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Selling to the Enterprise #4: Which Competitors Matter?
Enterprise SaaS is brutally competitive. Markets are crowded and zero sum: customers are buying your product, a competing product, or nothing. The industry naturally leads teams to obsess about competitors.
If you spend your entire day thinking about the competition, you’ll fail. The best companies succeed by building what their customers need, rather than analyzing their competitors’ actions. To stay focused (and stay sane), you need to relentlessly prioritize and only devote your team’s finite energy to your most significant rivals.
It’s a bit like running a football team. If you spend your entire time studying your opponents, you’ll lose because you didn’t practice your plays, work out, or prepare to play your game. But if you ignore your opponents and focus 100% inwardly, you’ll both miss out on opportunities to beat them and also risk having your weaknesses exploited. And unlike in football, you may have dozens or hundreds of opposing teams, and you don’t even know who your next opponent might be.
Inevitably, you need to decide which competitors deserve your attention. Taking the right steps to ward off serious competitors pays dividends when done early. Beat an established company enough and you can dissuade them from entering your market. Kill your startup competitors in the crib, and they’ll pivot or be unable to raise funds to survive.
Below is a quick-and-dirty set of criteria to determine how much mind to pay your competitors, in order from least worrisome to most.
You run into a competitor in new head-to-head deals, but you always win
We’ve seen a new competitor, SnowDog, in 3 deals already. But don’t worry, we’ve beaten them every time. Their product is just not able to compete with ours at this point.
Running into a competitor in head-to-head deals is the first indication that they’re coming for your market. It means that their sales and marketing can access the same customers as you, and that their product positioning attracts the same buyers.
At this stage, if you’re consistently beating a competitor, one of two things can happen. In some cases, they’ll give up – pivoting or abandoning their product, or steering away from you in the market. But in others, this stage is just the precursor and they’ll persist in their efforts to compete. This is the first warning sign but is usually not worth reacting to.
The competitor beats you, but for bad reasons
We ran into SnowDog in 8 deal cycles last quarter, and they beat us in 3 of them. But it wasn’t for good reasons – they dropped their prices to just 20-30% of ours, added in tons of consulting services, and in one case even promised to build a one-off feature that the customer wanted.
When a competitor is desperate, they’ll pull all sorts of tricks in order to beat you. This is especially common when competing against early stage startups. They may win deals, but they’ll ultimately win because of “bad” reasons:
Dramatically undercutting you on price
Offering to do tons of custom work
Customizing their roadmap to close deals
Simply being dishonest in the sales cycle
Losing to a competitor for bad reasons tells you that they simply aren’t yet ready to compete with you on a fair playing field. But it also confirms that they are planning to compete with you, and that you’ll need to deal with them in the future… if their business-weakening competitive tactics allow them to survive that long.
The competitor beats you, but for valid reasons
Hmm… We’ve continued to run into SnowDog, and they just beat us in the Jetblue deal even after we had dropped our prices to remain competitive. The buyer at Jetblue said that they just liked SnowDog’s offering more for their team’s particular use-cases.
There can be any number of reasons why a competitor beats you fair and square. They may have outsold you; they may have gotten to the customer first. They may have a better product overall, or may just have a better product for a niche situation that some customers care about.
When you lose for a “valid” reason, it indicates that your competitor’s pitch and ability to back that pitch up in a sales cycle are real. Their product might not actually be that great, but overall they have figured out the mix of product and positioning that gives them a foundation from which to build their go-to-market motion.
Most SaaS markets are competitive, so you should expect to lose some head-to-head deals for valid reasons from time to time. You certainly shouldn’t panic at this point, but by now you should be actively monitoring the competitor in question and preparing your sales team to combat them.
You can’t reliably rip the competitor out
SnowDog has been working with Southwest Airlines for a year and a half already. We tried to get them to switch to our offering, but we haven’t been able to do so yet – even though they aren’t huge SnowDog advocates, Southwest says that they’re satisfied enough with the offering and focusing on other projects in the coming year.
This is the first severe warning flag. If you can’t rip out a competitor – that is, you can’t pull them out once they’re installed – that means that their product is truly adding value in a sustainable way. Products with weak product/market fit aren’t sticky, and you’ll be able to rip them out easily. Products with strong product/market fit, even if expensive or not beloved, are surprisingly durable once customers are using them.
When you can’t reliably rip a competitor out, you’re dealing with a true adversary and beating them should factor into your company’s strategic roadmap.
The competitor can reliably rip you out, but only in a niche customer segment
It’s a bummer that American Airlines stopped working with us, and we just found out that they actually switched to use SnowDog. This is bad news but isn’t too surprising, however – SnowDog have really established that they’re strong in the airline industry. They don’t have a lot of ability to expand beyond that vertical… we think?
This is the most important stage, as it involves a fork in the road.
At this stage there is almost certainly trouble, but the question is how much? Perhaps a competitor is taking only your largest enterprise customers away, or your customers in one particular industry vertical. The company-shaping decision you must make at this point is whether you think that this is as far as they can go, or if they will come after you in another category next.
If you feel that a competitor won’t be able to attack your core business, you may not need to react. Perhaps your product was never really meant for the airline vertical (or wherever you’re losing customers) and this just speeds up your exit from the space. You must monitor the situation but it doesn’t yet need to dominate your field of view.
But it’s also possible that this is just step 1 of a comprehensive attack. Beating you in one customer segment is always the prelude to beating you across the entire market. If there is even a possibility that the competitor will have the incentive and ability to attack your core market, beware: beating this competitor should now be a key pillar of your roadmap, and it’s easiest to take steps to block them immediately.
One indicator that can help make this decision is actually the competitor’s own product marketing. Many companies will actually publicly declare the markets that they want to enter. It’s good PR for prospective future investors, whether public or private. Another clue can come from fundraising patterns - all else being equal, the more money a company has raised, the more markets they will feel compelled to enter in order to justify a higher valuation.
The competitor can reliably rip you out of most customers
Home Depot just churned to use SnowDog. What the f### is going on?
This is code red, drop everything. This competitor presents an existential risk to your business that you must deal with immediately if you want to keep your job. The longer you wait the worse the problem will become. Beating this competitor is now the core of your roadmap.
The trick is to never, ever get to this point – or at least, if you do get to this point, to see it coming early enough that you have a plan. You can do this by looking for the indicators above, and gradually increasing your defensive and offensive capabilities and counter-capabilities against top competitors to prevent them from rising up in the first place. The full story of how to combat competitors will be the topic of future posts!
Prioritize the amount of time that you spend on the competition. When a competitor rears its head, consider where they fall on this spectrum to determine how concerned you should be. It’s easier to beat competitors when they’re small or before they get to your market, saving you months of work and heartache in the long run.