail to demonstrate a good understanding of your industry and how you will protect and differentiate your business from other firms, then a simple question becomes a major red flag.

What to say instead