At one of the startups I advise, we’ve been working for several months on building a spin-out product based on its existing product. The build started as a set of requested new features for an existing customer, but it could become a standalone software platform that they could resell to a lot of other businesses.
Last week, we ran into a brick wall. Or rather, a brick wall fell right on top of us, when I got wind of a massive, well-known and innovative technical company deciding to essentially build the same thing we were building.
4 Steps To Take to Beat Back Competitors
- Don’t panic.
- Keep your focus.
- Take heart: If you have a competitor, that means you’re actually on to something.
- Ask customers why they haven’t used your competitor.
So did we pack it in?
Luckily, this isn’t my first spinout. I’ve been down this path many times, starting with the very first startup I joined — a technical consulting firm that started creating custom frameworks to speed up our development time. We eventually pivoted to just selling those frameworks to other development shops. The multiple on our bottom line increased tenfold, so did our valuation, and we were acquired three years later.
With the experience of that outcome at my back, I’ve done the same thing over and over again since, basically extracting the innovation out of whatever we were innovating, making it repeatable, universal, and accessible, and then packaging that into something that we could license to customers who weren’t yet ours.
It works wonders when it works, but I’ve learned that a lot of things have to come together and go right for it to work. So you don’t so much set out to do it as perpetually look for the opportunity to do it.
Here Comes Goliath
The biblical story of David and Goliath makes for some interesting and inspirational reading, but we all know in the real world the big guy usually crushes the little guy without a lot of fanfare or even much of a fight. Right?
I’ve found a more inspirational story — although it’s now almost as old as the Bible — in George Clooney’s speech to Brad Pitt in the remake of Ocean’s 11. It’s the speech where he justifies taking on a massive casino empire with just a handful of thieves and derelicts: “Because the house always wins. Play long enough, you never change the stakes, the house takes you. Unless, when that perfect hand comes along, you bet big, and then you take the house.”
4 Questions to Ask When Competition Appears
- Is this product innovative enough?
- Is your approach unique enough?
- Is your team nimble enough?
- Is your solution novel enough?
Not quite biblical, but it gets the point across in a stronger way, I think.
When a startup is faced with the threat of a massive and well-funded competitor entering their domain, the only question that needs to be asked is the one Clooney is implying: “Do you have the perfect hand?”
The answer requires a little nuance. And to get to that nuance, you need to split that question into two questions.
Are You the Innovation Winner?
Is this product innovative enough? And is your approach unique enough? And is your team nimble enough? Can your startup deliver a solution that is so novel and so well-executed that you can beat a competitor with unlimited resources to a prize that everyone is going to want?
Those are the billion-dollar questions for any startup. But in this case, when this situation happens, you need answers a lot sooner than you normally would. And unless you’ve already got product-market fit and a stranglehold on an emerging market, you’re going to have to settle for guesses instead of data, gut instead of fact.
You’ll probably also have to convince existing or new investors that those guesses are correct and your gut is on point. Because you’re going to need their dry powder to fight the inevitable and completely unfair fights that Goliath is going to lure you into. Price wars, market flooding, and a trusted brand name that implies your customer should favor stability over innovation.
Are You Going All In?
The startup’s luxury of building this platform on the side or as an experiment has now evaporated. The element of surprise is gone. They won’t be able to establish their market one customer at a time, they’ll need to meet this competitor where they live, which is likely everywhere. That costs time and money, which will sap the growth prospects for their main line of business.
So how do you make that call?
First, don’t panic. I’ve discovered over and over again that just because a company is big doesn’t mean it will automatically succeed at everything it does. With innovation, especially technical innovation, focus is far more important than size.
Then, take heart in the fact that you’re actually onto something. Just the interest from a large player in the space validates the new entry into the space. What you’ve lost in competitive edge, you’ve gained in the market coalescing.
But ultimately, you need to talk to your customers and prospects, and try to understand why they haven’t demanded a solution like yours from a company like your competitor in the past. Big companies try new stuff all the time, because all they need to do is wait out the innovators and absorb the emerging market.
If you’re willing and able to withstand that wait, then the right decision might be to go for it. Who knows, maybe that big competitor will acquire your spinout someday.