“We Just Learned About a Well-Funded Competitor …”
When we invest in a new company, often there is limited existing competition. We tend to invest early, and the founders we work with have usually identified some white space in a market that has been forgotten or overlooked.
But that doesn’t mean there isn’t competition. Usually, there are other people who have identified the same broad opportunity. And chances are, there are some other well-qualified teams that are quietly going after a similar problem. And if there are truly no competitors, the moment a startup begins showing the market that they’re on to something, fast followers will steer into the space quickly.
So, it’s no surprise that within a year of our investment, we often have a conversation with a founder that starts something like this: “We just learned about a well-funded competitor …”
I’ve seen a number of different reactions to this. Here are the most common:
“They aren’t really a competitor.”
“They’re taking XYZ approach, which we know isn’t right.”
“This is great news because it validates our market opportunity.”
“Startup X isn’t really our competition. Incumbent Y is. Besides, it’s not a winner-take-all market.”
“Meh.”
None of these is inherently right or wrong. But all of them tend to lead to some sort of brief debate. Here’s what I recommend founders think about when faced with this situation.
Remember that product-market fit is as much about “who” as it is about “what.”
If a new competitor has emerged, I find that teams are most worried when that competitor is targeting the same customer but with a different product. The focus then goes to how the product or strategy stacks up.
But for a really early-stage company, I think it may be more frightening if a smart team is going after a slightly different customer with a product that is similar. Maybe they have identified a better part of the market to focus on that your team hasn’t fully appreciated. Or maybe it’s just going to be easier and wiser to start with a different customer niche to gain early traction before expanding into your target market. In either case, it’s helpful to test your customer hypothesis if you haven’t already done so, rather than dismiss a competitor as irrelevant because they are going after a different “who.”
Don’t assume your competitors are dumb, slow, or static.
I’m often amazed at how quickly teams dismiss their competitors’ approach when their information is by definition incomplete and outdated. They also tend to bake-in expectations of their own roadmap, but not do the same for their competitors. For example, when it’s your own product, it’s easy to say “we know it isn’t great now, but we are going to be doing X, Y, and Z.” But when talking about a competitor’s product, it’s easy to just see what already exists and not assume that they’re also working hard on a pretty smart product roadmap of their own.
It’s better to assume that your competition is really smart, fast, and not standing still.
Don’t let your competitors dictate your roadmap.
It’s really hard to both watch your competitors closely and remain hyper-focused on your own North Star. Even if you are monitoring your competition’s traction closely, you can’t let that dictate your product priorities.
Early in my venture career, I saw a very successful company and awesome product team get derailed for 6–9 months because they started obsessing over matching a particular competitor feature for feature.
My advice here is to take a “first principles” sort of approach to this. When you see enviable things from your competitors, try to boil them down to the core reason why they are resonating. Then, either develop your own solution to this core reason, or actively decide not to do it and move on.
Recently, one of our portfolio companies, a local marketplace business, executed on this quite well. The founders kept tabs on multiple competitors, and actually focused much more on ones that had a similar offering but was going after different but adjacent customers. In the normal course of business, they were able to learn quite a bit about these competitors from their suppliers, marketing partners, and others. This information didn’t change the company’s core roadmap — but it helped them think differently about geographic expansion because of what was happening in the broader market. Ultimately, this initial wave of competition did not end up being a meaningful threat to the business.
As you can tell, I do not take the position that competitors don’t matter. But I don’t think they usually present an existential threat either — it’s just going to be an inevitable part of building a successful business.
To close, I’ll leave you with my favorite response I’ve ever heard on this topic. It was from a lovely British entrepreneur I spoke to years ago. When presented with the news of a new, formidable player in his market, his response was simply this: “I look forward to competing against them.”
I’m curious to hear what other approaches founders have taken when responding to new, formidable competitors. I look forward to reading yours in the responses below.
