The Vast Competitive Landscape

A Proactive Approach to Competitors

Drew Jackson

March 5, 2025

đź‘‹ Hello friends,

Thank you for joining this week's edition of Brainwaves. I'm Drew Jackson, and today we're exploring:

The Vast Competitive Landscape

Key Question: How do competitors impact businesses?

Thesis: Proactive identification and analysis of current and future competitors can prevent key value arbitrage attempts, increasing the chances of long-term business value capture and success.

Credit Figma

Before we begin: Brainwaves arrives in your inbox every other Wednesday, exploring venture capital, economics, space, energy, intellectual property, philosophy, and beyond. I write as a curious explorer rather than an expert, and I value your insights and perspectives on each subject.

Time to Read: 11 minutes.

Let’s dive in!

Since the beginning, competition has been ingrained in our society.

Early hunter-gatherers struggled to forage and hunt enough food to survive. Those who got the most tended to survive longer, those who failed suffered the consequences.

Charles Darwin’s entire theory of survival-of-the-fittest (dubbed “natural selection”) is based on widespread competition—only those individuals most adapted to their environment survive.

In modern society, these competitive tendencies persist. Sibling rivalries test parents’ patience everywhere.

Authors compete to be the year’s best seller.

Every 2 years, the world tunes into the best of the best competing on the world’s stage at the Olympics.

Hedge funds compete to have the largest investor returns.

Social media influencers passionately strive to create the next viral video, which could bring them years of success.

As you would imagine, even the foundations of capitalism are rooted in competition.

Competition serves as the driving force for creative innovation and the mechanism by which supply and demand are brought into balance.

Anwar Shaikh, in The Theory of Real Competition, states, “Real competition, the central regulating mechanism of capitalism, is antagonistic in nature and turbulent in operation.” Similarly, many critics of capitalism emphasize the cruelty of competition, a “dehumanizing process that feeds unnecessary wants and desires.”

Within this turmoil of competition comes threats of value arbitrage.

Taking a quick step back, the goal of companies is to create value for their customers, and then capture some of that value as profits. Often companies create more value than they capture (through pricing, customer relationships, etc.). This gap creates arbitrage opportunities for competitors (see the visualization below).

When a company succeeds in creating value, it faces two competing imperatives:

For instance, in the short term, high margins in a business maximize immediate profits. However, over the long term, these high margins attract competitors who undercut prices and can destroy the value you’ve created.

The strategic challenge for companies is maintaining a balance between maximizing short-term value capture and preventing long-term value arbitrage by competitors.

In my Value Proposition essay, one of my takeaways highlighted this point:

The key to lasting business success is to create sustainable value for your customers over a long period, value that isn’t arbitraged away by the competition.

This complex dichotomy represents the ongoing struggle business owners face when making strategic decisions. Competition is an incredible driving force in markets, both for good and for bad.

The goal of this essay isn’t necessarily to prescribe a set of conditions wherein you can protect your business from competitors arbitraging value, instead, the following discussion highlights a few models and frameworks I’ve been taught to identify and critically think about competitors.

In the real world, outside of this idealistic strategy article, competitors could be attempting to arbitrage value in an infinite number of ways.

There’s actually science behind this approach.

According to Practical Risk Training, the first step in problem prevention is identifying the outcome you want to achieve (for our purposes: maximizing long-term business success). “Then by anticipating what could go wrong in the system when you are trying to achieve that outcome, you can take proactive steps to keep the problem from ever occurring.”

In our case, to paraphrase, by anticipating how competitors could potentially arbitrage value, you can take proactive steps to keep them from ever doing that.

The first step is beginning to study, understand, analyze, and predict your competition. Identification is the key—it is there that the roads of strategy begin.

Credit Unsplash

Competitive Thought & Analysis

To reiterate, the following frameworks are not an exact science, they simply begin the conversation about competitors and offer a starting place of thought from which each business can extrapolate given their unique contexts and scenarios.

