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Hi, I’m Brad Feld, a managing director at the Foundry Group who lives in Boulder, Colorado. I invest in software and Internet companies around the US, run marathons and read a lot.

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Competition

Comments (42)

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.

  • http://twitter.com/getfrankly Frankly

    Brad great post!, excited to see the rest. Trying to the that first mover is one of the hardest things, I’ve encountered, but at the same time the most exciting, being able to create something from scratch that can change the world or even start a revolution, all within your head.

  • Julie

    Brad, to me, this ties into the patent protection issue.  I know your stance on this: execution, execution… But a startup needs cash for that. You can’t get to first mover/top three without at least one of the two and in some places outside of Boulder and Silicon Valley, pending patents help get the cash…

    • Julie

      To be clear, I’m talking business methods, not code/algorithms. (and capped attorney fees, of course.)

      • Julie

        Agree it’s not needed and pegging a biz model to the possibility of patent approval is doomed from the start. But it could help add value down the road when we license our trading platform and serve as a barrier to entry. If a startup has the option to take this route for very manageable attorney fees, why not take it? 

    • http://www.feld.com bfeld

      I have never made an investment based on “pending patents” (or patents – for
      that matter). In the software / Internet VC world, the idea that you need a
      patent is a myth that doesn’t seem to want to die. And – more importantly -
      anyone that knows much about patents knows that “patent pending” means
      almost nothing.

  • http://twitter.com/annejohn Anne Johnson

    Brad,

    all of these points are valid, except for ‘First Mover’ . If a company does all the others, it may do better by being 2nd or 3rd, and benefiting from the market making efforts of the 1st mover. Cisco followed on from Proteon and 3Com, Google followed on from AltaVista. Drafting works for startups as well as cyclists. 

  • Andy

    Can you clarify what this bullet meant to say:  “Obsessively Focus On While Ignoring Your Competition”.  “….Focus on Customers…” ?

    • http://www.feld.com bfeld

      I will write an entire post on it soon.

      • Andy

        Right, but what I meant is it seems that some word (“customers”?) was left out of the bullet – ?  Ie., obsessively focus on _what_ ?

        • http://www.feld.com bfeld

          Competitors!

      • http://www.justanentrrepreneur.com Philip Sugar

        That was your best line.

    • http://www.feld.com bfeld

      I will write an entire post on it soon.

  • Royi G.

    Why is it even worth worrying about competition at all? I don’t even give competition a second thought. If you focus on simply trying to meet the customer need as optimally as possible, then that should naturally sort you to the top of the bucket. Inherent in that is, yes, there’s competition out there that continuously changes what it means to meet the customer need as optimally as possible, but then again, you’ll hear it from your customers, not the competition. I figure I can’t do much about the competition, so I might as well focus on the customer.

    • http://www.feld.com bfeld

      I think you’ll enjoy some of the posts that I write on this as that theme
      (focus on what you can control / impact) is woven through my philosophy on
      this.

    • http://www.feld.com bfeld

      I think you’ll enjoy some of the posts that I write on this as that theme
      (focus on what you can control / impact) is woven through my philosophy on
      this.

    • http://www.feld.com bfeld

      I think you’ll enjoy some of the posts that I write on this as that theme
      (focus on what you can control / impact) is woven through my philosophy on
      this.

  • Rich

    Leaders don’t have competition… They have a food supply.

    “If you not first, you’re last.” – Ricky Bobby

  • George M

    Brad, love your list and am looking forward to your posts.  My additional two cents: you don’t necessarily have to be “first to market” to gain a “first mover advantage”, but you do have to learn faster and execute better than the competitors

  • Yuval Boger

    Those who major in physics learn to take equations and drive the variables to 0 or infinity (or the speed of light). This is always a useful strategy/competitive analysis tool: “What happens if the cost per Gb of storage goes to 0?”, “Today, we support 10 graphics formats – what happens if we support 1000″ (and, of course, can we do it faster/better than the next guy)? “What happens if we give away free shipping?”

    The other side to competition (maybe ties in with Brad’s ‘resegment’ bullet is drive the vocabulary (“high resolution screen” vs. “retina display”, “smart phone” as opposed to “phone that runs apps”) as a way to imply uniqueness and advantage.

    Looking forward to the next posts

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  • http://twitter.com/JSeedVentures Jeffrey Char

    Looking forward to hearing your thoughts on this topic.

  • http://twitter.com/troytoman Troy Toman

    I’m not totally sold on first mover. You need to be early – but not necessarily first. Best customer experience would rank far higher by comparison. 

    • Anonymous

      agree – fast following seems to work very nicely across industries –  first to do it well is often more important than first to market

  • http://www.kineplay.com/ben Ben Milstead

    Looking forward to these topics! Would be interested in how you approach potential competition, collaboration and cooperation across your portfolio as well.

  • Serge

    Looking forward to the succeeding posts, Love the line from the Godfather :) will be especially interested to read about the Ecosystem part.

  • J. Mueller

    Brad, is “focus” the word you want to use when talking about competition?  Or do you mean “understand” and/or “be aware” of the competition when you write “Obsessively Focus On While Ignoring Your Competition”? 

