Competition is overrated

Your #1 competitor starting out will always be the BACK button, nothing else. – Garry Tan

Suppose you have an idea for a startup, and then do some research only to discover there are already similar products on the market. You become disheartened and wonder if you should abandon your idea.

In fact, the existence of competing products is a meaningful signal, but not necessarily a negative one. Here are some things to consider.

1) Almost every good idea has already been built. Sometimes new ideas are just ahead of their time. There were probably 50 companies that tried to do viral video sharing before YouTube. Before 2005, when YouTube was founded, relatively few users had broadband and video cameras. YouTube also took advantage of the latest version of Flash that could play videos seamlessly.

Other times existing companies simply didn’t execute well. Google and Facebook launched long after their competitors, but executed incredibly well and focused on the right things. When Google launched, other search engines like Yahoo, Excite, and Lycos were focused on becoming multipurpose “portals” and had de-prioritized search (Yahoo even outsourced their search technology).

2) The fact that other entrepreneurs thought the idea was good enough to build can be a positive signal. They probably went through some kind of vetting process like talking to target users and doing some market research. By launching later, you can piggyback off the work they’ve already done. That said, you do need to be careful not to get sucked into groupthink. For example, many techies follow the dictum “build something you would use yourself,” which leads to a glut of techie-centric products. There are tons Delicious and Digg clones even though it’s not clear those sites have appeal beyond their core techie audience.

3) That other people tried your idea without success could imply it’s a bad idea or simply that the timing or execution was wrong. Distinguishing between these cases is hard and where you should apply serious thought. If you think your competitors executed poorly, you should develop a theory of what they did wrong and how you’ll do better. Group buying had been tried a hundred times, but Groupon was the first to succeed, specifically by using coupons to track sales and by acquiring the local merchants first and then getting users instead of vice versa. If you think your competitor’s timing was off, you should have a thesis about what’s changed to make now the right time. These changes could come in a variety of forms: for example, it could be that users have become more sophisticated, the prices of key inputs have dropped, or that prerequisite technologies have become widely adopted.

Startups are primarly competing against indifference, lack of awareness, and lack of understanding — not other startups. For web startups this means you should worry about users simply not coming to your site, or when they do come, hitting the BACK button.

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http://twitter.com/JesperBergmann Jesper Bergmann

This is a brilliant post! And also a clever rebuttal of the argument that it is best to start something in areas where there would be no competitors. This way of thinking is surprisingly prevalent even at very good b-schools!
http://www.aweissman.com aweissman

I've always thought the rush to be first in a market is overrated. You need to be the best, and different, but first? Wait and see how a segment plays out.

After all, as the saying goes, “the pioneers take the arrows, the settlers take the land.”

Anonymous

Trout & Ries, the brand strategists, had a clever way of looking at this issue. They felt that first movers rarely won the positioning battle of coming ‘first to mind’. Often, the first movers had the solution, but the users were left to decide how to communicate about the brand.

The difference between facebook & MySpace (*they would argue): MySpace was not something customers described as a network, or a place for sharing with friends. Facebook did what all good brands do: they told their customers what Facebook was, in terms they would likely use, when talking to others!

http://nextgencrm.blogspot.com/ Ami Assayag

Someone smarter than me once told me that when you have no competitors you are either the smartest person in the world because you came up with the idea, or the dumbest because others tried an failed…

I tried the low competition rout in the past, and it is tough because in addition to having a great product, you have to sell harder since customers don't know they need it yet.

http://www.cdixon.org chris dixon

Yes, another problem with low/no competition is that press/bloggers will try to put you into an existing category, see
http://cdixon.org/2009/10/20/the-challenge-of-c…

http://nextgencrm.blogspot.com/ Ami Assayag

Yes, that's very true as well. Since new categories don't fit into existing molds, you really need to work on your pitch to make sure that the core of your product is understood. Easier said than done though…
http://www.skyranksystem.com Joe

Yes, but there's a lonely, sado-masochistic, painful, yet extremely gratifying feeling that can be replaced by no other feeling when you are the first with a great idea with the “potential” to disrupt, even if you don't.
Anonymous

Your linked post mentions just plugging away…..which is all you can do. However, I think the real key is to refine the messaging, to the point that you are sick of doing so, until you hear something that sounds like something a consumer would say.