In the following, we’ll discuss three main ways I’ve learned to think about a company’s competitors (a quick summary is below):

The Long-Run Industry Structure Model

Industry evolution over time is an intriguing (in my opinion understudied) problem. Many popular frameworks, such as Porter’s Five Forces, give a static analysis, helping us understand the competitive landscape at a particular point in time.

These static frameworks are more useful for assessing current problems and suggesting solutions to improve performance over the short term.

However, when thinking about a company over its growth lifespan, we are likely interested in a more dynamic analysis of competition which considers how an industry will evolve over time.

The long-run industry structure (LRIS) framework allows firms to anticipate and profit from trends in industry competition.

Some quick clarifications:

In a normal competitive environment, as the number of firms in the market (the number of firms competing) increases, the price of products in the market decreases until you hit perfect competition (where price = marginal cost; this can be with 2 firms in the market or thousands).

Here’s an explanatory example of the possible pricing in an industry as more and more firms enter the market.

As you can see, the price fluctuates between the monopoly price (the profit-maximizing price when only 1 firm is in the market) and the perfectly competitive market.

When there is only one firm in the market, the profit-maximizing price is the monopoly price. If, in our example, another firm enters the market (so there are now 2 total), the price decreases as each fights for customers. When another firm increases, the price continues to decrease until you eventually hit the perfectly competitive price.

The pricing structure in each industry, as you would imagine, is very different, so the LRIS in actuality is quite vague. Here’s an example of the framework:

Here, the first firm in the industry is able to charge the monopoly price, then when another firm enters (for a total of 2 firms), the price could be anywhere in that yellow-shaded box. For instance, with 2 firms, they might be completely price competitive and the price may instantly fall to the marginal cost. Or they may be in a cartel environment where they can both collude to charge the 2-firm monopoly price.

The whole basis of this framework is to understand entry and exit capabilities in an industry.

The thought is pretty simple. When are companies (competitors) going to enter an industry? When there are profits to be taken.

There’s also some math to be done here.

The math looks complex but is pretty easy. The left side (P - AC) denotes the profit in the industry. The middle (Q / N) denotes the average market shares of each company in the industry (e.g. if the market size is $100B and there are 100 firms, the average market share would be $1B per firm). Multiplying the profit by the average market share gives you each firm’s average profit in the market.

The thought is that if the profit to be gained in an industry when another firm enters is greater than the cost that firm would incur to enter, then it’s worth it to them to enter the industry.

As such, if they choose to enter the industry, via the LRIS graph above, we can understand what that will do to prices. Subsequently, those price changes will affect profits in the industry (usually negatively). From these dynamics, you can see how your business will be directly affected by your competitors.

What are the potential difficulties in this approach?

1) This model can seem very complicated (and can be at times). However, it’s worth the time to understand the structure and dynamics of the long run of an industry.

2) Understanding and projecting future industry dynamics has a large amount of uncertainty associated with it. Just because net profit (meaning profit minus the cost of entry) exists in an industry doesn’t mean firms will choose to enter it. And vice versa, even if there is no net profit in an industry, firms can choose to still enter it—rationale choices are difficult in the real world.

Where does the value of this approach come from?

The long-run industry structure framework allows firms to answer questions like “when firms come into my industry, do prices stay high?”

Over the short term, the number of firms in a market is fixed, however, over the long term, the structure of any industry can vastly change as firms decide to enter or exit a market. Understanding these dynamics can vastly alter a business’s strategy, enabling it to approach the competitive landscape proactively.

Competitive Landscapes

Competitive landscapes come in all different shapes and sizes. A pretty common setup I’ve seen is to have a massive spreadsheet list of all of the different competitors that are in your industry.

For the competitive landscapes I’ve put together, generally, that means anywhere from 20 competitors (for a super niche company - e.g. a plumbing business in a small, remote town) to over 500 companies (for a very general company - e.g. an accounting software provider).

For each competitor, you try to collect as many relevant data points as possible (representing anywhere from 10 to 100 columns). These pieces of information could be things like market share, number of employees, geographies served, funding raised, strategic partnerships, relevant acquisitions in the space, size of customers, financial metrics, etc.

