Guy Kawasaki today published a stupendous blog entry about defending a new company from competitors, arguing that all you really have in a startup is a jump on understanding the problem and building the solution. It’s a very good argument.
Fresh from having read The Art of War or Only the Paranoid Survive, entrepreneurs worry too much about the competition. Unless you’re starting a me-too company or trying to cash in on a gimmick (a gimmick is any idea for a product in which you can’t really imagine what the 2nd, 3rd and 4th versions will be like), the competition is the last thing you should worry about.
Worry first about building something meaningful for the customer: there are five risks a new company faces: demand risk (do people want this), model risk (will people pay you enough for it), market risk (are there enough of those people), execution risk (can you build what they want), and competitive risk (can imitators one-up you afterwards). These risks are listed in order of importance, with competitive risk last. If you create something that is fundamentally valuable, you’ll find a place in the market.
Don’t worry about big competitors: if you’ve ever worked at a large company, you know it’s impossible to fund and staff a new project. The competitor you imagine sitting on a pile of money and a hundred engineers is sitting in a meeting right now, terrified of making a mistake, trying to read his boss’s expression, wishing he had the guts to start your company.
Don’t worry about Google: today, the entire market is just too scared of Google, just as it was too scared of Microsoft ten years ago. Whenever a VC doesn’t know what to say, he asks “What about Google?” When starting Plumtree, we got the same question about Microsoft. In 1998, no one noticed that Microsoft wasn’t succeeding at expanding beyond Office and Windows — today nearly its entire Internet strategy is, arguably, a failure — and few have noticed now that Google hasn’t had many hits beyond search and mail. (Side-note: do you think that one reason VC’s may have become hesitant to take on the establishment is that they’ve been coopted by the establishment, remaining on the boards of goliaths that have long since created a liquidity event?) Google and Microsoft deserve our reverence, but not our surrender.
Don’t choose niche markets to avoid competition: if the only reason there are no competitors in a market is because it’s too small, look for something bigger. This doesn’t mean you can’t create a new market, or that you can’t start in one segment of a market, only that it’s good to think big. If you want to make software for dentists, borrow money from your mom, and move to Kansas.