Whether you have an early stage startup or an established company, people need to understand your business. So as a founder you will frequently be asked “How are you different from Competitor X?” or “Why are you better than Competitor Y?”

There is only one correct answer to this question:

“Competitor X is a great company, but...”

And then explain how your company is better, ideally using a differentiator or area of specialization that Competitor X doesn’t have (or doesn’t focus on).

You should commit this phrase to memory and use it often. Everyone needs a frame of reference, to compare your business to something they are familiar with, whether they be potential customers, employees, or investors. How you respond can be more critical than you think.

Investors seem the most guilty of “pattern matching” to fit you into an area they understand (and hopefully want to put money into), or to make sure you are “the same” as a company that already was funded / successful. If you denigrate the competition, however, it may give investors the impression that a) your company is not doing well, and is jealous of the competitor or b) that you haven’t properly evaluated the competitive threats to your business, and are not taking the competition seriously.

Customers are even more important to get this right with, as a savvy buyer will ask about the competition for the same reason they ask about discounts -- just to see how you respond. If you talk badly about the competition, it a) reflects negatively on you as a salesperson and b) can create the impression that you are threatened by the competitor, so they may in fact be better than your company. Even if the competition has a terrible product or no support, I would be very careful about saying anything negative about the competitor. Find a way to allude to the competitor’s problems in a round about way, if you must, but tread lightly.

I’ll finish with a quick anecdote:

When I was running sales & marketing at GoGrid, we had a (larger) competitor (that shall remain nameless). One of their sales managers apparently used to tell prospects how bad our company was, how our support was unresponsive, our data centers unreliable, etc.

Maybe it is the power of reverse psychology, or simply the sceptical nature of smart web hosting buyers, but we got a number of calls that went something like this:

“I was not familiar with GoGrid, but this guy at Competitor X kept talking about how terrible and evil you are. He really feels threatened by you, so I wanted to see what all the fuss is about, and figured I’d get a quote from you.”

The irony was, that when we went head to head with this larger, better known competitor, we typically lost the deal almost 2/3 of the time. And they were sending prospects over to us, when we weren’t even in the running originally.

Unfortunately that sales manager either wised up or was fired, and the sweet slander that sent us business came to an end.