So often, you think you have the message simple and in terms your market uses……..and you just don’t.As an observation, not a criticism, it is interesting that in your linked post from 2009 you reference ‘Hunch is to Answer site as Flickr is to Ofoto’.I am somewhere between techie and normal, but:- I know Hunch (played with it 18 months ago, was not accurate for me, I must be odd - I know Yahoo Answers (used < 10 times)- I know Flickr (know about Stewart, Caterina, sale to yahoo, but never used)- I think I have heard of Ofoto but have no idea what it is.I am on LinkedIn, Facebook (rarely post), Twitter (rarely post) even Disqus (post a lot, don't use any of the tracking tools really). I think I can tell people what those services are and why they should join.I think that is the key – not naming the category, let someone else worry about that, its always a misnomer anyways.
http://twitter.com/ClintonWu Clinton Wu

What if there’s no/low competition because the idea has been executed poorly before (e.g. personal start pages) and just kind of flamed out? Then is the thought process deciding whether the category can be made relevant with users again? Going through this now with start pages and would love to hear your thoughts.

Thanks for re-posting through Twitter.

Clint

http://twitter.com/dmlandry D. Matthew Landry

I think extant competition is a great thing, especially when an entrepreneur comes up with an idea in a vacuum. The idea has merit as a solution to a problem, even if it is the entrepreneur's problem. That others have identified the same problem indeed indicates the entrepreneur is not (necessarily) delusional.

Part of the lean startup and MVP methodology is learning what works an what doesn't. Having some competitors is a great way to jumpstart the process: they have differing feature sets, positioning and messaging, customer engagement, and design philosophies. This is all great information to use for identifying a business model and vision, and winnowing out what's important and what isn't.

This is just another method to get into business. Blue Ocean strategy is another valid approach, as are the more traditional high/low, drive-up-the-middle, establish-the-platform, etc. approaches. It's not a religion, where only one true belief and dogma can be right!

Good discussions; thanks for the post, Chris!

-matt
Eran Galperin

Competition is overrated – but shouldn't be ignored. Being first to market is a bid advantage in most cases, as people will ignore a lot of problems when they can only get a solution to a specific problem from your product.

All the companies you mentioned did were quite successful even with average execution – just for being first or among the first in their market. Once a market is mature and is dominated by a very well executing company (lets say, Google), it becomes much harder to compete.

So, you should consider your competition and determine if you can outdo them (or even if it's reasonably possible to outdo them) before entering an established market.

http://www.rescuetime.com webwright

Being first to market is a big advantage? I bet if you name 10 tech companies you admire and then put a checkmark next to the ones that were first to market, you'd mark 1 or 2. Being first to market is a DISadvantage as often as not. You spend a lot of money educating the market and educating yourself ABOUT the market. The folks who come after (if they are savvy) have to spend a lot less time/money on both fronts.

Eran Galperin

Regardless, market share is the advantage, and it trumps marketing / advertising costs by a mile. Also, if you are a new player in a mature market, you need to spend just as much to get any kind of attention / recognition that established companies already have.
http://redesignmobile.com rakeshlobster

There are some businesses that are essentially winner-take-all. I don't know if eBay was first, but they were certainly very early in the auctions market. The network effect was really strong.

Back in 1999, I was evaluating a partnership with a competing auctions provider with a great domain name. The difference in traffic volume between eBay and the other provider meant that even if we paid sellers to list with us, they would still come out worse than if they used eBay and paid for listing fees.

It made no sense for sellers to come to us and without sellers, there are no buyers.

http://thenoisychannel.com/ Daniel Tunkelang

“First” is a slippery–and often useless–concept. Check out this article about “The Very First Online Auctions”:

http://www.auctionbytes.com/cab/abu/y206/m08/ab…

I think it's more interesting to consider markets where someone has established a dominant position. In those cases, displacing the market leader generally requires that you pursue a disruptive strategy, rather than a directly competitive one.

Joe

I'd be curious to hear Chris' view on what elements of an idea and project contribute to its ultimate success. I would define success as either 1) return on investment, or 2) market acceptance. There are plenty of good ideas that never experience success. Is it capital, team, timing, luck, work? A combination?

http://www.rescuetime.com webwright

Ebay was not first, for what it's worth. Neither was Craigslist. Another
place where the network effect is strong is social networking and blog
software. Take a look at the growth rate of Facebook and Posterous (both
not first movers).

