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I’ve worked in startups for my entire career. Some were bigger and more established relative to other players in the industry, but most of the time, the companies I have chosen to work for are fairly early stage. I like assuming some risk and I certainly like the idea that I can personally make a disproportionate impact on a startup compared to the type of impact I would make in a larger and more mature organization.
Earlier in my career, I thought that it was wise to work at a company that does something no one else was doing. In my estimation, this meant that I was probably part of something cutting-edge and innovative. And to be sure, many of the most successful tech companies are indeed first movers. For instance, you cannot really think of any popular ride-sharing apps before Uber. But keep in mind that its major competitor, Lyft, was founded years later and the two are still locked in battle today.
It might surprise you to know that many of the most successful tech companies you will see actually just iterated upon a similar idea and did something novel or better. For example, Facebook was not the first online social network. You may recall that MySpace was quite popular before the rise of Facebook. Similarly, dating websites were actually quite common prior to the advent of apps like Tinder or Hinge. What enabled the new wave of dating applications was the rise of location-based social media on your smartphone. This enabled people to find people closest to them. This meant that dating apps moved from your desktop to your phone, and became ubiquitous with your everyday life: they were literally in your pocket.
Prior to the advent of location-based dating applications, there was a flurry of activity in the world of location-based social media. Social applications like Foursquare and Gowalla were all the rage in the early part of last decade roughly fifteen years ago. These applications allowed you to check in at locations and share your location with friends, earning badges or prizes along the way. College campuses adopted these applications en masse and many predicted that they would overtake Facebook. But what ended up happening is that most people reading this blog are likely to have never heard of either application. The reason for that is because the idea of location-based social media as a social application was not actually a great idea. In the end, people did not really care much to know where a person was at any given moment in time. What people really valued were the more practical applications for location-based media. Hence, the rise of ridesharing and location-based dating apps, among other things. In this case, being a first mover really just served as a teachable moment for the rest of the industry.
I think our visceral reaction to competition is to think it is bad. Maybe we get an icky feeling about our competitors. After all, they are probably going to take a lot of our potential business. We are going to need to spend time thinking about how to sell against them. They will make our lives difficult.
This is the wrong way to think about competition. It is generally a very good thing to enter a space and see that you are not entering that space alone.
Competition does the following things:
1. It validates the market.
If you have competition, it means there are other folks out there who believe in the same idea and they believe there is enough of a market to survive even with other competitors out there. This is a great signal to yourself, your coworkers, and future investors.
Think about how many times you have heard someone come up with an idea and you think to yourself that it is not a very good idea. That happens all the time. It’s a commodity for people to come up with bad ideas. It’s certainly a lot easier to drum up bad ideas than good ones.
But what are the odds that several people will come up with the same bad idea? The odds of that are organically much smaller.
Lots of times, a Founder may have an idea and be excited because no one has ever done it before. Its innovative! But most of those ideas fail. The reason no one did it before is because it was a bad idea. Obviously this is not always true. But it’s mostly true. Most new startup ideas fail.
But it’s not just the sheer fact that multiple people come up with the same idea that make the idea fascinating. It’s the fact that multiple people research the market and validate that the market is so large that it can support a lot of players. Look at the Artificial Intelligence space right now. How many startups do you see these days whose domains end in .AI? It’s almost every single one. And that is because the Artificial Intelligence space (broadly speaking) is so large that it can support a lot of these entities. Automation is huge.
2. It creates more awareness.
“Rising tides raise all ships.”
There’s nothing better than having your competition educating the market on your behalf. They are spending money creating awareness just as you are. When their customers churn, they’ll come to you first. And the nice part about that is that your competitor has already invested most of the time and resources educating that customer on the implications of the pain they are facing. What’s better than that?
I said in my book that it is a lot easier to sell to a prospect who is using a competitor than to sell to a prospect who is using nothing. Why is that? It’s because a prospect using a competitor is already sold on the problem they have. In fact, they believe the problem is so painful that they have already researched and invested in a solution. All you need to do to bring them onboard is show them that you have a better mousetrap.
A prospect who is doing nothing needs you to show them the mousetrap, but they also need you to show them why they even need a mousetrap to begin with. And with that there is a whole layer of education and selling that needs to take place. Trust me when I say this: it is much easier to lose to inertia than it is to lose to a competitor. Your competitors can be your best sources of lead generation. Especially the bad ones.
3. It drives innovation.
Monopoly players don’t have incentive to change or drive innovation. In a competitive market, speed and differentiation are everything. Just as Tom Brady and Peyton Manning will always be grateful to one another for making the other athlete better, the same is true for competitors in software companies.
Something counterintuitive but interesting you will find is that a lot of outdoor markets come together – even with several competitors – because they know that by situating themselves amongst one another, they are far more likely to drive more traffic to themselves. In this way, having competition is actually beneficial to the company’s bottom line. Go to Philadelphia for example and you will find two rival cheesesteak shops, Pat’s and Geno’s, right next door to one another. Do they hate each other? No. Why? Because they’re both so legendary, that most patrons will come just to try both or to get in whichever line is shorter. It’s a win-win.
4. It keeps employers honest.
In a monopoly, employers can kind of do whatever they want and get away with it. They can also treat their employees however they want with minimal risk. It’s not like those employees are going to walk off to a competitor and take everything they know with them.
The same is obviously not true in competitive markets. In a competitive market, there is an onus for a company to act ethically. Word gets around quickly. If one company is not good to its customers, the customers will talk to each other and they will leave to a competitor. This means that the company must do right by its customers.
But the company must also do right by its employees. While there are non-compete agreements out there, they are generally un-enforceable. So if a company does not treat its employees well, it risks the very real possibility that the employees will just go off to the competitor.
With all of these advantages to competition that I mentioned, are there any that I missed?
Jeff Kirchick 