• Even if your startup idea has no direct competitors, you probably have some indirect competition.  That is, some other kind of product or service is competing for the same dollars.  For example, even though no one else sells chicken wings in a particular neighborhood, someone may indirectly compete with hamburger and other fast food.

• On the slim chance that you actually have no indirect competition, be mindful that buyers always have the choice of doing nothing.

• Note that investors prefer startups that leapfrog competitors in an established market, and so claiming “no competition” may suggest to them that that no demand exists for the product or service.

• Startups that take on larger sized competitors and succeed may find themselves an acquisition target of that competitor.  That could be an attractive exit strategy.

Now some clever people might reply that government agencies and monopolies have no competition.  Well, perhaps that is so in some instances, but rather few.  FedEx and UPS have shown the Post Office that they can compete quite well with a government agency.  There are few real monopolies any more, and those such as utility companies find themselves heavily regulated.  The point is that competition is not a bad thing at all.  In fact, it is an essential component of the capitalist system.

Competitors keep one another on their toes; forcing producers and suppliers to focus attention on consumer needs.  Every competitive analysis asks why the target market segment buys from company A or company B.  That answer to that question underlies every business success.  Competitors verify the existence of demand, help scope that demand and illustrate ways to satisfy it.  The question is not whether you have any competitors; it is whether you have learned what they can teach you about winning customers.

Sharply rising demand drives up prices and so induces incumbent firms to increase production and new firms to enter the market.  Some new market entrants will have had no prior role in the industry, and others may have been suppliers who wish to forward integrate and/or distributors who decide to go directly to OEM suppliers in order to control a larger segment of the value chain. During this rapid growth in the industry, most new players must rely on outdated industry intelligence.  Neither existing players nor new entrants can know of all the others and so they plan their own production capacity based on dated, under-informed projections of supply.

No industry can long sustain an increasing number of competing firms.  Inevitably excess capacity creates market over-supply.  Whether growth in supply exceeds the ongoing growth in demand or demand flattens out or diminishes, the result is the same: The market place becomes saturated with goods and prices fall.  Competition intensifies throughout the industry.

Financially stronger players will deploy manufacturing efficiencies and short term price competition to drive the weaker ones out of the market.  Increasing price competition will eventually drive prices down to commodity levels and only the makers of exceptionally desirable products and the lowest cost producers will survive.  Lower margins will force some players into insolvency. Larger players may acquire the protected, novel technologies of a few small competitors, but most small companies will fail;  their expensive capital equipment now worth practically nothing in an over-supplied industry.  By all these mechanisms the industry will contract.  Increasingly cutthroat competition, sustained price wars, and company failures will continue until supply falls sufficiently to meet demand and enable price stability.

What is the lesson of this predictable cycle of fast growth in emerging markets?  Do not jump in without a clear understanding of how to compete effectively.  Large companies will often watch the emerging market for opportunities to acquire small firms with proprietary technologies that make the best and cheapest product.  Small firms and especially start-ups need to think particularly hard about competitive differentiation. It makes no sense to enter even a fast growing market in direct competition with the big established players and a whole host of new small competitors.  Start-ups must take special care not to over-rely on their innovative technologies; a fast growing emerging market may spawn lots of new product ideas.  Not all of them can be winners.  Entrepreneurs may want to focus on developing a unique business model; one that takes advantage of the forces driving the market growth without needing to confront all the mainstream players. Find a niche and own it!

So my idea of the best practice for online marketing is to keep a close watch on Guy. His blog is virtual textbook on how to use the latest Internet tools. For example, Guy’s “online magazine rack” called Alltop recently put up a video promotion for MyAllTop, a new version with customizable pages for the reader. Click over to Alltop and watch the video; a slick, sharp, and highly effective application of best marketing practices on the Internet. Guy is the man.

Click around through Guy’s various articles to see how he shares freely not only what he does, but precisely how and why.  His article How to Use Twitter as a Twool is a terrific read, not only for it’s content, but for the attitude it teaches and his delightful sense of humor. Guy makes clear how he has built his enormous and loyal following by sharing information.  If you market on the Internet, or anywhere else for that matter, keep an an eye on Guy!

Perhaps the most compelling reason to learn to look at your own venture as an investor would is that you will always be its major investor. Outside financial investors will invest discretionary capital that they can afford to lose. You will end up investing years of your life, enthusiasm, energy and credibility. Your friends, business colleagues, family and many others will either watch you succeed or fail.  You will probably spend a good deal of your own money and make many material and other sacrifices.  If the venture stumbles along for three to five years, it is likely that you will be the first one in and the last one out. No one has more invested in your start-up than you do. The years, money, self-esteem, sleepless nights, personal reputation and spirit that you put at risk is a huge investment.

The first step in the process is to stop focusing on the great new product or service that you dreamed up and shift to laser sharpness on whether and exactly how a company built around such a product would make money. Learn to question your assumptions and seek proof as professional investors surely will. Have you adequately laid out the business case?  Have you accurately estimated the market or have you made the Red Sneakers mistake or used Chinese Math?  Will people actually want what you sell enough to spend the amount you need to yield a profit? How much must they spend for a competing product? Do you have solid figures to back up the cost of making the product, acquiring customers and closing sales?  Great ideas are a dime a dozen. Businesses succeed by executing well on sound business strategies. Can you demonstrate that your management team has the vision, skills and relevant experience to do that?

These are hard questions indeed, but you need to ask and answer them to protect your investment.  If you fail to ask them now, it is very likely that you will wish later that you had paid them more attention. Moreover, if you think these things through carefull before an outside investor asks about them, you will not only be prepared, but you will see the importance and relevance of the questions much more clearly.