Posted: July 26, 2011
Here's how I think about itBy Brad Feld
I think about competition all the time. Every company we invest in aspires to lead whatever market segment it is in. In many cases, they want to create entirely new markets. Regardless, they always have competition, whether from other startups, existing companies, large incumbents, or companies they don't even know about yet.
Whenever the startup world heats up, there are many more new entrants. We're once again in the part of the cycle where there are an abundance of new companies being started. While there are plenty of unique ones, there are a much larger number of "me toos" and "fast followers". While VCs love to put this on entrepreneurs (for not being innovative / creative enough) and entrepreneurs love to put this on VCs (for just funding me too like things), this isn't really anyone's fault as it's the natural cycle of things and has been going on forever (see Clay Christensen's excellent "The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail" for the classic examples of this.)
I've worked with many entrepreneurs who have spent an enormous amount of time thrashing with the issues of competition. Sometimes I've been on the winning team and sometimes I've been on the losing team. This experience has helped me develop a pretty clear view on how to think about competition that I regularly use. Following are a set of topics - which I'll write more about in the coming weeks - that nicely summarize my philosophy.
Be the First Mover
Resegment If You Aren't In The Top Three
Create the Best Product
Provide the Best Customer Experience
Have a Long Term Strategy
Understand the Ecosystem You Are Competing In
Obsessively Focus On While Ignoring Your Competition
Keep Your Friends Close and Your Enemies Closer
There is an age old VC cliche that the market leader gets most of the rewards, #2 gets enough to be interesting, #3 might make a little money, and all of the rest are irrelevant. This cliche strongly informs my perspective and you'll see it woven through what I'll write about.
I'm especially focused on the evolution over time of competitive responses. Nothing stays static and the software / Internet industry is one of the most vigorously competitive in the history of man. There are an increasing number of externalities - such as government regulation and patent strategies (both NPEs/trolls and big company patent thickets) that occasionally get focused on but in my experience are not what actually matters. More specifically, I think that if the government completely left the software / Internet industry alone and software patents were abolished, the software / Internet industry would have even more vibrant competition.
I'll try to stay out of politics in the upcoming posts since I don't think entrepreneurs can do much, especially at the early stages of their companies, about these externalities. Instead, I'll focus on the things that I think really matter and can make or break a company in the first five years of its life.
Of course, like all blog series, I'd love any comments and feedback, especially if you disagree with me, as that's the best way for me to continue to evolve my thinking.
Brad has been an early stage investor and entrepreneur for more than 20 years. Prior to co-founding the Boulder-based Foundry Group, he co-founded Mobius Venture Capital and Intensity Ventures, a company that helped launch and operate software companies. Brad is a nationally recognized speaker on the topics of venture capital investing and entrepreneurship and writes widely read and well respected blogs at www.feld.com and www.askthevc.com. He holds bachelor's and master's of science degrees from from MIT. Contact him at email@example.com