Not every competitor threatens you in the same way. A company selling the same product to the same customer decides your price ceiling. A company solving the problem differently decides how you have to explain yours. Treating them all as one list hides both.
The four types
| Type | Same customer? | Same job? | Same kind of product? |
|---|---|---|---|
| Direct | Yes | Yes | Yes |
| Indirect | Yes or partly | Yes | No |
| Emerging | Yes | Yes | Yes, but new or small |
| Alternative | Yes | Yes | Not a product: a spreadsheet, agency or person |
Direct competitors sell a similar product to the same customer for the same job. Your customer would put you side by side before buying.
Indirect competitors solve the same problem a different way, or serve an adjacent customer. The customer might choose them instead, but would not call them the same kind of product.
Emerging competitors are direct competitors that are new, small or recently funded. They matter less today and more in a year.
Alternatives are how customers solve the problem without buying a product like yours: spreadsheets, email, an agency, a freelancer, an employee, or doing nothing.
- Directsame customer, same job, same kind of product
- Emergingdirect, but new
- Indirectsame job, different approach
- Alternativesspreadsheet, agency, staff
Examples
An invoicing tool for freelance designers
- Direct: other invoicing tools aimed at freelancers.
- Indirect: general accounting software with invoicing built in; payment platforms that can send payment requests.
- Alternative: a word-processor invoice template and a bank transfer.
Software that answers phone orders for takeaway restaurants
- Direct: other AI phone-ordering products for restaurants.
- Indirect: online ordering platforms that move orders off the phone entirely.
- Alternative: a staff member answering the phone, or a call-answering service.
Why the distinction matters
- Direct competitors set your pricing and feature baseline. Customers will compare line by line, so you need to know their plans in detail.
- Indirect competitors shape your positioning. You win against them by explaining why your approach suits this customer better, not by listing features.
- Emerging competitors show where the market is heading. What they are funded to build is a signal about where investors see the gap.
- Alternatives are often the hardest to beat. A spreadsheet is free, familiar and already open. Your product has to be noticeably better than doing nothing new.
When you judge whether a market is too crowded, count direct competitors, not all of them. Ten indirect competitors and a spreadsheet is a very different market from ten direct ones.
How to classify a company
Ask, in order:
- Would my customer compare it with my product before buying? If yes, it is direct (or emerging, if it is new).
- Does it solve my customer’s problem in a different way? If yes, it is indirect.
- Is it something other than a product? If yes, it is an alternative.
- None of the above? It is not a competitor, however large it is.
That last rule is the one most competitor lists break. Big names that do not serve your customer make a market look more crowded than it is, and push the real competitors off the page.