I know that “don’t compete - change the game” can easily be seen as kind of a trite slogan. But I still find myself in many meetings with startups where the strategy can be summed up by: our plan is to do this better than our competitors. While out-executing others is possible and companies succeed with that approach, it is really difficult. It is especially difficult, if one of the competitors is a deeply entrenched incumbent.
Because startups are already hard (creating something from nothing always is), I encourage founders to focus on the things that are unique benefits of starting your own company. Those include picking your field, defining your product, assembling your team, setting your company culture. I should make sure to add to this list: picking your basis of competition. This may be the most important one of all.
Here are two concrete examples from our portfolio. Both Feedburner and Tacoda had started with a strategy of providing a service for a fee and faced strong competition on that basis from both other companies and from in-house development (on a make-versus-buy basis). Both businesses only really started to take off when they instead switched to operating networks that gave away the service and monetized the audience.
A much bigger example is FedEx. Fred Smith did not set out to compete with the postal service by doing the same thing better. Instead, he made guaranteed high speed delivery the basis for competition. Something that was nearly impossible for the postal service to do as they had to deal with so many other things, including lots of low cost variable time delivery items (and of course being part of the government and also having to serve any and all rural areas).
I am writing this post based on a specific meeting that I had last week in SF with a team that is doing something potentially very important in the mobile apps space, if they can figure out how to change the basis of competition. But it also serves as a reminder to myself as an investor and board member to focus more on this fundamental question in everything I do.
