Several of the founders I'm working with are launching products in markets with existing competitors. I generally stress that one should test the problem before jumping to develop a solution, however testing, like anything else, can be waste.
The ROI of testing
The idea with testing is not to test everything, but to test the riskiest hypothesis of your business to increase your odds of success.
Cost of testing is also a very important variable: if it takes you two months to verify something that would take you a weekend to build that's clearly not worth it.
You're also slowing yourself down if, as you should, you were going to build that something to run more important tests.
What have your competitors validated?
That's the question you should be asking yourself: what have my competitors validated for me?
In my workshops I always use the example of a business idea I had for a vegan bakery. When I became vegan the crave for sweets didn't go away and I often found myself missing a piece of pastry with my cappuccino.
Now let's imagine that there's a shop in town that's already selling vegan pastry, specifically chocolate pastries. I'm a big fan of vanilla so I want to start another shop specialized in vanilla sweets. How would you proceed?
As I mentioned earlier it's good to validate the root problem, which in this case would be do vegan people crave pastries? If there's no demand for vegan pastries, vanilla or not won't make a difference. But we are in this existing market and we know there's this vegan chocolate pastries shop already going. What does that tell us?
You could guess that people want vegan pastries and therefore we can just go ahead and build our shop. But our idea actually is to make an entire shop about vanilla sweets, is that exact idea proven already by the competitor? I don't think so.
Competitive analysis and validated hypothesis
If we compare our idea to the existing alternatives in the same market we should be able to draw some common denominator. In my case that's vegan pastries. That is something my competitor has already validated.
Or hasn't it?
It may be that the love for chocolate is actually what's tipping the point so what's really happening here is that people are ok and maybe interested in vegan, but what drives them there is the chocolate theme.
Keeping that in mind however, if you go back to the first section about ROI of testing and look at this how to on finding your riskiest hypothesis it's fair to say that the vegan chocolate pastries shop does prove people are at least ok with vegan pastries and leaves out as biggest risk the chocolate Vs vanilla theme.
Comparative analysis can be used in all kinds of ways, sometimes you can use other businesses as a proxy. For example maybe there was no vegan pastry shop, but there were both successful vanilla themed shops and successful vegan restaurants. Using those as variables in your risk assessment you could say that there's both interest in vanilla sweets and vegan food, which reduces your overall risk compared to a world where neither is true, but nothing is said about interest for vanilla vegan pastries so that's where you should focus on.
What have you learned from your competitors?
If you have a story of how you did competitive analysis and used that knowledge to inform your tests this community would love to hear about it, please drop it in the comments. Thanks.