Competition is very good. . . . It’s what makes one strive to be better.
—Christine Lahti, actress, film director.
Ninety-five percent of the time, arrogance leads entrepreneurs to believe that they have no competition in the marketplace. However, on rare occasions, arrogance isn’t the true cause of this belief. Instead, arrogance is an effect of a more basic cause, and veterans of business know this. What’s the cause? It’s actually a thorough and accurate assessment of the current competitive environment that yields no competitors. The difference, though, is that arrogant entrepreneurs think that the nonexistence of competition means sure success while veterans know that this likely means that the idea is not viable for various reasons.
Considering this, entrepreneurs must learn how to interpret the results of their research on competition when it produces no threats. Assuming that no threats were identified and that your research methodology was solid, you must take your market research to the next level, which includes discovering specific reasons that an idea has no competitors. The most common and important reason is that the idea isn’t good. The four most common reasons that a business idea is unfeasible and therefore has no competitors in the market are as follows:
1. No demand exists for the product. For example, due to low demand, the DeLorean, a futuristic sports car that debuted in 1981, was a failure. In fact, few people today know that the DeLorean was indeed a real car and not just a fictitious, flying car in the popular Back to the Future movie series, which began four years later. Apparently, when the DeLorean hit the market, there was little demand for an overpriced sports car that went from 0 to 60 mph in a slow 10.5 seconds. The magazine Road and Track gave the car a poor review, saying, “It’s not a barn burner.” Perhaps the Back to the Future series was on to something—if only the makers of the DeLorean could go back in time and warn themselves that their invention would be a flop because of lack of demand.
2. The market is too small. Perhaps the most recent surprising example of a market being too small is the story of the Segway, the two-wheeled electric vehicle that was all the excitement before its launch in 2001. What was once the most anticipated invention to the hit the market is now all but a complete failure. The company that produces the vehicle expected sales to reach as much as one hundred thousand units within the first thirteen months, but it didn’t even come close. In a stark contrast to company expectations, only about thirty thousand Segways were sold between 2001 and 2007. Segway greatly overestimated the market size for its new category of vehicle, and thus its signature product has become a novelty, not the revolutionary means of transportation it was proclaimed to be.
3. The business is not profitable. How long is too long to wait for profits? Two years? Five? Ten? Well, for the hipster car-rental company Zipcar, the wait for profits will have to be longer than twelve years. The company has yet to make a profit since its founding in 2000, and it doesn’t look like profits will arrive any time soon. According to The New York Times, Zipcar has accumulated losses of $65.4 million, including a net loss of $14.7 million in 2010. How long one should wait to reap profits is debatable, but what isn’t debatable is the fact that profits are an important measure of success. After all, you are in business to make a profit. At some point you run out of possible adjustments or lose hope that the market will develop. A business that isn’t profitable, let alone not profitable for twelve years, is a red flag.
4. The barriers to entry are too great. The pharmaceutical industry in the United States has quite a few high hurdles that make it difficult to enter into the enormous drug market. Perhaps one of the biggest and most unpredictable hurdles is the Food and Drug Administration, a government agency that approves and regulates new drugs. In 2011, Contrave, a weight-loss drug developed by Orexigen Therapeutics, was denied FDA approval—a huge blow to the company. According to The New York Times, the FDA told the drugmaker that to win approval it must first do a long-term study to demonstrate that the drug does not raise the risk of heart attacks. Hundreds of millions of dollars are at stake as the company regroups. Investors hope to get the drug approved as soon as possible to recoup their investments. To that the FDA would reply, “Fat chance!”
In short, no competition probably means you have a bad business idea on your hands. There are several reasons for bad business ideas, but these four are quite common and useful to remember, especially when analyzing a barren marketplace. Therefore, each one warrants your special attention. Often what looks like a harmless path to success is really a dangerous path leading you right off a cliff.