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On Startup Competition: Don't Obsess, but Don't Ignore

Screen Shot 2014-10-05 at 11.11.08 PMWho 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.]]>

Treat the Competition Differently, Depending on Your Stage

All strategy depends on competition. – Bruce D. Henderson, founder of the Boston Consulting Group fish competitionThe topic of competition for startups has recently come back via two posts;  Competition from venture capitalist Rob Go, and Why I Don’t Stress Over Competition Anymore, by entrepreneur Alex Turnbull of Groove. Each post tackled a different aspect of dealing with the competition. Alex suggested not worrying about the competition, but dealing with it, and Rob likes to see startups that adopt a balanced view of the competition. To round up this topic, there’s also Fred Wilson’s 2011 post Competition – The Pros and Cons. My viewpoint is: you need to treat the competition differently depending on the stage of startup evolution you’re in.

1. Idea stage

At the idea stage, you’ve decided that you will either disrupt incumbents via a new way of doing things (your product), or you will enter an emerging market that will grow with you, and where you hope to either dominate that market, or carve yourself a big enough share in it. At this point, you may or may not be able to draw a competitive matrix (or petal diagram), and if you do, it may or may not be accurate. What is important is that a) you know how different you will be from the existing players or (future) competitors, b) what position you want to occupy in the new landscape that you see, and c) how you’ll get there, something that has nothing to do with the competition itself. The underdog in many products…can pick and choose where it wants to hit the giant; the giant, by contrast, must defend itself everywhere. — George H. Lesch, ex-president of Colgate-Palmolive Company

2. MVP

At the MVP stage, you still don’t know who your competition really is. Who you may think the competition is, may not the competition, because you’re still iterating your product, and bumping into different types of users or customers. I would argue that during the MVP stage, your competition is actually the time you put into customer development and getting your minimum viable traction in higher gear. MVPs are unique beasts. That’s why defining a competitor against an emerging product or market might be a difficult thing. You are competing against is the mind share of clients/users more than against a particular company or product. Competition brings out the best in products and the worst in people. – David Sarnoff, founder & president of RCA

3. Product/Market Fit

At this stage, the competition starts to get more clearly defined because your trajectory is more stable, so you start to see some patterns emerge. But it’s also possible that some companies who were competitors bifurcate into diverging paths. For e.g., about 3 years ago, Box and DropBox were much closer competitors than they are today. Box bifurcated towards collaboration over documents, whereas DropBox continued to focus on documents storage and transmissions.

4. Growth

You really start to grow once the market has started to define itself, and you happen to hit that magical timing window. At this stage, market education is important, so having a handful of competitors that help making the pie bigger is a good thing. But the key is to grow faster than the rest of the players in your market. This is when leaders emerge, and others get left behind. Some companies like to grow fast while being under the radar, then they suddenly emerge as a leader by showing some great numbers that validate their leadership. That’s a good strategy, if it applies to you. The growth phase is often won via superior marketing and growth hacking over the competition. Most of our competitors were manufacturing-oriented, generations of fine pickle makers and proud of it. We came in exactly the opposite, as marketers who manufactured [in order] to have something to sell. – Robert J. Vlasic, president of Vlasic Foods

5. Scaling

If you are lucky enough to have made it through the scaling stage, at this point you have a new option for dealing with the competition: you can acquire them. Facebook acquired FriendFeed early because they were encroaching on the Facebook friend’s news feed strategy. Facebook later acquired Instagram because they saw it as a mobile on-ramp into Facebook. Recently, Facebook wanted to acquire Snapchat because their users were going there, at the expense of spending less time on Facebook. Here are additional thoughts on how to weaken the competition and strengthen your position:
  • If you’re in a B2B market, know exactly how to sell against your competition. Have a matrix with specifics such as “against competitor X, lead with feature Y; for competitor Z, focus on these 2 options, etc.” The better you know your competition, the more you’re able to attack their weaknesses, while emphasizing your strengths.
  • If you’re competing in a consumer market, keep evolving your product. Kill it with features that increase user engagement. High user engagement builds a fortress against your competition, because users won’t have time to go elsewhere.
  • Articulate your value proposition really well so that the rolling ball effect of your product on the market keeps getting bigger. The clearer your message is to the market, the more “pull” you will have, and a higher share of mind.
  • Keep growing faster than the competition. If an early market is characterized by a lot of competitors with equal strengths, when a player distances itself from the pack, it becomes the leader. Growing sales or users is a great way to beat the competition.
  • Differentiate strategy from tactics. Think competitive strategy in order to leap frog the competition and out think them, but compete on the ground with strong tactical blocking and tackling.
  • With B2B customers, when you have lots of sales activity, start doing win/loss analysis reports that outline exactly why you are winning or losing in the market. Collective learning will make your sales team stronger.
Finally, while seeing a lot of competitors is ok early in the game, having too many players later can commoditize and balkanize the market to the point that it could hurt all players. That’s why sometimes VCs recognize that, and they fund a given startup in order to allow it to grow more than their competition. 3 is the perfect number of market players in well defined markets; maybe 5 maximum. Beyond that, it gets messy.
Keep your friends close, but your enemies closer. — Sun Tzu

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