In this case, the more data points, the better, as that allows for a more complex and detailed understanding of the competitive landscape.

What are the potential difficulties in this approach?

1) It seems like a super simple approach, but depending on the company, it can be incredibly hard to identify competitors A) because the company is so niche and/or B) because the company has hundreds of competitors.

Finding competitors can be difficult—I can personally attest. It involves lots of Googling, scrubbing industry lists, dissecting competitor lists, parsing through LinkedIn, talking with colleagues—really anything you can find. In this step, no stone can be left unturned.

2) Most of the companies you will find will be private companies. Not necessarily a bad thing on the surface, however, finding in-depth data on private companies can be difficult, requiring creative solutions (if there is any data to be found). This can leave many holes in your landscape, ones which you cannot really prevent, but which will have an impact on your strategic decisions.

Where does the value of this approach come from?

If done correctly, you should have 99% of your large competitors in this landscape (those which have immediate value arbitrage capabilities). As such, you know where every single threat to your business (competitively) currently exists.

This information brings power.

For instance, you may be interested in knowing what geographies are underserved, which private funds have provided capital to your competitors (and may provide you with some in the future), or purely the sheer number of competitors with which you are actively competing for customers.

Creating and constantly updating a competitive landscape can provide all of these solutions and many more.

2x2 Landscapes

A common use of the data in a competitive landscape is to build visualizations of your company’s competitors.

One of my favorite visualizations is a 2x2 chart. A quick example I put together on the hotel/overnight housing market is below:

As you can see, a 2x2 graph is very simple, with 2 axes ranging from one end of some spectrum to the other. From there, you can plot company logos on it as such, and just like that you have a visualized competitor matrix.

I find creating these 2x2s is an excellent way to visualize an industry and also to deploy data from your expansive competitive landscape.

What are the potential difficulties in this approach?

1) Not necessarily a difficulty, but it’s easy to think that one 2x2 is enough. This isn’t the case—I emphasize creating as many 2x2s as you possibly can. Firstly, you never know what insights you might gather, and secondly, it helps you curate more of a holistic perspective on the company and its competitors.

Where does the value of this approach come from?

When you simply see numbers or descriptions in a spreadsheet or do a simple Google search, sometimes it’s hard to grasp certain dynamics of an industry and the competition within that industry.

Building 2x2s helps visualize these dynamics and, if done properly, can help find and answer questions you didn’t know you had. For instance, plotting the employee count by the geography presence could produce intriguing results about labor efficiency. Or, plotting next-generation capabilities by the time to market could shine a light on powerful innovators.

Credit Unsplash

The Vast Competitive Landscape

Competitors can easily make or break a company. The dynamics of competitive value arbitrage are a key component of a company’s value creation and value capture strategy.

Considering that there are millions of businesses in the United States (and even more globally), the potential competitive landscape is vast.

“World trade means competition from anywhere; advancing technology encourages cross-industry competition. Consequently, strategic planning must consider who our future competitors will be, not only who is here today.” — Eric Allison, Uber

The competitive question is incredibly broad: If consumers are not choosing to purchase at your business, where else are they going with their money?

The above frameworks pose the beginning of the answer. However, the breadth and everchanging dynamics of a company’s competitive landscape require a much more thorough, detailed, and time-consuming analysis.

Is it worth the effort to understand your competitors?

1) As stated above, competitors can easily make or break a company. They can take market share, customers, profits, supplies, and much more very quickly, which can have devastating effects on the business.

2) As such, all sophisticated investors look into a company’s competitors when considering a potential investment opportunity—they need to understand the risks (and rewards) present given the current and future competitive landscape.

To summarize my views on competition, I resonate with the following statement from author Nancy Pearcy:

“Competition is always a good thing. It forces us to do our best. A monopoly renders people complacent and satisfied with mediocrity.”

Go out and compete, but be informed about your competitors.

That’s all for today. I’ll be back in your inbox on Saturday with The Saturday Morning Newsletter.

Thanks for reading,

Drew Jackson

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