Why startups can’t afford to ignore the competition

A lot of startup folks will tell you to ignore the competition. Here’s what they’re missing:

Products today are easy to build and deploy, which means anything that’s working will ultimately get copied. Too often startups focus on product alone and forget the importance of a well planned and executed go-to-market strategy.

In this essay, I’ll explain why startups can’t afford to ignore competition and present a systematic way to identify your competitive advantage & move faster than the competition.

I’ve adapted the OODA Loop, a military framework that prioritizes agility over raw horsepower, to help startups w/ their GTM.

  1. Observe: Use market intelligence to develop a deep expertise on the competitive landscape.
  2. Orient: Identify your company’s unique advantage based on team strengths, market needs, and competitive weakness.
  3. Decide: Determine your market entry strategy. 
  4. Act: Iterate and continue to grow your market share.

B2B Software isn’t defensible

Low-end competitors cherry pick key features and launch lightweight versions of your product. In this case, you cannot compete on price or feature set alone. In 2018, you cannot win on product alone because the window for first-mover advantage has shrunk dramatically as it’s become easier and cheaper to start a company.

I experienced this first-hand at Zendesk where new competitors gained market share by targeting a particular customer segment or identifying an untapped opportunity in a larger suite of products.

Kustomer launched in 2015 as a Zendesk alternative for retail e-commerce companies with a simple view of both customer interactions and retail transactions.

Kustomer strategically won Glossier, previously a Zendesk customer, which served as a strong anchor to win customers like Rent the Runway, Zola and others. A strong anchor is a thought leader among peers and has the ability to influence the next generation of companies.

At the 2017 YC Female Founders Conference, Glossier CEO Emily Weiss thanked Kustomer for delivering a powerful solution to connect with customers. This served as a highly influential referral for hundreds of founders aspiring to build the next cult-like brand.

https://medium.com/@briannekimmel/glossier-ceo-emily-weiss-on-customer-experience-b429af1a93a5
Glossier CEO Emily Weiss at YC Female Founders Conference 2017          [I covered the story here]

Consumer startups aren’t defensible either. 

For mobile apps and consumer technology, you are always playing defense. Consumer platforms can easily copy, and ultimately kill, good consumer products.

“Facebook just released ______ the _______ killer”

Bonfire the Houseparty killer, Creator the Patreon killer, Jarvin the Alexa killer and most recently Portal the Alexa Echo Show killer. While most of these examples are lightweight experiments that will ultimately fail, they prove large consumer tech companies are willing to copy any product that’s working.

In the case of Instagram Stories, it’s clear that a massive distribution advantage can disrupt a market leader.  

 


You need a systematic way to compete

In today’s competitive environment, startups need a systematic way to identify unique advantages & move faster than the competition.

I’ve adapted the OODA Loop, a military framework that prioritizes agility over raw horsepower, to help startups w/ their GTM.

Here’s how to apply it:

The OODA loop is the cycle, observe, orient, decide, and act, developed by military strategist and United States Air Force Colonel John Boyd.

 


Observe

Use market intelligence & data to develop a deep expertise on the competitive landscape. During this phase, companies will use a number of tools to identify weaknesses in your competitor’s product and go-to-market and opportunities based on negative feedback from customers including feature requests and why customers churn.

For example: Technographic data from HG Data identifies which companies are using competitive products and other technologies used within the company to create a more accurate view of prospects.

 


Orient 

Identify your company’s unique advantage based on team strengths, market needs and competitive weakness.

While most companies consider team strengths and market needs, I find the majority of startups do not spend enough time anticipating competitive moves and identifying smarter ways to enter the market. Keep in mind, competing head-to-head will drive up paid marketing costs and create a possible feature war with the market leading solution.

In this phase, you have to ask the non-obvious questions. This could start as a whiteboard session and continues as a weekly meeting to discuss weekly competitive updates.

  • Do you have a unique advantage with a specific vertical or customer segment?
  • Can you move faster by building superior features for this particular vertical?
  • Does your team have a unique hiring advantage?
  • Do you have direct access to strategic partners or leading experts?

Gorgias is a customer service platform built specifically for e-commerce companies. As the first customer service app built for Shopify, the solution has a more robust set of features for e-commerce companies and a unique distribution advantage where the Shopify platform serves as both a technology partner and active source for new users.

        Gorgias beats Zendesk in customer satisfaction 

“If you are on Shopify, it is a must.” 


