Let's say you're building a project management software.
Your competitors can be grouped into "the solutions that fill the same buyer need you do in a similar way" (i.e. another project management software)
Potential substitutes can be defined as "the solutions that fill the same buyer need you do, but in a different way" (i.e. a spreadsheet)
Quite often, your competitor analysis might look at your solution vertical, but you can't neglect the variety of ways people currently solve the problem.
They might be using free, multi-purpose software (like documents, spreadsheets, presentations, email etc.) and retrofitting them into their workflow. Or they might still be relying on legacy software that "just works."
Slack's biggest "competitor" is probably email threads.
Notion's biggest "competitor" is probably a folder of Google Docs.
Calendly's biggest "competitor" is probably back-and-forward messages.
Startup legend, Peter Thiel, says "your technology (solution) should provide a 10x performance improvement over the closest substitute."
In order for someone to use (and pay for) your project management software over their free Google Sheets, it must be undeniably easier, faster - better - overall, even if with certain tradeoffs.
Product teams are responsible for ensuring that's the case. And marketing teams are responsible for demonstrating that's the case.
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