Competitive Sleuthing

"To let the brain work without sufficient material is like racing an engine. It racks itself to pieces."

Sherlock Holmes in "The Adventure of the Blue Carbuncle"

Too many entrepreneurs stress about their competition without having enough information to make informed decisions. They need to move beyond the emotional aspects of competing and develop multiple, largely free, sources of competitive information.

There is no need to hire an expensive consultant. As noted in, "Competing From the Fringe," dedicate a senior member of your team as your "Watson" (you cannot afford a Sherlock, after all). Watson's role is to diligently and consistently mine the readily available data sources noted below and periodically communicate the state of the competitive landscape to your Core Team.

Securing Information

There are a number of ways you can obtain information regarding your competition without breaking any laws or compromising your ethics. One common mistake is that competitive monitoring is often performed sporadically, usually when a particular competitive event causes alarm. A more effective approach is for Watson to methodically and systematically gather competitive data, leveraging the following sources, most of which are free:

  • Competitors' Customers
  • Competitors' Former Employees
  • Prospective Employees
  • Lost Prospects and Customers
  • New Customers
  • Tradeshows
  • Partners
  • Media Interviews
  • Online Resources
  • Unsanctioned Blogs
  • Student Projects

Let's explore each of these sources of competitive information in a bit more detail.

Competitors' Customers - One effective way to draft your competition is to attempt to persuade their current customers to switch to your product. In this way, you can leverage your competitor's efforts to educate the market and convince prospects of the efficacy of their solution. This approach is particularly effective in emerging markets in which awareness of the product category is low and therefore the emerging technology's value proposition is not well understood.

Customers that recently completed a purchase within your product category have demonstrated with their dollars an understanding of the emerging technology's value proposition. In some cases, their purchase agreement may afford them the ability to terminate the purchase, especially if they are experiencing issues with your competitor's solution. In addition, as they just completed the sales experience, the events will be fresh in their minds and thus more accurately recounted when you debrief them. Competitive drafting is discussed further in Competing On The Fringe.

Competitors' Former Employees - As discussed in, Turncoats Are Turncoats, it is a dicey proposition to hire a competitor's former employee. The fact that they are willing to turn on their fellow comrades is not a trait upon which you can build a healthy corporate culture. However, you should interview such candidates and attempt to learn as much as possible regarding your competitor, including: their shared vision and common worldview, the personalities of the leadership team, their thoughts regarding your company and the rest of the competition in general, how they plan to address specific market challenges, etc. You are not looking to extract trade secrets. Your goal is to gain a window into your competitor's soul, albeit filtered through an ex-employee who may have an axe to grind.

The one exception here is with respect to hiring your competitors' quota-carrying salespeople. Hire these folks all day long. They generally have a low loyalty threshold and they know how to sell the competition's solutions. As such, they also know your competitors' weak points and thus how to best sell against them. Ideally, you will have access to at least one former salesperson from each of your significant competitors as a means of training your team and acting as the category expert regarding their former employer.

Prospective Employees - Competition comes in a variety of flavors. For instance, you are indirectly competing with all the high-tech firms in your entrepreneurial ecosystem who are also attempting to hire top-tier employees. With this reality in mind, you should always ask a prospective employee, "Who else are you speaking with?" This will give you a good idea of who is hiring in your local area and it will help you properly position your adVenture's opportunity vis-à-vis the other opportunities the prospect may be considering. Understanding who these firms are, what sort of offers they are making and what types of positions they are looking to fill is valuable information which you can utilize when deploying your recruiting resources.

In the event that the prospective employee also interviewed with one of your direct competitors, you can learn a bit regarding their hiring plans, open positions and other surface level operational issues. You can also learn your competitor's perception of your firm and obtain an insider's view of their recruiting process.

Lost Prospects and Customers - If you lose a prospective or current customer to a competitor, you must obtain objective, honest feedback regarding why you lost the deal. Were you simply outsold? Did the competition cloud your message? Is your feature-set lacking or did your salesperson inadequately communicate your firm's value proposition? Such information may be the most important competitive information that you ever obtain.

Your primary objective is to determine why you were beaten. You lost - whether you lost for a good reason or a bad reason is not relevant. Your job is to gather enough information so you can avoid a similar loss in the future. If your competition finds a formula by which they can consistently beat you, you can bet they will attempt to replicate their success over and over. Thus, you need to identify and short-circuit any successful competitor tactics as quickly as possible.

