Ask why now, and what stops the next ten companies

Evaluating competition means understanding why this opportunity exists now, who else can serve the customer, and what would make this company hard to displace once it is working.

11 min read · Level 3

The point

I put the most weight on what customers did before, because it names the real competitor in the customer's own terms. Pitches compare companies to other companies; customers compare a new product to the thing they were already doing, which is usually free, familiar and adequate. Beating that is the actual task.

What is it?

Three questions:

Question What it tests Why now what changed that makes this possible or necessary today Who else the real alternatives customers have, including doing nothing What protects what makes the company hard to displace once it works

Why now. Good answers point to a specific change: a regulation, a cost curve, a new platform, a behaviour shift. Weak answers describe a problem that has existed for twenty years with no explanation of why it will be solved now.

Who else. The competitor list in a pitch usually names similar startups. The real alternatives are broader:

Alternative Often the strongest competitor Doing nothing the customer tolerates the problem A spreadsheet or manual process cheap and already in place An incumbent's adequate feature bundled and already paid for An internal build for large customers

What protects. Defensibility comes from sources that are hard to copy:

Source Example Switching costs the product holds data or workflow the customer depends on Network effects the product improves as more users join Proprietary data information competitors cannot obtain Distribution access to customers others lack Scale economics lower unit costs at volume

Early companies rarely have strong defensibility yet. The question is whether a credible source would develop if the company succeeds.

Why does an investor care?

Because a company can be genuinely good at solving a problem and still lose to a cheaper alternative, a bundled incumbent feature or customer inertia.

Defensibility also determines whether early success translates into durable value. A product that works and can be copied quickly may generate revenue without ever earning a strong position.

Educational, not personalised financial advice. Nothing in the Investor Academy is a recommendation to buy, sell or hold anything — what is right for you depends on your own circumstances and the rules where you live.

Example

A company selling inventory software to independent retailers.

Question Answer given Investor's assessment Why now "retail is a huge market" weak: no change identified Who else named three startups incomplete: most retailers use spreadsheets What protects "our product is better" weak: no barrier to copying

The investor asked again and got better answers: point-of-sale systems had recently opened their data to third parties, which made the product possible at all; the main competitor was indeed spreadsheets; and once the software held two years of stock history, switching meant losing forecasting accuracy. Those answers were checkable and changed the assessment materially.

The common mistake

Accepting a competitor slide listing similar startups as an analysis of competition, when the real alternative is usually inertia, a spreadsheet or a feature the customer already pays for.

How it works

Step 1: Demand a specific why now

Identify the change in technology, regulation, cost or behaviour that makes this possible today.

Step 2: Ask customers what they used before

Speak to customers and find what the product actually replaced.

Step 3: List alternatives beyond startups

Include doing nothing, manual processes, incumbent features and internal builds.

Step 4: Test switching costs

Ask what a customer would lose by leaving after two years of use.

Step 5: Judge whether protection could develop

Ask which defensibility source would emerge if the company succeeded, and what evidence exists so far.

When to use this

During diligence on any company, especially in crowded or fast-moving markets.

When not to use it

Do not require strong defensibility from a very early company. The realistic question is whether a credible source could develop, not whether it exists already.

How investors actually did it

A recurring pattern: incumbents bundling features

Software markets have repeatedly seen standalone products lose ground when large platforms added comparable features to existing subscriptions, as widely reported across categories such as video conferencing, collaboration tools and security software.

Ask what happens to the business if an incumbent adds an adequate version of the feature to a product customers already pay for.

Do this now

Ask a founder what their customers used before buying
Write down what a customer would lose by leaving after two years

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Related lessons

AI companies can have software growth with hardware-like costs; deep tech trades time for defensibility — AI businesses must be judged on the cost of running models and on what protects them from competitors using the same models. Deep tech companies face technical risk and long timelines before revenue, in exchange for harder-to-copy advantages. (12 min)
One percent of a huge number is not a market size — Top-down market sizing starts with a large industry figure and assumes a share. Bottom-up sizing counts real customers and prices. Only the second tells you anything reliable. (12 min)
Team, market, product, business - and why the order matters — At the earliest stage there is little business to analyse, so evaluation leans on the team and the market. As a company matures, the evidence shifts toward product and business fundamentals. (10 min)