Posted: 9:00 a.m. Tuesday, Oct. 22, 2013
By Jill Krasny
It isn't fun, but competition actually brings a number of benefits to start-ups--just be sure to stand out from the rest.
After Investing $5 billion to develop a range of hybrid and electric vehicles, Nissan-Renault claimed the title of the leading manufacturer of zero-emission cars. CEO Carlos Ghosn has found that it can be lonely at the top. Speaking at the Frankfurt motor show earlier this year, Ghosn said he welcomes competition from other automakers because a bigger field would help jump-start the market. "The more companies that buy into electric cars, the better it is," he said.
If competition is good for a billion-dollar automaker, why not for your start-up? Although most entrepreneurs dream of having a market all to themselves, research shows that you're probably better off with some company. Professor Michael Porter of Harvard Business School has written extensively about industry "clusters" and has shown the benefits that competition brings to similar businesses within an industry.
"If nobody is competing in your space, there's a very good chance the market you're going into is too small," says Ben Yoskowitz, an angel investor and founding partner at Year One Labs, a start-up accelerator in Montreal. "Any reasonably good idea has 10,000 people working on it right now. You may not even know they exist because they're as small as you."
James Park, co-founder and CEO of Fitbit, is well aware of his competition. His company, which makes a wireless tracker that lets users monitor their physical activity, competes against similar devices made by Nike and Jawbone. Those big brands, Park says, have actually helped his business by lending it an air of credibility and generating some buzz in the press. "More players in the market implies that wearable tech is a mainstream activity and that consumers should be comfortable adopting it," Park says. "You need some critical mass to legitimize what you're doing."
Brad Feld, managing director at the Foundry Group, a Boulder, Colorado-based VC firm, has some rather cryptic advice for start-ups worried about competition: "Be obsessively focused on your competitors while ignoring them." In other words, know your rivals' products, market positioning, and financial status, and how they engage users, but don't constantly react to every move they make.
Nor should you be deterred from entering a market that already has some competitors. "I don't think a market is ever too crowded," Feld says. That is, of course, as long as your product isn't just another "me too" offering. "Most start-ups are competing with the status quo," says Feld. "Instead, build a company that does something unique."
Apoorva Mehta hopes to do that with Instacart, the San Francisco-based same-day grocery delivery service he founded in 2012. A former Amazon engineer, he now competes against his previous employer and a handful of other companies that offer a similar service.
Instacart differentiates itself by using personal shoppers to pick up a customer's groceries from multiple stores and deliver them in about an hour. "Competition has shown us there's a demand for our services," Mehta says. "Our product is faster, and we have more selection than Amazon or PeaPod. Competition combined with having a better product means we're going to succeed." A little cockiness never hurts, either.
While competition may be good for business, it doesn't always bring out the best in people. Below are a few cases in point.
"The only problem with Microsoft is they just have no taste. I have no problem with their success. I havea problem with the fact that they make really third-rate products."
"No. 1, cash is king. No. 2, communicate. No. 3, buy or bury the competition."
"If any of my competitors were drowning, I'd stick a hose in their mouth and turn on the water."