Approach these discussions with your proverbial arms wide open and make it clear up-front that you are not selling anything, nor are you trying to win back the account (although you are always looking for an opening which could result in such a possibility). Make it clear from the outset that your goal is to determine how you can improve your business and serve your customers better. This sentiment is like Mom and Apple Pie to most reasonable business people and thus it is hard to resist.

Once you get the lost customer on the phone, fight the urge to be defensive and launch into sales mode. If you start selling, you have violated the premise of the call and the conversation will likely terminate quickly, leaving the lost customer with a lingering bad feeling about you and your company. Even if it becomes clear that you lost the deal because the prospect misunderstood some aspect of your solution, resist the temptation to educate the lost customer. Follow-up the call with a thoughtful "Thank You" email in which you address any misunderstandings or other issues that arose during the sales process. Review the Listen entry for other tactics you can deploy to make these interactions more impactful.

This is not a job for Watson. You cannot delegate the task of obtaining this feedback, especially not to anyone associated with the customer loss. Your status as a senior executive will add credibility to the fact that your call is solely for the purpose of collecting data and that you are not trying to sell anything. Also, by calling directly, you avoid obtaining filtered information from anyone involved in the tactical aspect of the sale. If you rely on the salesperson to obtain the feedback, it is unlikely you will learn anything negative regarding the sales tactics deployed by your team, such as whether the product was oversold, someone on the sales team was unresponsive, etc. This is a call that MUST be made by you or another member of the Core Team.

New Customers - Just as a member of the Core Team should call all lost prospects and customers, a similar feedback call should be made to all new customers. Ostensibly, you are calling to welcome them to your growing family of customers. However, you can also use the call to determine what they like and do not like about your product, what features they think should be in the next product iteration, their perception of your sales tactics and, most importantly, how you stacked up against the competition and why they selected your solution.

You are seeking repeatable tactics by which you can beat your competition. As such, ignore responses that do not represent repeatable opportunities, such as, "The competition's sales guy was a jerk." You are looking for systemic issues that are applicable to the majority of your competitors' prospects.

Such calls are the corollary to the lost customer calls. Your goal is to understand what your salespeople are doing correctly and determine which tactics resonate best with new customers. Once you gather this information, communicate it to your sales team and incorporate it into your sales strategy.

Tradeshows - Tradeshows are a great way for you to efficiently gain market intelligence on a variety of competitors. Gain an understanding of how prospects react to your competitors' sale messaging, new products, etc., by walking the floor and speaking with as many prospects as possible.

Do not allow Watson to resort to rookie ploys, such as covering up his nametag and engaging your competitors' salespeople in a dialog. He will not learn much and this high-risk approach could backfire and ruin your company's good-old-boy persona, which is advocated in Competing From The Fringe. Besides, this approach is lame and downright wrong. It is sufficient for Watson to walk the floor with his eyes and ears open and talk with as many prospects as he can collar.If your competitors are utilizing large, glitzy booths, do not hang your head in shame. On the contrary, make like Bobby McFerrin and "don't worry, be happy." The bigger your competitors' booths, the bigger your smile should be. With each additional square foot of booth space, the lower the likelihood they will ever see a positive ROI from the show. See Best Of Show for tips regarding how to maximize your tradeshow expenditures.

Partners - Another great source of competitive data are your partners. As described in The Bro Factor, if you have appropriately Bro'ed Up with your partners, they may be inclined to share non-confidential information related to one or more of your competitors. Unfortunately, anything that you tell a partner, even items which should be covered in a non-disclosure agreement ("NDA"), could potentially be leaked to a competitor. This is especially true when one or more of your competitors also shares a close relationship with one of your partners, such as when a number of parties are involved in an industry trade group or other similar corporate alliance. If a particular partner has loose lips in your presence, you have to assume they will also freely share your information with their other partners.

Media Interviews - As boring and banal as they may be, Watson should make it a point to read or listen to every interview given by all of your competitive Senior Executives. Most people cannot shut their mouths when a microphone is placed in front of them and they often say things that they would otherwise never want their competition to hear.

