You Should Welcome Competition

Ask Sherman

June / July 2010 By: Sherman McCorkle Volume 8 Number 3

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After a recent meeting with a venture capitalist I was told that my statement about having “no competition” was naive.  I thought that being an innovator in your field was a good thing.   What’s wrong with having “no competition”?

Like it or not competition always exists, and that's not necessarily a bad thing. Lack of competition can mean many things. First, that there is no demand or market for your product or service. If you have no competition it may be because others have studied your market and realized there's no profit to be made or that consumers aren't willing to pay for a solution.  On the other hand, strong competition indicates a robust market for your solution and the presence of consumers who are willing to pay for solution. “No competition” sometimes means “no market.”
No competition could also mean that you have not taken the time to fully investigate the market for your product.  You may have a new and innovative method of solving a problem, but mankind has survived to this point without your solution. How have people solved this problem up to this point?  
Your product may be a new way of solving a problem, but it is likely not to be the only way to solve the problem. In economics we learn the concept of substitutes and near substitutes. These are alternative methods of solving a problem or providing a solution. The classic example of course is that margarine is a substitute for butter on your English muffin in the morning. Near substitutes might include jelly, jam, marmalade, Vegemite, Nutella, or even peanut butter.  And of course, a substitute might include no product at all. Some consumers might prefer a dry English muffin.
A third possibility is that your competition may come from an entrenched way of doing things. At Technology Ventures Corporation, we have worked with entrepreneurs that have created technologies that will "revolutionize" the construction industry.  Technologically these new building innovations are superior to traditional stick and frame construction. However, the construction industry has traditionally used 2x4 construction methods and is unwilling to change its entrenched techniques to accommodate these new technologies.  Changing consumer behavior can be very costly and is very time-consuming.
So “no competition” is a bad thing. It either means that you're in the wrong market or you don't understand your market well enough to address the investor’s questions. However, there is one occasion when having "no competition" is a good thing.  Be so good at delivering its product or service that there is truly no competition in your industry.

An advisor recently told me that he would like to see more “pain” in the market for my product.  What is a “pain in the market” and why is it a good thing?  

Admittedly, pain does not sound like a good thing and the stock markets have been experiencing a lot of pain lately, but “pain in the market” has little to do with the NASDAQ or the Dow Jones Industrial average.    It’s a term commonly used to describe the difficultly consumers have solving a problem.  Put another way, “What is the pain that a customer is willing to pay to avoid.”  Since consumers make up markets, multiple consumers who share the same pain define the “pain in the market.”    
In sales this type of pain is actually a good thing.  Consumers are often driven by the desire to reduce or eliminate pain.  The more painful the problem, the more they are willing to pay for a solution and the quicker they are to make a decision to buy.  So sales, marketing and investor types look for markets with significant pain that can be solved with innovative products because the margins can be bigger and the sales cycle can be shorter than those for luxury or discretionary goods.
The analogy that is often used is one of a man who has a headache.  He is much more willing to pay a higher price for an aspirin now than for a vitamin that will prevent his headache in the future.  
This is not to say that there is no market for luxury or discretionary goods.  These goods often require more sales and marketing expense and a buying decision can be delayed indefinitely.  That is why it is always better to try to sell a product or service that provides a solution for the biggest pain in the biggest market you can find.  

Sherman McCorkle is president of Technology Ventures Corporation. Send your questions through our contact page.