On Startup Competition: Don’t Obsess, but Don’t Ignore
Who is your competition? What does the competitive landscape look like? How are you going to compete? What is your competitive differentiation? Do you have a competitively sustainable advantage? So many questions relating to the “competition”.
Here are updated thoughts on the subject of startups and competition, although I have already written on that topic a few months ago, Treat the Competition Differently, Depending on Your Stage.
In a nutshell, I’m seeing 3 types of startup behaviors relating to the competition:
1. Overly obsess about the competition
2. Totally ignore the competition
3. Have a unique position that skirts the competition
Although #3 is the preferred way to start a company, I’m seeing startups that are literally obsessed with every bit of news about the competition, and some others that ignore the competition to the point of losing total realism about their real competitive abilities. Believing that your product or approach are superior when they are not in reality, is a common mistake. It is a blind spot that the market will not forgive you. Just because you aren’t seeing reality or believing it doesn’t make the blind spots go away. Side note: If you want a validity check, VCs are particularly good at snapping reality into your product idea.
Too much real competition early in a startup’s life is not enviable, as it makes things more difficult. It is distracting, and it certainly makes it more expensive to capture a market. In fact, you want to have as little competition as possible early in your evolution. How? By being different, and by landing in an uncontested area where no one expected you (classical flanking approach, in Marketing Warfare speak). If you start implementing your idea and there is already visible and direct competition, you either need to be really well funded, or have a vastly superior product (in which case you’d be re-defining the competitive ground).
Arguably, your starting position is very important, as it makes your iterations easier. Otherwise, your iterations will be wobbly.
Let’s revisit the #1 and #2 scenarios briefly.
If you are overly concerned about the competition, it means that you still haven’t found your true north. It means that your product/market fit is not there. If it was there, it would be pulling you forward, and you’d be busy managing your growth, instead of worrying about the competition.
If you ever think your competition is Apple, Google, Facebook, or Amazon, and you’re a small budget startup, don’t fool yourself. They are almost never the competition. As a startup, you don’t compete with Apple, Google, Facebook, or Amazon. You creep-up on them. This means you don’t let them notice you until you have done some damage to the market, as little as it may be.
If you want to compete with established players that have a dominant market position, you need to attack them on a very narrow front where they have a weakness. Attacking their weakness doesn’t mean that you just do something better than them (unless it’s potentially 10X better). A weakness is something that isn’t even one of the top 3 reasons why their customers use them. It has to be something they certainly do poorly, or don’t even do at all. In that case, you only need to have that capability, or do it slightly better than them.
AirBnB didn’t start by wanting to take over the hotel industry. They started by letting people sleep on a couch or in a spare room. No one was there, and no one cared about that initial entry angle.
Hailo or Uber didn’t start by directly competing with the existing taxis. They lodged their way into that system by having a better dispatching process, and signing-up early adopters that weren’t happy with the taxi networks. Sidecar and Lyft entered with a new service that didn’t exist before.
That said, there is often real competition between startups, and you need to be aware of that. But too many competitors in a new segment is not typically a good sign, especially if it stays that way for a long time, say over 1-2 years, because it can lead to a fragmented market. Fragmented markets are harder to compete in, because you’re fighting different competitors each day, and because pricing pressures might erode potential profit margins, making everybody weaker. A rule of thumb for healthy competition is around 3 players in B2B, and often it could be only 2 players in consumer markets. An abundance of solution choices can create a deflation in price and perceived value.
Finally, if you are lucky enough to be unique and differentiated, your competition is really the minds of your prospects. How your prospects will notice you, and try (or buy) your product is the real battle. There’s plenty of competition there, because the mind is easily distracted, and not easily impressed. If you had to also worry about the competition, you would be doubling your work unnecessarily.
Just found this.
I have a harder time generalizing this than you do I think.
What I know after a career almost entirely in startups and turnarounds is that the best preparation for success is understanding your market.
Call that competition or no but understanding how what you have created gets into the hands of those that could want it is key. We don’t have models early. We often don’t even have pricing early. But–that understanding is what I search for for myself and for all of my clients.
Agreed, and that understanding is gradual. We may not have the luxury of full understanding, early on.