Suppose you are evaluating an idea for commercial viability. You look to see whether there are competitors. Of course there are, because there always are. How do you judge whether the market has an opportunity?
For example, Steve Blank has some particular advice (if the top competitor has 80% it's a monopoly, you'll need to spend 3X marketing of top dog to beat them, so don't go after Google, etc.).
Of course talk to potential customers (Blank would say "earlyvangelists") is best, but you can't schedule meetings over every idea you are evaluating .. or can you?
I am most interested in your actual experiences in rejecting ideas with too much competition (and why), and accepting a certain type of competition and successfully proceeding.
We had this problem at my present company. The wide competitive landscape made it particularly challenging to sort through what to attack. The method we used was:
Using this criteria, we narrowed down those 45 verticals to 1. We are now building for that vertical and so far, it's working out great.
When you're evaluating the competition you can look at a few different factors:
The past 3 ideas that I've shot down have been for the following reasons:
The project I'm working on now, however, has a healthy amount of competition (not too much, not too little) and we have a very strong differentiator compared to our competitors. We did a lot of market research and came to the conclusion that there's enough of a market out there that if we're able to get just a small slice of the pie, we can have a viable business.
I think researching what potential competitors are doing isn't as useful as researching the question, "How can we redefine a market?"
Case in point: Google when it started went up against a competitor that owned the "search market"- Yahoo. Google redefined what search was (of the net itself, not a directory) and won. Other examples: IBM PC, the Mac, the Apple iPhone and the iSlate, mint.com.
"You don't win the next war by fighting the last war" is an equivalent truism from history/military science. The same can be said for startups.
Research-based reasons for rejecting startup ideas are important, but they come into play more when you have enough of an idea to get some people together to scratch heads about something. I'm not sure what your situation is, but many folks with entrepreneurial ideas either get lots of ideas all the time, or they get this one idea that has really captivated their attention but they aren't sure how to make their case more convincing to others who might then support some more serious inquiry. Since you've already had a couple of people give you some good research-based advice, I'll ratchet it back to the basic "dreamer in the shower" phase.
For me, there are a couple of red flags for this stage of early conceptualization. This first red flag is a generalized, abstract sense of the market - as "people" (understood abstractly) or what linguists call "institutional" subjects (like the "they" in sayings like "now they say coffee is actually good for you"). This is especially deadly for private sector projects. If your idea has a lot of vagueness and "theys" in it - if stakeholder groups are just categories one mentions via hand-waving, then your idea is not ready for prime-time yet.
I relax this rule a bit if someone is thinking about a proposal involving institutional funders (e.g. for an arts, cultural or academic project). Funding institutions have more tolerance for projects that sound good on paper, so long as there is a tight fit between the proposal and the funders' mandate. So it depends what kind of thing you want to launch. For private sector proposals, especially for mini-cap, bootstrapped enterprises, your sense of who your stakeholders are should be so concrete that you could without hesitation march up to the door of exactly who you are thinking of, and be correct about what their frustrations, resources and preferences are.
My second red flag flows out of the first one. If the new idea involves a sudden moment of conversion where everybody "gets religion" and changes their behaviour, then I'd suggest what you have is a long-range dream, not an actual startup concept. If in your visioneering you think "...then all the people will (x)", don't cash in your savings bonds yet! The behaviour change you expect people to take has to be small enough to insert itself into their lives as they are being lived now. So, assuming people won't change their behaviours very much, will your idea still work?
Here's an example of how these two red flags might work. If Mark Zuckerberg and co. had tried to launch Facebook to VCs on day one, saying "one day everybody will be using this network! Grannies will sign up in droves to share photos of their kids and discuss transcultural spirituality!", that would have been dumb, even though this is now an accurate description of part of what happens on Facebook. If, from day one, the founders were trying to create that global behemoth from nothing, for "people all over the world" to "connect and share everything", it would not be an actionable plan. It's an okay vision, but if your opportunity is mostly vision, it's not actionable enough for concretization. Both the market and the action they may take are still hypothetical.
Of course, Zuckerberg and co. initially designed their network for a very concrete group of people - Harvard students - to do something they were already doing; looking up people in the (at that time paper-based) Facebook, a document that let you put faces to names of people on campus to make it easier to find and interact with them. Facebook then expanded in waves to concrete groups of people each time (Boston-area only, then Ivy-League only, then Universities-only) until "everybody" actually became a meaningful category. By then, "Facebooking" was something people were already doing, and didn't necessarily want to stop doing when they graduated. The activity was no longer new - it was known by reputation outside its user group by this point - so it just became a question of taking down a door; people were by this point waiting to get in.
Before determining if you have a good opportunity or not, you have to be sure that you are looking at a concrete opportunity, not an abstract one, and that means thinking in terms of people you can actually shake hands with. In fact, if you have a really strong concrete set of stakeholders which coheres in a reliable way over time, and they are underserved in some way, I think you can actually bootstrap yourself into a theoretically crowded niche as a new player. But the really sweet opportunities require you to have both the abstract, globalizing dream-potential and the concrete, on the ground action-context for sustainable first steps. The vision offers a compass for keeping your bearings, but you need something more solid as a base to actually start your journey from. Without that starting point, you are not actually looking at a new business opportunity, just a vision.