    Focusing on competition is like putting the competition on the top of your priority list.  So when you wake up each morning, the first thing you do is look at what the competition is doing.  If one is doing that, then one is “worrying” about the competition as opposed to building one’s own business. And that is not healthy or productive for the business.  But rather one should have a side bar on their “screen” (in their mind) that keeps the competition within view as a side show.  That way one doesn’t miss what is going on in the game (for example, now where the defenders are), and is still able to dribble the ball to the goal. 

    I get a feeling you will expand on this in your post on “Obsessively Focus On While Ignoring Your Competition”.  Good going.

    • http://www.feld.com bfeld

      Well said. I’ll try to make sure I cover this intelligently – I completely
      agree that the competition should not become your primary focus.

  • http://www.totaltab.com Nick Reuter

    Regarding this: 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

    I was under the impression most VC’s like the slightly later entries (2nd, 3rd) as you get some additional validation of the market, vs. risking it all with the first mover, that still has to shake things out perhaps a bit more (which takes time and capital).

    • http://www.feld.com bfeld

      There’s a big difference between the (a) market leader and (b) first mover.
      I’ll cover this in the posts I put up.

      • http://www.totaltab.com Nick Reuter

        Of course, that makes perfect sense. I was reading too quickly again! 

        Although I suppose in many cases first mover is at least initially the market leader, since they often define the market. Look forward to more of your thoughts on it. 

    • http://www.feld.com bfeld

      There’s a big difference between the (a) market leader and (b) first mover.
      I’ll cover this in the posts I put up.

  • http://twitter.com/leelayz Suvajyoti Ghosh

    Dear Brad, 

    Thank you for posting your thoughts. Really appreciated. 
    I wanted to add my two cents here, to help you cover more ideas in your series about the competition. 

    In management studies we have always learnt to focus on either cost leadership (squeezing out margins, sweating your workforce, optimise supply chain, distribution, ect – Ex – Ryan Air) or focusing on a differentiation strategy (Apple) or deem the competition irrelevant by taking a blue ocean approach (Nintendo Wii)  

    However, as C.Christensen mentions in the innovator’s dilemma and you have rightly pointed out, in technology industries the competition always pushes you to develop new features to differentiate yourself. Just look at Google+. However, your customers are often marginally bothered about these new features as long as their basic needs/requirements are fulfilled. 

    The question always remains, how do you capture market share or become a market leader in the space? What kind of strategies should you adopt?   

    As we are aware, companies can try to compete on three fronts – Product, Cost & Customer Intimacy. It is ideal to choose any two to focus on, so that you can commit your resources accordingly. However, many companies try to compete on all three and a few of them do succeed. 

    It is always interesting to find out about the product attributes that you should compete on. Ideally you will not want to compete on everything. You will try to pick up an attribute where the competitors are not focusing on and try to cover that (i.e pivot). Just look at how the nitendo Wii captured market share by focusing on mass market as opposed to gamers that the big boys, Xbox and PS ignored.  

    Quiet often, it is also the vision of the man at the helm (CEO) about how the company will like to compete depending on how deep the waters are. Many CEO’s have struck it out and waited for an entire decade, investing in the right technologies, doing small pivots and waiting for the other competitors to either die out or become a marginal threat. If you look at the history of Crown Cork and Seal, who made steel bottle tops, you will understand how the CEO stuck out through the 80′s and successfully navigated the threat of aluminium and plastic in the bottling industry.  Similarly, the CEO of Brightcove took a bet on making them the biggest OVP, until youtube came along. However, I am confident they are playing a game for the longer term. 

    Also, to successfully compete in the market, every company needs to identify a few primary activities to focus on. One of Southwest Airlines’ primary activity is to keep the maintenance of airlines in house. Many of the other LCC’s outsource this activity. By keeping the maintenance in-house Southwest reduces their turnaround time and optimises their variable cost. I have heard stories where Boeing engineers have reached out to Southwest for help.  

    You need to map out the primary activities in great details and have reasons for why you might want to focus on them, specifically. This might be because your internal resources and capabilities are better aligned to focus on these activities. To give an example, I am attaching a slide from my consulting work, which shows how a content company can compete in online video by focusing on primary activities –   http://leelayz.tumblr.com/post/1179608335

    Also, you might want to take a look at how to analyze your competition - http://leelayz.tumblr.com/post/7492753358/interactive-promotions-landscape
    (These slides were were different purposes and might not be apt for what we are discussing, but gives us an overview of how to look at your competition.) 

    Finally, I will like to add that companies will first need to understand the the market they are in to effectively compete. And there are many references to this in academic literature about how compete using military tactics used in warfare. You need to understand whether you are in playing in a volume (Coca Cola), stalemate ( like toilet paper), niche or fragmented market and then adopt appropriate strategies  

    Hope this adds some value to this discussion!

    Kind Regards,
    Suva

    • http://www.feld.com bfeld

      Thanks for the long thoughtful comment! I appreciate you taking the time to
      put the thoughts up.

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