I'm not saying it's never an advantage to be the first mover– but it
usually is not.

http://redesignmobile.com rakeshlobster

As an aside, it was interesting to see two companies chip away at eBay by targeting niche areas that were served poorly by the generic auction tools. Instead of going head-to-head on auctions, they picked substantive sub-markets.

StubHub provided greater security for transactions that had a higher possibility of fraud and specialized tools for navigating inventory.

Half.com took the pain out of describing commodity items like books, CDs and movies — making the listing as simple as entering a UPC/ISBN and selecting a quality level.

And then there's PayPal…

Of course now they're all complementary.

http://www.victusspiritus.com/ Mark Essel

Right on Chris 10/10 – “competition” in the network economy is very different from brick and mortar suppliers. While one big success can reap massive rewards there's usually a healthy ecosystem around the one huge success and an ever growing path of evolutionary tech.

Totally agree with point 3
cthomaschase

Great point that you're “competing against indifference, lack of awareness, and lack of understanding”
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http://hapnin.com/users/2 theschnaz

If similar products or services exist, talking to your potential or actual users about these products/services can be useful.

Amazon recently moved into the video game exchange industry. There are many video game stores near my apartment, why would I use Amazon? First, they tell me the price for the exchange on their site (now I don't have to call or go to the store.) Second, they pay for shipping. Amazon's offer is faster and free; it's hard for the local stores to compete.

Amazon focused on real pain points, the inconvenience of bringing your games to a store and not knowing the value (if any) you can get for each game.

If you have similar competitors, information like this is in their users' heads, you just need to talk to them.
http://twitter.com/2big4mybuttons 2big4mybuttons | CEO

Good post. Right on all fronts. You just have to look at Amazon trying earlier and having a patent on something that sounds exactly like Facebook.
Jonathan

Thoughtful and practical advice. Thank you.

As an example of #3: 'what's changed to make now the right time'?

I wonder what your thoughts are on the resurrection of visual communication in mobile. Why are the BigCo's pursuing it and why now? Is it the 'next big thing that looks like a toy': (re: http://cdixon.org/2010/01/03/the-next-big-thing… )
Push

The early bird may get the worm, but the second mouse gets the cheese.
ksrikrishna

Chris point well taken, competitors validate a market opportunity. Even when they've done well, the new entrants can potentially thrive, if they position and execute well. Unlike many other commentators, I believe there is a strong analog in the real (brick&mortar) world. In India (& elsewhere) we often find a street full of jewelers, or shoe sellers or clothing stores – the very presence of competitors makes the customer footfalls easier (in addition to validation of the need or market segment). Of course then your positioning, pricing, and distinct value needs to be clear & strong otherwise the buyer only has to go next door. Both in the physical and online world, execution will finally trump all else. In many instances most of us as startups worry far too much about the competition than we do about our own execution. Competition is good in that it shows you are not likely barking up the wrong tree, but they shouldn't distract us much more than that.
RFMR

I think the title of this post is misleading. Shouldn't it say competition is underrated?

Reviber8

no.

http://mikepk.com mikepk

I think a lot of entrepreneurs overlook the difficulty in creating a wholly new product and/or market space. There's an assumption that once it's built, the product will be obvious. I agree that competitors and existing markets can help because you don't have to spend as much time educating users as to what exactly your product *is*.
http://redesignmobile.com rakeshlobster

Great post. I've gotten tired of the incessant whining over the last few days by Apple haters talking about how other phones have had video calling, multitasking, etc. earlier. It doesn't matter unless they got people to adopt it.

Here's my video calling experience on the HTC Evo:
- They picked a third-party provider for video calling.
- The software didn't make shipping devices. Additional download required.
- Need to set up a separate account with qik. (Servers were toast, so this was a challenge.)
- Once you setup an account, you had to go through another step to verify your phone number.
- You can't easily figure out who has video calling or not.
- If you do get to the point of making a video call, you have to push-to-talk, walkie-talkie style.

I also don't have anyone to talk to, because many of my friends bought iPhones and are playing with FaceTime.

I'm guessing your experience using FaceTime was a lot better.

http://rendion.myopenid.com/ John

Its fine to point that out, but you should also point out that video calling has more challenges than just the technical, and in europe they have had video calling for over 10 years and noone uses it.

