How Many Competitors (and Prospects) Should You Have?
How many competitors should you have? As you answer that question, remember that your prospects get to decide who your competitors are—you can’t decide for them. I want to give you some practical guidelines so that you can test your own positioning.
You’re attempting to craft a positioning where you are less interchangeable so that withholding your expertise has some practical impact. That’s the only power you have in a professional service context: to withhold your expertise. When you do that, they’ll turn to a competitor who, in their view, can replace your expertise. Too few options and your positioning is likely not viable. Too many and you’re easily replaced with no pricing power.
Think of the options as a spectrum, with the right side depicting a completely undifferentiated firm (“I’m a branding firm.”) and the left side depicting the most focused firm you could imagine (We take natural product brands to market, from research through packaging.”). At the beginning of this exercise, you are toward the right, wanting to move toward the left and be more differentiated than you are now. You’re aiming for fewer competitors so that your expertise supports a price premium in your work.
As you march from right to left, you want to make a complete journey and make really smart positioning decisions. As you work out the intricacies of the positioning journey, there are two forces that slow your progress: one good (lack of opportunity) and one bad (lack of courage).
But how much movement is too little? How far is too far? I want to give you some guidelines to help quantify the ditches that should delineate either side of the road.
Philosophically, I think you’ll agree that you can have too few or too many competitors. And of course it’s obvious that you can have too few prospects. It’s not quite so obvious, but I’m hoping to convince you that you can have too many prospects, too. We’re going to look at the right number of competitors, defined by an appropriate minimum and maximum, and the right number of prospects, also defined by an appropriate minimum and maximum.
For an expert within the professional services sector, the appropriate number of competitors is 10–200 and the appropriate number of prospects is 2,000–10,000. (It’s not so scientific that you’d throw out an otherwise perfect positioning if you could only find eight competitors.) If you can’t find enough competitors who will occupy the same expert positioning that you intend to, the largest danger is that it might not be viable.
Your first objection might be: “But what about the first to market?” That would be true. For every established market, there are always the first few. For those to make it, they must depend on a rare combination of foresight, courage, and investment. If you’re that person, then go for it. You know about Google but you don’t hear about the hundred failed competitors. You know about Apple, but they are rarely ever first to market. And neither of those players are in the expertise marketplace where the barriers to entry are nearly non-existent.
When you’re testing your positioning and do a search to find how established a given marketplace is, you should be heartened—not discouraged—if you find experts who already occupy your presumed new focus. It means that what you are considering is viable! It’s great news! If you don’t find anyone, you’re either the smartest, most courageous, or richest person with that idea. Or a lot of other people have thought of it, and maybe even gave it the ol’ college try, but found that the idea didn’t have any legs. Which is more likely? I’m afraid that it’s the latter.
On the flip side, what happens when you find more than 200 competitors? In that case I think you need to keep thinking of ways to narrow it to be more compelling so that you’re less easily replaceable. There are so many viable ways to do that, too. If you’re leading with a vertical focus (i.e., with an industry), you could add some horizontal identifiers to narrow the prospect field: size of company, location of company, nature of the sale (e.g., complexity), and so on. The additional characteristics need to be meaningful, but there are usually great ways to reshape your focus to be more compelling.
Conversely, but simultaneously, you’re looking to see if your target market includes at least 2,000 prospects but ideally no more than 10,000 (again, these are just estimates). Remember that we’re not talking about a consumer product, but rather a buyer of a particular professional expertise like yours.
Here’s how the math works: If your firm is pretty good but maybe not quite amazing, you can safely assume that you’ll wrap up 1% of the opportunity. If you find yourself regularly snagging 4%, for instance, you can just view the extra as opportunity to waste on the way to higher pricing. So raise your prices until you’re down to 3% as new and existing customers self-select out of the running.
Regardless of how much of a marketplace you serve, you still want 10–20 clients of your expertise at any given point. More than that and there’s too much starting and stopping, you don’t get into a client’s issues deeply enough to make a difference, and you aren’t generating enough profit. Fewer than that and it’s going to hurt too badly when a client who represents too much of your business suddenly leaves (that’s called a “client concentration” issue).
Pretend that you have 20 clients who represent 1% of a marketplace, which forms the lower end of that range: 2,000 clients. As your firm matures, you should aim for fewer and larger clients, which is best managed if you can select from a larger pool of prospects. That’s where we end up with 10,000 at the higher end. In extensive research that I undertook between 2012–2014, that number of prospects was the sweet spot and the experts that I keep talking to confirm that range.
When you’re testing your positioning with the numbers, aim for 10–200 competitors and 2,000–10,000 prospects. I’ve rounded a little bit to make it easier to remember. When I err on the side of caution, I’d err toward fewer competitors and more prospects, though, primarily because I think there are other ways to differentiate your expertise that aren’t as fatal if you get them wrong, like process, pricing, and intellectual property. What’s more likely to make me skittish, then, is finding fewer than 10 competitors and fewer than 2,000 prospects. There’s a cliff there—and I don’t want to stand too close to it.
Is this helpful? Have you thought about your positioning in these terms? It might be a different approach that’ll give you some fresh insights to what you are doing.
