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Competition doesn't kill startups.
Competition permeates every entrepreneurship conversation.
It prevents companies from being started because 'it already exists', it deters investors from backing good companies, and most terribly it leads entrepreneurs to make bad decisions.
Winner-takes-all outcomes only exist in movies.
Our entrepreneurship education is nourished by the tales of Facebook, Amazon, Spotify, Airbnb. These are fantastic products and companies that have conquered their vertical and squashed every competitor. The dream of the network effect, winner-takes-all, technology-driven startup was born. But entrepreneurs shouldn’t be chasing the dreams of others.
It’s hard to be truly original and escape social hierarchies.
Entrepreneurs are, like anyone would be, tempted to compare their products, the quality of their employees, the amount they fundraised, etc. with their competitors. It distracts them from focusing on their product and their customers.
Comparing yourself to competition will make you weak, and being fearful of the competition will kill you.
The bad decisions entrepreneurs make because of perceived competition fall into two categories:
Those that ruin their industry: choosing the same price point as their startup competitor that priced too low, lowering prices to gain market share, fighting for the same territory...
Those that ruin their company: expanding geographically to preempt markets, growing their team as fast as their competitors, adopting laggard strategies like copying features...
Those decisions kill your startup, not your competitors.
Market beats... everything.
Competition is just one aspect of your market. Regulation, barriers to entry, growth, distribution channels, habits should all be part of your decision-making framework. In the UK, for example, no bank can serve more than 25% of the UK's citizens, meaning there is room for Revolut, Monzo, Starling Bank and the incumbents. Winner-takes-all strategies would be suicidal.
Some of the best markets in the world are extremely competitive:
Ride-hailing: Uber, Didi, Lyft, Grab, etc. In Paris alone you have Uber, LeCab, Kapten, Heetch, Bolt, and the incumbent Taxi G7 doing hundreds of millions in GMV.
Electronic signature: Docusign, Hellosign, AdobeSign, SignNow, ...
Social apps: Facebook, Instagram, Snap, TikTok, ...
Messaging apps: Whatsapp, Line, Vibe, ...
CRMs: Salesforce, Hubspot, Pipedrive, ...
Payments: Stripe, Adyen, Checkout.com, ...
The majority of huge markets are extremely competitive and don't have even winner-takes-most outcomes. Entrepreneurs (and investors) should acknowledge competition, enter their markets with no fear, and build companies that clients love.
Entrepreneur: Follow your own path.
At The Family, we often say that benchmarking is for losers. It puts an upper limit on the ambition you can have as an entrepreneur and encourages you to converge rather than diverge from the pack.
How do you diverge in ways that enable Lyft and Uber, or Stripe and Adyen, to live under the same roof? It's up to entrepreneurs to make the right set of decisions.
Build a differentiated product.
If you’re listening to your users, chances are you’ll build a product that caters perfectly to a subset of the market, resulting in a product that’s different from the competition. Don't follow someone else's product roadmap. Niches are big. 1% of the CRM market is a billion-dollar business. Hubspot is worth $17B.
Build a localized business.
Some companies are default global, some are default local. Regulation, culture, and market structures differ greatly from country to country. It is much harder than you would expect for companies to beat you on your own turf. If you are default local, don't expand too soon unless you have a very clear product advantage. You can build a giant at home: Amazon only operates in 15 countries.
Build a brand.
If your product is becoming a commodity, build a brand. Think of Nike or Evian: they sell a commodity, but are nonetheless impressive businesses. A brand is a form of monopoly: Lyft built its own rider experience and focused on its core market, and now they are worth $13B.
If true competition from a startup arises, be pragmatic.
19th century businessmen would sit down together, split territories, agree on prices, and maintain low wages. At the end of the day, they all got rich. Of course, now there are laws in place to prevent that.
Chances are that you and your competitor have less than 1% market share combined. Don't fight against one another, just talk and figure out a way for everyone to thrive.
At The Family, we have funded hundreds of startups and have never seen one die because of competition; on the other hand, we’ve seen quite a few die because of useless and costly battles they usually initiated. Don’t get me wrong - we love a good fight! But it needs to be the right one.
The Family team is counting down the days until our next batch of startups in January. If you're an entrepreneur willing to grow your startup in the best conditions, apply here. Be ready for an intense 6-week program: getting smart advice, accessing top operators and fundraising with the best investors.