Although its neat most people will find that when they are making phone calls they dont want to deal with the vanity of video, and unless they are talking to someone in their family its far too intimate for average communication.

It will be a great boon for porn however to charge for “personalized” facetime calls. Overall I doubt Apple will push video calling into the mainstream with FaceTime, in fact text messaging is edging out peoples desires to even make phone calls. Id say video calls are probably a little 2 late to the game to keep us interested.

http://redesignmobile.com rakeshlobster

Fair point. Apple has removed a lot of the technical obstacles (though current wifi requirement is significant).

As you said between text, Twitter, Facebook, etc., people are definitely moving away from voice. Even sensitive topics such as breakups and firings are increasingly being done this way.

Video requires a higher degree of concentration (harder to multitask if you know people are watching) and presentation (shaving, cleaning up) than voice.
http://www.skyranksystem.com Joe

Video calling for now, and probably for at least several years, will be useful in just two types of interactions: 1) with intimate family and friends living far apart and wishing to “catch up” on how they have changed and to witness facial emotions important to them; and 2) for very intimate professional interactions, and probably only for long-time peers who trust one another and desire a deeper level of communication, not available just with voice. Save these, I just don't see the need or desire for engaging with video calling. I'm much more interested in how technology will continue to bring people together with similar interests via social networking and media, and also GPS / latitude technologies and user-based content to increase utility of our real world experiences.

http://www.linkedin.com/in/repas David Repas

Chris – great post.

On a slightly different note – any thoughts regarding evolutionary vs. revolutionary consumer internet startups? Do you personally prefer one side over the other? And do you think that was a conscious choice? One is “better” than the other.

From what I see today, even the most unique consumer-internet startups are usually more evolutionary than revolutionary. What’s the reason for that? Is it because revolutionary startups just don’t produce the results that entrepreneurs and/or investors are looking for (it’s just too freaking hard to change the world). Or is it that truly revolutionary ideas just don’t come along very often? Or is it something else?

I guess that these questions may be better discussed in a separate post But, I must say that I do find the debate between evolutionary vs. revolutionary, first-mover vs. fast-follower, and all of the other variations pretty fascinating – even if at the end of the day, I’m not sure that any of it really matters. What probably matters most is what drives our passions as individuals – for better or for worse.
christinetsai

Chris – as usual, an insightful post. But this one is particularly smart. Thanks for posting.
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http://moolave.tk/ Fred T

Was talking to someone who once saw Larry Page handing out flyers back in the late 90s. Nobody really knew what Google was back then. As you mentioned, at that time he said that search engine companies like Lycos, AltaVista were dominating the market; and looking at Google's colorful logo, he asked if they were a Disney-like cartoon company. Larry Page delightfully answered that users could do searches on them through their company's different yet better algorithm.

Timing, with the right product reiterated for better cost-effectiveness, is everything.

http://www.skyranksystem.com Joe

I actually remember a friend of mine tell me about Google, and remember thinking, “Are these guys crazy? Another search engine? Who needs it? How do they make money?” I actually remember my first search results from Google, and thinking, “WOW! This is truly better.”

UrbaneWay

Hello,
I enjoyed your post, and couldn't agree more. “There is Nothing New Under the Sun”, yet at the same time, most new businesses, start-ups, product launches etc are boring, boring, boring.

Do something Remarkable. On top of that, if it doesn't work, try something else, most things do fail the first few times around.
Ben

“1) Almost every good idea has already been built.”

The companies that will make Google, Apple, Microsoft and Facebook obsolete thank you in advance for predicting their non-start-demise.

Ten years ago the idea multi-generational, application based social networking didn't exist… and Friendster and MySpace figured they had the bag all sewn up.