Decide

After you identify your team’s unique advantage, it’s time to decide how you plan to break into the market.

For many founders, this is where you start to see tension between co-founders, investors and your founding team. While identifying your unique advantages, you’ll uncover a number of possible entry strategies and no shortage of opinions from everyone involved.

In this period, this is when a startup welcomes as much feedback as possible. Tension should not be viewed as a negative, but rather valuable feedback which you can distill into insights to improve your overall value proposition.

During the decision phase, too many founders fixate on the total addressable market slide in your pitch deck. It’s important to separate your market entry strategy from your total addressable market. If you want to win, you need to outsmart your competition and move fast when you identify an opportunity.

To quote Vinod Khosla: “your market entry strategy is often different from your market disruption strategy.” Start where you find a gap in the market & push your way through.”

A recent example is Khosla-backed company Voyage, an autonomous vehicle company bringing self-driving cars to private communities.

By partnering with The Villages, a community of 125,000 residents, 750 miles of road and 3 distinct downtowns in Florida, Voyage was first to launch a fully-functional, door-to-door self-driving taxi service in America.

Voyage self-driving vehicle at the Villages, FL [https://voyage.auto/]
While large incumbents continue to face both technical and regulatory constraints, Voyage has a unique ability to move faster in private communities with access to private roads, high frequency routes and direct feedback from passengers who enjoy the service on a daily basis.

Voyage investor Alexis Ohanian says, “the big bet by Voyage was subtle, but brilliant.”

In a world of 100 million new startups each year, you will not compete on product alone. You need a systematic way to outsmart the competition, but remember this process is not easy. It takes time and commitment from co-founders, investors and your founding team.


Act

With startups, action and iteration go hand in hand.

To quote Ohanian, “a subtle, but brilliant” go-to-market does not stop once you’ve launched on Product Hunt or shipped a new feature.

In fact, once you understand how to Observe, Orient and Decide when making critical go-to-market decisions, your process for iteration will move a lot faster.

When you put the OODA Loop into practice, you can continue to move fast while testing new markets, segments and audiences in parallel.

For more thoughts on go-to-market strategy, subscribe to my newsletter.



 

Self-serve growth doesn’t last forever, it’s time to hire Sales.

As an angel investor and startup advisor, I meet a lot of founders who are addicted to product-led growth.

“Virality, we’ve nailed it.”

“Our product has strong network effects.”

“We don’t need paid marketing.”

“Sales reps? We don’t really need them.”

I don’t blame them. The fastest growing software companies have something in common… They started with no Sales team.

Bessemer Venture Partners State of the Cloud 2017

Product-led growth unlocks early revenue growth through a fairly frictionless experience for the end-user: no sales call, no contract and in many cases no credit card required.

Dropbox is a great example where even a Dropbox Business plan is entirely self-serve.

But guess what? There’s a problem…

Product-led growth has its limitations:

  1. Self-serve SMBs churn at a much higher rate than Mid-market and Enterprise customers. 
The Innovator’s Dilemma for SaaS Startups by Tomasz Tunguz

This is especially true if you’re selling to other startups or tech companies who typically try a number of free tools and ultimately choose based on price, feature set and relationships (ie: YC companies buy from YC companies. Startups want to use the latest products.)

2. Self-serve users have a low expansion rate. 

While free trials are effective for driving new user sign-ups, keep in mind these users are less loyal, less engaged, and less likely to change plans or add premium features.

On average, only 15-20% of free users will convert to paying customers.

Product-led growth is a great way to drive top of funnel growth and acquire a high volume of free trials.

However, it’s typically less effective in converting free users to paying customers. In many cases, tiered pricing pages introduce channel conflict where it’s impossible to ask one segment to pay more for a product when others get it for free.

When self-serve channels have been exhausted, your $/customer will flatten. 

You are not likely to get any additional revenue from these users from any product-led growth channel.

This is the moment when you need to add a formal Sales team.

In this moment, I highly encourage you to proceed with caution.

To ensure a successful pass from Product to Sales, you’ll need to implement a few new processes such as a lead qualification model and a more robust CRM like Pipedrive, ProsperWorks or another solution.

To ensure long-term alignment, start by identifying blind spots across your funnel and review leads on a weekly basis to ensure no lead gets left behind.

Industry Product 2018 Talk

Questions? Comments? Find me on Twitter @briannekimmel 

Additional resources

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Watch All Things Sales by Peter Levine, General Partner Andreessen Horowitz