How do you assess a startup's competitive edge?

As a venture builder, my advice to founders is to always start by deeply understanding the problem you aim to solve. Get out there and talk to real users about their pain points. Observe where the incumbents are failing to meet customer needs. That's how you'll uncover the most promising opportunities. Once you've identified a compelling problem, stay focused on innovating the solution around the end user. Don't get distracted trying to disrupt the competition. Instead, offer customers something meaningfully better. If you solve a real pain point with a 10X better product, you won't need to worry about the incumbent - the market will come to you.

Assessing a startup's competitive edge involves evaluating several key factors: 1. Unique Value Proposition: Determine what makes the startup's product or service different from existing solutions and how it addresses customer needs better. 2. Market Research: Analyze the target market, customer segments, and competition to understand market dynamics and identify gaps. 3. Team: Assess the skills, experience, and passion of the startup's founders and team members to ensure they have the capability to execute their vision. 4. Technology or Innovation: Evaluate whether the startup has proprietary technology, intellectual property, or innovative approaches that give them a distinct advantage.

Recently I came across something very interesting in a small industrial cluster in India, in the tooling industry. There was a supplier (SME) who was the sole supplier of a component to a big enterprise; due to some financial crunch and labor issues they had to stop their operations for a little more than a quarter; forcing the big enterprise to look out for other suppliers in the same industrial cluster. This led to all other SMEs working in that cluster to form a sort of unofficial consortium, deciding on a premium price and promising not undercut each other. They ended selling the part at a premium to the big enterprise and reaping massive profits for 2 subsequent quarters.

Understand the market at launch. I met with a founder recently who was developing a new treatment for Alzheimer's disease. If launched today, it would be a knockout. However, the treatment is still in early-stages of development and won't be in the market for 10 years. At that point the current Alzheimer's disease treatments will have lost exclusivity and there will be more convenient formulations available. For an unlaunched product, your competitive environment is tomorrow not today.

1) What is the problem I am solving? 2) Did anyone else solve similar problem? 3) If someone else builds the product, would you pay for the product? If yes, there might be other people who might pay for your product. 4) Is the product scalable? 5) How large is the target market? 6) How am I different from others? 7) What is my competitive edge? 8) Do I have the skills? 9) Am I motivated enough? i.e does the product make me wake up enthusiastically or feeling dreadful? 10) Haters would hate, don't care about the haters. I personally wouldn't worry about big competitors, if there are big competitors, it means I am trying to solve big problem in a highly competitive market. If worried about competition, smaller startups can't build anything.

Questions to ask: - how hard is it to replicate? - how hard is the tech is build? - what expertise is required? - it that knowledge easily to acquire? - how different does it stand out to its competitors? - what’s one thing you do better? Ultimately it’s about defensibilty and how “deep” the moat is.

To effectively assess a startup's competitive edge, it's crucial to employ a multifaceted approach. Start by analyzing the startup's market differentiation, understanding what unique value it brings to the table. Next, delve into customer feedback and satisfaction metrics to gauge its ability to meet and exceed customer expectations. Evaluate its intellectual property portfolio, such as patents and trademarks, which can safeguard its innovations and deter competitors. Lastly, conduct thorough competitive benchmarking, comparing factors like performance, pricing, and market share to identify areas of superiority.

Very simple: I ask them 3 questions: 1. Have they interviewed 5 prospective customers and validated their pain? 2. Do they understand what type of go to market they need to make a sale and how long its lifecycle will take? 3. Do they understand what their edge is compared to their competition and specifically the incumbents? While they answer, I try to gauge whether they're too confident, underconfident, and how they react when someone challenges one of their assumptions.

Identify the 10 basic assumptions that have to be correct for the business to attract capital, attract and retain key employees, and expand into a profitable marketplace it can potentially dominate. Clear customer value proposition. Ability to reach the customer. Enormous advantage in terms of price, speed, or convenience compared to existing or looming competition. Small advantages won’t move the needle. For each sale it needs to make to an end customer, how many customer stakeholders have to say yes for a sale to be made? The more “yesses” that are needed, the less likely the business is to succeed. Ask yourself, how many of those assumptions can be wrong, by how much, before the business won’t succeed?

The ability of founders to wear multiple hats is absolutely key. Lean startups can't afford to hire large teams until they get major rounds of financing. Founders ideally are self-aware, they know what they are great at, and their weaknesses. They will ensure they fill these gaps with outside expertise, mentors. They will also know how far they can take their companies to inflection. Some founders will never be great CSOs or CEOs. It is not about titles. It is about building the right culture and team to allow the company to reach those key milestones and inflection points. Further financing.

I met a founder once at a major healthcare conference who came up to me when I sat down before a session and immediately pitched his idea. As he told me about his technology I noticed everyone else around me was playing around on their phones and quiet. Over the course of the meeting I saw this founder chatting with everyone who would listen. He became one of my favorite clients, a good friend, and is now in diligence for a series A from a major VC fund. True hunger rarely sits in silence.

It’s rarely the revolutionary product or business (like the media portrays) that makes the startup succeed. 99% of the success is dependent on the Founders and the Team. Whether it’s grit, expertise, or savviness — this is the most significant part of assessing any startup.

Assessing a startup's competitive advantage involves evaluating factors like unique value proposition, market differentiation, intellectual property, team expertise, scalability, and potential barriers to entry for competitors. Additionally, considering customer feedback, market trends, and the startup's adaptability can provide insights into its competitive strength.

What is also important to discuss is about the key strategic question: What is my company SUSTAINABLE competitive advantage. This is something impossible to copy in a short term basis. For instance, Walmart started as a small kind of mom and pop company with no purchasing power. One item this company excelled at was the entire value chain management. It took more than a decade before Target learned to do the same thing as Walmart. This is the reason Walmart became the largest retailer in the world. Same with other companies like Starbucks, Southwest Airlines, Microsoft, etc. So, the conversation should be centered about the strategic component first followed with the tactical components second including marketing.

Evaluate the startup's Unique Value Proposition (UVP) by identifying what distinguishes it from competitors and how it addresses a particular customer pain point or need that current solutions do not.

I work for a new VC called Curie.bio. What I look for in a startup - Founder entrepreneurs who have a unique approach, insight or skillset that can be used to discover groundbreaking best-in-class drugs. I want to be excited by the founders and their science – we need to believe a drug can be delivered to meet a major unmet medical need As we are a seed firm, we are also looking to understand that meaningful scientific milestones can be achieved with $5-10M in a 18-24 month period. Last but not least, can my team work with you to build your company and raise a significant next round of financing that will excite Series A investors, pharma partners etc.

In my experience, best ideas are rejected by the market and experts. For this reason, I doubt that an analytical approach is strong, except the market size. For example, the adoption of our approach to unlock chemical matter for therapeutics by the industry had begun only after 3-4 years. Why? Because it’s just very different. I believe the most important traits of founders are persistence and the ability to adapt, when necessary. Persistence is measured over time. Drive and ambition are must have traits, but they are abundant when there’s excitement. But persistence and optimism is what makes things happen and work when things seems to fall apart. Let’s make it happen!

As a startup mentor at multiple accelerators and programs, I have seen one metric that indicates that a startup has competitive power in the market: Pricing. If the startup is able to execute a price increase without losing too many or any customers, it is a sign that they are delivering value to its customers. The decision that the Startup leadership has to make is how much of the value to leave on the table for customers. Most Founders are disproportionately worried about the impact of a price increase. Possibly linked to not fully understanding how their product is being used. But that’s another topic…