What is a competitive analysis?

Competitive analysis is the process of gathering information on your competition. The purpose is to discover what other alternatives compete for the same wallet share as your startup. You can use the information from the competitive analysis to develop a differentiation strategy for your startup.

WALLET SHARE – is money allocated by a customer to make a purchase. Wallet share may sound like consumer spending. However, the same concept applies equally to businesses looking to purchase. The critical point is that a purchaser allocates a portion of their money (wallet share) to buy a good or service.

FULL SPECTRUM OF COMPETITION – are all of the options that compete for your target customer’s wallet share. Your startup will have both direct and indirect competitors. The indirect competitors are often more difficult to detect.

Indirect Competition examples

Harley Davidson Motorcycles – During the 1990’s Harley Davidson’s main competitor was swimming pools and not other motorcycle vendors. The target customer is a male aged 40 to 55 years old with $40k in discretionary income. The two competing options were a swimming pool or motorcycle. Knowing all your competitors is essential to sales success.

Municipal Government Software – I was working with a client that sold software into the municipal government market. As we started to chat with potential clients within the municipal government, we quickly became aware of our largest competitor. Our key competitor was the municipal government’s own internal IT teams. Many IT leaders within the municipal governments would rather develop the software from scratch instead of buying it from a third party.

Why startups need a competitive analysis?

A competitive analysis is a great starting point when launching a startup. You often start with limited market knowledge. Preparing a competitive analysis is the fastest way to improve your understanding of a new market.

How do you do a competitive analysis?

My first competitive analysis task is to spend time doing secondary research to find my closest competitors. Once I have found a few close competitors, I take a deeper dive into those companies. The competitors often have partners and suppliers listed on their site and may belong to some industry association. If you would like a more thorough analysis of how to do a competitive analysis, please check out this article I wrote for Entrepreneur.com Competitive analysis on a shoestring budget.

The second phase of my competitive analysis is to do primary research by contacting potential customers. The only way to get reliable information on your customers is to get out of the building and talk to them. It usually takes ten to twenty interviews to get a good read on the state of the competitive landscape.

NOTE: If you don’t think you have any competitors, you are either a genius or a fool. I have never met a startup that didn’t have some form of competition, either direct or indirect.


With the secondary research and some customer conversations, you should be in an informed position. Going through evaluating your competitors, analyzing the data, and presenting the findings will improve your understanding of the market. The competitive analysis process will give your ideas on how to differentiate products or services from the competition and provide a solid basis for developing marketing experiments.