Does Competition Matter?
Chris Dixon had an interesting post recently on Dropbox and the importance of investing in people. There is another potential lesson there about the role of competition in startup success.
Chris mentions that when he thought about the founder’s idea for Dropbox his concern was how busy the space already was.
I’d have to say in all honesty if I were offered I probably would have passed. 2005-6 saw about 100 consumer backup/storage/file sharing companies raise funding. I remember after Drew left my office I looked at some article on RWW or Mashable or someplace that listed page after page of consumer backup/storage/file sharing companies. It just seemed like an insane idea to start another one and it seemed like Drew’s only thesis was that his product would work better.
Fast forward and Dropbox is on it’s way to $100M in revenue and is just killing it. So, if there really were so many competitors then why did Dropbox succeed and what does that mean for founders considering entering crowded markets?
When I think about startup success and failure, it is all about people. You can list issues with product, goto market, etc, but when you drill down to the root cause it’s people. Retail success is about location, location, location. Startup success is about people, people, people.
Truly exceptional people can enter crowded markets and win. When Google entered search it was already an established space with Yahoo!, Lycos, Geocities and others. As we all know now, Google rules search and of all the companies that used to rule search pretty much only Yahoo! is left.
Now, Google is one thing. But what about brand new startups? How important should competition be in your thinking? I think that you should be aware of your competition but it should not be a primary focus. You should not attempt to react to moves by your competition. You should not sweat a major release. You just need to keep your head down, implement your roadmap, delight your customers and move closer to your vision each and every day.
What if you have no competition? If this is *really* true, then you are either not defining your market properly or you need to be doing something else. Anything worth doing will have multiple people going after it either in direct competition to you or taking a different approach.
So, that’s my take anyway. You should spend no more than 5% of your time thinking about your competition. Spend the other 95% making your own vision happen.
Great insight and a bit surprising (coming from a VC). I couldn't agree more. As Jeff Bezos (Amazon's Founder) puts it : "Be afraid of our customers, because those are the folks who have the money. Our competitors are never going to send us money"
That's a great quote. Thanks for sharing.
It's more complicated than that. Bad markets still trump good teams quite often. I think what sets Google and DropBox apart is that they saw "seams" in the market that no one else did. Bystanders looked at search before Google and said, "That's a mature, crowded market." Brin and Page thought, "No, it's not, because of X, Y, and Z." It's like taking a standard 2×2 competitive matrix and adding a third dimension. I'm sure that correlates with talent, but it's a different thing: unique insight into a market.
Of course, you need exceptional people to execute on those opportunities. But all the talent without understanding how to differentiate from incumbents in a way that matters to customers just results in either an eventual change in direction (won't use the p-word) or banging one's head against the wall.
Great comments Greg. At the risk of oversimplifying, this still all comes back to exceptional people. You also raise another crucial element of all great outcomes: timing. i.e. bad markets can kill an otherwise great team and idea.
I'd certainly agree that you need to be always paying attention to your competition, and your assertion that if it's worth doing, someone else already is.
Thanks for the post, love your work. Its always great to read the insights of others in the startup investing ecosystem.
Thx Jamie. Podium looks interesting. I am in Calgary next month for Mesh West. Will you be there? http://meshwest.ca/
I hadn't looked at it yet to be completely honest, but after looking at the site it certainly seems like something that shouldn't be missed. Thanks for the catch and the heads up Mark.
I like that advice, it's all too common looking at competitors. Why be sheep when you can be a shepherd doing it your own way.
Great post. And I agree with your conclusion. In that 5% I think you should evaluate them at every angle to extrapolate what is working for them and what their weaknesses are. Become 'aware' of this data so it can compliment your strategy – not interfere with it as you eluded to.