Death, taxes and competition

An argument against being in stealth-mode and being afraid of competition

Competition is often among the first things a skeptic will argue against your startup idea or strategy. I cannot describe how many times in the early years I would beat myself up on days when a tech giant just announced a relevant initiative or a competitor got more funding / deal. It felt like someone punched me in the stomach every time. I’m telling you now, don’t feel that way.

There are times when you should absolutely be worried about competition. For example, the day iPhone, Tesla model S, Netflix DVDs entered the market, their competitors’ management teams should have immediately recognized the threat and made drastically changes to compete instead of protecting their core businesses and bleed slowly (did you know that Blockbuster actually refused to buy Netflix at $50MM when the offer was made?) But most of the time, competition will not be the reason why you will fail and should not be a factor that keeps you up at night. I will first discuss the scenarios when you should be not worried about competition and then follow up in the next post on when you should.

Having lots of competition is a given

An exec team will debate often on what areas the company should invest in. The inclination is to expand into an area with minimum competition because of the first mover advantage or degree of ease. But in my experience, this argument has two setbacks.

First, anything worth money will attract more competition than you can imagine at a speed quicker than you can imagine.

I have personally experienced this with a product where we got to the market first and it did well for about 4 months only to see a dozen similar offering springing up everywhere, some more sophisticated.

The misnomer about moving in a direction of little competition is often grounded in examples like Google, Facebook, Uber etc where winner takes all. However, take a look at the earlier decade of these companies and you will find that most of them were second if not third movers with a minefield of competition. They just happen to be the best, and during those years their formula created a reinforcing flywheel effect that made them stronger.

Second movers are often the winners: make a play on price, quality or an unmet-need

Second, movers in a space are often the winners.

This is because, first and foremost, the market has been proven and you removed the risk of pursuing a non-market.

You can very easily convince yourself that there is a billion dollar opportunity that no one else is capturing that you alone can for XYZ reasons. When you hear yourself thinking this way, be very very careful, especially if your strategy involves a significant detour from existing consumer behavior. Unless you have true innovation that shortcuts an existing pain point of life by a noticeable amount (e.g. a new material, an app on a new platform, a new chip, a new battery, a new drug etc) — typically in the basic sciences field when there are a bunch of PhDs on your team — what you typically find is that the market doesn’t exist because i) it’s actually not solving a problem people care about; ii) the problem has already been solved, just not in the manner you’d like iii) or no one can yet deliver the sci-fi solution at a reasonable cost and legally (e.g. single drop blood tests or an iphone-like device when the world is still operating on Windows 98).

By being a later mover, you know there is demand for a consumer behavior and you can see the strength and weaknesses of existing players. The focus then should be how can you make a play on price, quality at similar prices, or an unmet need feature that people actually care about. In fact, it is an incredibly important exercise to jot down how you’re cheaper, higher quality at the same price, or addressing an unmet need that’s worth money. Print those reasons out on a poster and hang them up in your office as a north star so it’s a constant reminder as you build your product.

Going back to the examples of Google, Apple’s iPhone, Amazon, Uber, etc, I would argue that the $BB market already existed for each. The consumer behavior very well defined.

They each made a play on price, quality at the same price or a feature on an unmet need that people will pay for.

For example, taxi’s were around for decades. Uber just figured out that they could provide cheaper ride with a democratized driver force and that consumers have an unmet need of wanting to summon a taxi at will on their time and their location. In fact, often when thinking about areas to innovate in, it’s much healthier to take an existing behavior that consumers already do and think in what way can you help them do that thing cheaper or at 2x quality but similar price rather than think in a vacuum about a net new consumer behavior that you can foster with your product.

IF your strategy involves something along the lines of “if my product existed, people will start doing XYZ that they currently just aren’t paying to do because they haven’t discovered this new joy in life yet” — be careful!! Even if successful, and that’s a big if, these are often fads rather than anything sustaining.

It’s not about when, it’s about who’s best

It’s not about when you enter the game, it’s about who is the best. The incumbents have money, marketing, and scale but they are probably the slowest moving creatures ever devised by mankind. They often act like a frog in a pot of water that’s slowly boiling and don’t move until analysts are screaming at their boards. In fact, examples of this are everywhere — Tesla vs Benz, Netflix vs Blockbuster, Redhat vs Microsoft, iPhone vs Blackberry.

So, the question to ask is not how far ahead are they, the question to ask are how are you the best and in what niche area gets you the best status the quickest.

So long as you are the best in a niche, you will grow that niche, have money from that niche, expand to adjacents and slowly take over. This is how most companies you aspire to made it. And if the incumbent is a startup themselves that’s found success, like if you’re Lyft and you see Uber exploding higher, then it’s not even worthwhile to fret about it. You will both have a slice of a gigantic pie and worth more than most executives would define “successful.” If anything, you can copy their success and differentiate in an educated way.

Sound simple? In reality this is harder than it sounds. “Being the best” takes a certain type of personality and leadership that are anthesis to the mediocrity that corporations tend to breed. Startups also don’t have the luxury that best in class companies do. So, the only way to actually achieve this is via reduced niche focus, fast iterations, long hours, and a strong “being the best” emphasis on your team and spheres of influence.

“If you don’t cannibalize yourself, someone else will.” — Steve Jobs

Sometimes, a new direction means eating into your old one. That’s actually ok because if you don’t do it, a competitor will string up to offer the product you are not willing. They will end up getting money for that segment and eat into your lunch. So if the market is moving in that direction, you might as well capture all of the value yourself. Did you know that LG offers its exact TV panel to Sony even though they are dead competitors. Samsung produce the chips for the iPhone. iPhones destroyed iPod sales. Tesla builds a cheaper model 3 even if model S drops in sales. Etc, etc, etc.

Don’t be in stealth mode

In the earliest stage of a startup, founders often are obsessed with competitive pressures and often go to the extremes in their paranoia about it. Most of the time, this is due more to unhealthy insecurity than real harm. I certainly made this mistake. Typical signs of how this manifests is that you hear a founder saying something to the effect of “we are in stealth mode.” They cannot tell others what they do. Why? Because others will steal your idea. But in reality, the founder should be doing the complete opposite.

If your company is in early stage, bigger fish won’t care what you do, and small fish is struggling enough with their own problems. So this idea that a competitor will crush you with a clone is highly unlikely. They need to feel you are an existential threat before diverting sources and changing roadmaps to address you. So tell the world! Your #1 priority is to get as many people as you possibly can to hear about it and give you feedback on product market fit. Is your product addressing an unmet need that people actually will pay for? You will find that even if you give it all to spread the word and maybe even pay huge sums of money on ads, your product might then have a slight chance at catching on with consumers.