Knowing your target market and the opportunities within is key for any business, especially cloud-based startups. Unfortunately, many entrepreneurs in said field have picked up the bad habit of bringing coals to Newcastle. In other words, they try to bring their commodity to a marketplace that boasts a glut of the same product. Often they will write a program that already has been written by somebody else and subsequently pitch the idea to savvy investors who are aware that a similar product already exists, often without any distinguishing features that make it stand out from what their competitors offer.
Because journalists and investors constantly keep their eyes and ears out for what startups have to offer, they are often far more aware of what is on the market than entrepreneurs and programmers. As such, they will quickly ask fledgling entrepreneurs about competing startups offering similar products.
“I experienced this issue last weekend when I hosted the Angelhack hackathon,” remarks entrepreneur and blogger Ben Parr. “One group had a useful product they had been thinking about for weeks, but it was clear they knew absolutely nothing about the competition. I showed them three well-known and well-funded startups that did exactly what they wanted to do, and I could hear their hearts sink into their feet.”
Indeed, the most successful startups put in months and months of market research before they start soliciting funds from investors. This is in the interest of identifying a viable market opportunity and developing an innovative product that will sell.
According to Chris Dixon, founder of recommendations engine Hunch, “When you do planning, research, experimenting et cetera, without having raised money, investors think you are prudent. When you do it with other people’s money, and don’t make what they perceive to be enough progress, the investors can quickly lose faith.”
Offering a product similar to your competition does not necessarily mean shooting yourself in the foot. In fact, not only can competition validate a great market opportunity, it can also inspire a startup to improve on an existing idea. However, for such a thing to work, extensive research must be conducted to find ways to make the product stand out against whatever else is on the market.