In my daily routine of reviewing startups I am struck often by how many of them show no awareness of their competition. I often see very detailed and carefully constructed plans that are exactly like one or more existing companies already far along in their journeys. One recent team proposed a clone of a product from a very large company that already had locked up exclusive agreements with all the potential customers in the target market. The remaining TAM was 0. Yet, these particular entrepreneurs had never even heard of said competitor until I asked the question. There was a call a few days later suggesting that their yet-to-be developed idea had some better features, and I asked why would a company with several hundred engineers and a lock on the marketplace not just copy any new ideas or likely already have them on its roadmap. There was no subsequent contact.
Group awareness is another commonly missing element. If you have a bunch of directors or advisors who came aboard as enthusiastic investors, they have the ability to get each other excited about an opportunity and very little reason to conduct their own due diligence. They’re trusting your research and may or may not have specific knowledge of your proposed market. The group mania takes on a life of its own. Unless you have purposely recruited an advisor or two who know more than you about your area and are naturally inquisitive, you may not be getting the critical input you really need. A great example of that is any deal that involves a crowd of MD’s. They can move enthusiastically as a herd, but that may not translate into projecting force among their professional brethren.
In days of yore, prior to the Internet and all the low-cost rapid development tools that have come to be, it was much easier to become aware of your competition. There was a finite number of shows, much more direct selling where every quota-busting salesperson knew exactly who was knocking on the same doors, and generally a far slower pace of innovation. Today your competitive landscape can change by the minute. I have seen many times an infographic of martech companies that has about 7000 tiny logos on it. Where in there do you put yours? How are you going to get found? What about the next 1000 that will appear this year? You can never safely make a blanket statement that your product is unique unless you are addressing a consequential problem with your proprietary complex solution, or you have outsized capital with which to overpower a particular marketplace, a la Uber and Lyft. The latter strategy is straight out of Clausewitz’ Vom Kriege. Not many of us have that much force or access to “investor will” of that magnitude.
Having known competitors is a good thing to the extent that you have some help developing your market and that you tend to make one another better with each iteration of your product and sales strategies. It is expensive to create a new product category, particularly when you are the pioneer and doing that on your own. You’ll likely end up sharing it eventually with your followers, and the winners could come from somewhere back in the pack. Look at the finish of a Tour de France sprint stage or any NASCAR oval race to see an example of that phenomenon in sports. The winner is often not the one out front too far ahead of the finish line. The ultimate victor can sling shot his way to the lead based on your draft. I have personally been too early on some startups and too late on others. That’s not to say they didn’t work out in some fashion, but by virtue of timing I didn’t achieve the maximum returns. I provided shoulders on which the next generation could stand more often than I care to relive, but I also benefited myself from standing on others’ shoulders where I did get the timing right. Awareness of all these competitive forces is vital. You don’t have spotters in the rafters like NASCAR drivers do. You don’t have to worry only about the 42 other cars you and your spotters can see. There is a time limit against which you can plan your strategy. Startups, as mentioned above, can have an unlimited number of threats that are invisible in advance, and the race has an unknown duration, perhaps ending only when a newer technology supersedes you and all your current opponents. If you think keeping your head down and focusing on your own work is a winning strategy and are not constantly vigilant, you are in for some nasty surprises sooner or later.
Frequently a cadre of competing startups will each get a small piece of the market and peak short of real scale. They may nearly all become profitable and self-sustaining at some level, and sometimes a roll-up may combine a group of them into a company than can enjoy a significant exit. The real risk is getting trapped into a low-to-medium outcome where you can’t really stop serving your beloved customers but you can’t really reach escape velocity either. Twenty years in grade in such a situation can be very wearying and can eat away the heart of an executive’s career and his or her peak earning years. Being aware of the passage of time and the accompanying opportunity costs is an important aspect of the startup cycle. You are better to have a quick failure and a chance for a restart than to get stuck in a zombie company far too long. I was involved in a 10-year venture fund that wrapped up after 17 years. We had some wins, and we probably beat the median return for funds of our vintage, but you don’t need one of my side rules to do the math on what that does to IRR. There’s a lot of prestige to having a venture fund, and it’s very interesting work, but you never get to choose when you stop. If you have a few zombies in your portfolio, you have to stay in existence until they are all resolved. Your are beholden to your limited partners to stay the course no matter what career pivot might seem to be to your personal advantage.
Finally, let’s consider a few thoughts on being aware of how much you can depend on and benefit from the ecosystems available to your startup today. Those of us who started companies prior to the existence of any venture capital in our region of the US, and who had no role models, no tech startup successes to emulate, and who were literally at the forefront of creating an industry had to learn by doing. Thanks to the vision of a twenty of my peer GA Tech alumni, the first university affiliated incubator in the country sprouted right here in Atlanta. (The folks at the Austin Technology Incubator make this same claim for one that started 9 years later, but I was told firmly that “if it didn’t happen in Texas, it didn’t happen.” That’s an important rule to know when you do business out there.) One cannot overstate how different the startup world has become during my working career, and you are well advised to pay attention to all the resources that envelope you and encourage you. I remember at Peachtree Software discussing an employee option plan idea with my national accounting firm and being laughed at. They could see the numbers of the past, but I could see around the corner the birth of an industry and a sizable market for our products. Not that I was the Wellington of my day, who is the name synonymous with “seeing around the corner,” but I was in the thick of things that no accountant could visualize. Nobody’s laughing at even the wildest of ideas these days. They’ve seen what good things can come from startup minds, and there’s more than enough help available for those who are willing to accept it.
If you’ve paid attention this far, thank you for your awareness.