While the rest of your post was interesting, the fact that you lead off with such a hyperbolic statement really does a disservice to valid points like “…you should worry about users…”
http://blog.botfu.com Kevin Marshall

Spot on once again…but also VERY hard to learn and recognize…I still continue to talk myself into bad ideas/projects (because of personal need/interest) and out of potentially great ones (because of fear of existing competition and/or impression of lack of market/interest)…

But I can say without a doubt, as someone that's constantly releasing products/ideas/prototypes…good idea or bad idea…1,000% of the time the hardest thing is just getting people to take notice, give it a try, provide some feedback, etc. It's the single most expensive process for me (since I can prototype something for almost nothing being the developer myself) and it's also the most deflating/demoralizing/crushing/depressing process for every single thing I've tried to get out to market (nobody ever loves your stuff as much as you do or you think they should…at least not until every one else does…)

BTW – I'll also take this opp. to pimp my latest 'nobody' cares idea which is http://fuzzypop.com (relevant since it's a bit of a take on the digg/delicious thing you mention above as potentially bad ideas to clone — though my intention was to make it more about tipping points and using your social graph to filter such services)…just released the alpha of it as a chrome extension two or three days ago and starting the pulling teeth process of drumming up attention (btw, I'm convinced the new approach to success is getting a handful of pseudo celebrities interested…if you can get the attention of a few of them, they can get the attention of the rest of herd…and then you have shot at being on your way)…

http://twitter.com/FaizanN FaizanN

Hi Kevin

I share same dillema. I can built any app or website but getting people to notice is really hard. I would like to discuss this more with you and share ideas. Kindly contact me at faizan.naqvi at gmail

http://detroit.fwix.com Jamie Favreau

Very insightful post. Sometimes it just needs to be the right time and place for something to happen and maybe tweaking is all that is needed to make a project run.

You need to believe in yourself and your idea. If you do not believe then how is anyone else supposed to. Plus, if you don't fail then how are you going to find out what works and does not.

Create what you need and what makes you feel you can succeed after a lot of research and planning then see where you can go from there.
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Hprof1

I' think like you, Great Post !
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howtoplaza

Great thoughts. Every worthy product or idea has a place, no matter how competitive the market is. One should just — as rightly said — focus on building a good product. Marketing and placing makes a big difference too, of course.
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http://aymeric.gaurat.net Aymeric

Competition can also show you if there is an existing market. If your existing competitors are doing well with a poor execution, go for it!
http://blog.myprojecttracker.com Barney Austen

Hi Chris. Thanks for sharing your thoughts on this subject. It was certainly one that concerned me when I started out and was digging into the competition. I almost stopped but didn't because of the belief in what I was doing. Now my focus is not so much on the competition but more on acquisition and, as you say, keeping them from pressing the back button
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http://earnedmedia.wordpress.com/ Christian Brucculeri

Another great post.

Often competition can drive demand and increase awareness of a product type, lowering lack of awareness and a lack of understanding. I think Friendster would agree.
http://graduatetutor.com/ Senith

Interesting thought. I respectfully disagree on the title that competition is overrated. You have got to consider competition and its impact on your business. To illustrate, let me give you an example – Many firms got into the online tutoring space because it has low barriers to entry. However the established players with deep pockets have killed the market by providing services at a rock bottom prices. New entrants into this space must figure out how they are going to survive given the competitors in the space and their behavior. Read Porter 5 forces or game theory get private tutoring from http://graduatetutor.com/ to go more into this topic. You just cannot ignore competitors and their reactions.

http://www.skyranksystem.com Joe

It's great (sometimes, I guess) and always really cool to be the first one to have an idea, or at least the first one to bring it to market, because who knows who was the first to have the idea. But, having the idea is less than 1 percent of the value. While playing in MUDS in 1995, pre-mosaic, and chatting it up with guys across the world for free, I thought that on-line gambling would be big big business. Went so far as writing a business plan, pitched it during grad school, but went in another direction. Translation: idea, great; execution, not so. Even when you think you have a good execution strategy and were the first with the idea, success does not always follow. More has to align in the sky for success to be realized, but I'm still learning about this.

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http://davidbryce.tumblr.com/ davidbryce

I've got an idea I've been tossing around, but it's not new (not entirely). This post was very helpful. Thanks!
Erik

I'm not sure how many readers you have, but I hope it is a lot and that most of them are big-VC. I hate it when someone says there is competition so you shouldn't do it! It is so shortsighted. It is bad to be a market-maker, while it is bad to be a market-modifier. There is just no logic to that.

All the evidence out there shows that delivery of the value proposition improves over time through new, innovative companies solving the same problem. That is why you have Google or why MS, Cisco, Symantec, <fill in big company name here> end up buying the same company every 4-5 years.

Ironically, once Facebook or someone similar becomes and enormous market leader, thus validating the market, you see every investor attempt to revise their investment strategy and get into anything in that market they can.
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Chris Dixon