If you follow the "Keeping Your Enemies Close" advice from Competing From The Fringe, you may know the person being interviewed on a personal level. This will allow you to better interpret the context that underlies their statements and thus gain more market intelligence from their blabbering.

Conversely, when you are interviewed, picture your arch rivals sitting across the room taking notes. This does not mean you cannot provide a compelling and engaging interview. However, the image of your note-taking rivals should act as a check when you feel the urge to prematurely disclose a future initiative that could hurt your competition.

You should also avoid giving your competitors motivational fodder when you are interviewed. Many a coach has motivated his team by posting on their locker room walls belittling comments made by their opponents. Ensure that nothing you say will end up posted in your competitor's lunch room as a means of rallying their troops against you and your adVenture.

Online Resources - Online sources are fairly obvious, but they bear mentioning due to the accessibility, timeliness and richness of the associated data. Watson should sign up for RSS feeds, using your competitors' companies and product names as keywords. Watson should also systematically review key competitors' sites, with an eye for shifts in messaging, new product information, hiring initiatives which can give you a glimpse into their near-term Action Plans, funding events, press releases, etc.

Unsanctioned Blogs - Personal blogs written by your competitors' employees can also be meaningful sources of data. Even though such sites are not intended to disclose confidential information, they often can give you a peek into your competitors' worlds. For instance, if the uber-geek engineer notes, "I have been drinking more than my usual share of Red Bull, trying to meet the unrealistic product launch goals laid out by our marketing nimrods," then you have some insight regarding the timing and status of their next product iteration.

Such blogs also offer you a window into the state of your competitors' corporate cultures. Numerous postings which castigate the competitor could represent significant discontent that you might be able to leverage in your recruiting efforts, sales tactics, etc. Watson may have to do some digging to find these blogs, but searching on competitive employees' names will often yields surprisingly fruitful results.

Student Projects - Sponsor a group of MBA students to prepare an analysis of your industry. The report should be made available to all participating companies. Control the nature of the questions to ensure the MBAs gather data that is of the most use to you. As you are the study's sponsor, it is appropriate for the students to brief you regarding all the information they gather, even that which is not included in their published report. Such information will provide you with competitive insights that might be impossible to otherwise obtain. The degree to which you elect to highlight the fact that you are sponsoring the project is at your discretion, as discussed in the following section.

Going Over The Line

I do not advocate directly engaging a competitor under false pretenses, as this crosses my ethical line in the sand. However, such determinations will differ among reasonable and honest people. In any event, be sure to clearly articulate your ethical boundaries to Watson, in order to avoid a potentially embarrassing situation.

In one of my ventures, we determined that a prospective customer was actually salesperson employed by one of our competitors. This prospect was very quizzical and was given several demos. We eventually outed him because of the inconsistencies in his story which led us to trace his IP address to the competitor's headquarters.

Ethical issues aside, I was most angered by the fact that this charade negatively impacted my sales team's productivity. I called the competitor's CEO, who disavowed any knowledge of the salesperson's actions and indicated that he would address the issue. I never knew if the employee was disciplined, although he continued to work for the competitor for several years following the incident.

This entry outlines a handful of sources of free and nearly free competitive information. Irrespective of the specific tactics you deploy, assign a Watson to the task and require them to periodically report their findings to the Core Team.

The good news is that competitive data is all around you. There is no need to pay high-dollar consultants or hire competitor analysis agencies (see Beware The Consultant); Watson will do just fine. Once you start sleuthing, you will find that gathering information about your competitors is indeed, elementary.

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John Greathouse is a Partner at Rincon Venture Partners, a venture capital firm investing in early stage, web-based businesses. Previously, John co-founded RevUpNet, a performance-based online marketing agency sold to Coull. During the prior twenty years, he held senior executive positions with several successful startups, spearheading transactions that generated more than $350 million of shareholder value, including an IPO and a multi-hundred-million-dollar acquisition.

John is a CPA and holds an M.B.A. from the Wharton School. He is a member of the University of California at Santa Barbara's Faculty where he teaches several entrepreneurial courses.

Note: All of my advice in this blog is that of a layman. I am not a lawyer and I never played one on TV. You should always assess the veracity of any third-party advice that might have far-reaching implications (be it legal, accounting, personnel, tax or otherwise) with your trusted professional of choice.

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