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Four Ways Competitors Can Hurt Your Startup -- Without Competing

Posted by admin_halligantravel admin_halligantravel on August 23, 2006 in startups competition paulgraham 6 Comments


In an article I wrote last week about the demise of Kiko (a web-based startup in the calendaring space), I hinted at the possibility that one of the reasons for Kiko’s demise may have been the entry of Google Calendar.  I further suggested in a bit of blogging sensationalism that “Google was the new Microsoft” (when it came to competition).  I was positing that much like startups of a decade or two ago took efforts to avoid being in the direct path of Microsoft, startups today should be watching Google and avoiding direct competition.

Richard White, one of the Kiko team members wrote an article describing the “Actual Lessons From Kiko”.  I’m not going to spend time arguing about what are actual lessons and what are not (though I will contend that you don’t actually have to have been part of the company to learn lessons from it).  What struck me was this piece of the article:  “Did Google Calendar kill Kiko?”.  The simple answer that Richard provides is “No.”  The slightly longer answer is “No, because we repositioned Kiko to take advantage of a market that most other players, including Google Calendar, were neglecting”.  The article goes on to talk about international users, date formats and supporting languages other than English.  

I think there is an important point here.  Competitors do not have to compete for customers to hurt your startup.  Simply changing your strategy (or even asserting that you’re not really directly competing) does not completely take away the impact of competitors, especially ones like Google.

Five Ways Competitors Can Hurt You
 
The following are five ways that competitors like Google can affect your startup.  Only one of them actually involves competing in the classic sense (i.e. taking away your potential customers).
 
  1. Taking Away Customers:  This is the most common and obvious ways a competitor can hurt you.  They take away potential customers and grab market-share.  When most people think about competition, this is what they think about.  This is indeed an important consideration, but not the only one.

  1. Scaring Investors:  When someone like Google is even perceived to be competing with you (whether you meant it or not), they can have a very direct impact on your ability to raise capital.  There are many VCs that will attribute significant risk to the fact that you’re competing with Google and label you as “too risky” to make an investment.  Note that they are measuring risk on a relative basis.  It’s not that they don’t think you have a chance, it’s that of the other hundreds of startups they’ll look at, someone else is perceived to have lower risk.  Net result for you is the same.  You don’t get the check.  Of course, not all startups need to raise money (but many, like Kiko, do).

  1. Grabbing The Stars:  This one is subtle.  Lets say you are working on really cool technology that is very, very hard to do.  Chances are, there are a limited number of people in the world that are the ideal candidates to join your team.  These are the would be rock-stars of your domain.  If Google (or some other large competitor) is also in the same category, you will possibly be competing with them to recruit your best people.  Though there are pros and cons to you vs. a Google, you’re deluding yourself if you think this doesn’t play a role.  For example, my current startup is not creating any particularly sophisticated technology (no video pattern matching or anything like that).  We are also not competing with Google in any significant way.  But, two of the last three people I attempted to recruit for my startup were seriously looking at Google as an alternative.  If I were hiring particularly specialized resources, the competition for people would have been more acute.  Though I can claim that there are advantages to working for my startup (instead of Google), I accept the reality that working for Google has its perks.

  1. Raising Market Expectations:  We live in a fast-paced, highly competitive atmosphere.  It takes a fair amount of innovation to capture market interest and get customers.  There are just so many alternatives.  As such, when a big competitor enters your space, it often raises the bar for what customers expect from you.  Although I’m not suggesting that you should enter into a feature-war with this new competition, the reality is that some percentage of your users will raise their “mental bar” higher for what it’s going to take to earn their business (or usage).  Raising the bar can occur in multiple dimensions.  One is features and capabilities, and the other is price.  If your competitor is offering a free product (and you’re not), it puts additional pressure on what you can charge.  Once again, you may be in a different business, but it still doesn’t change the fact that you might be forced to charge less even to customers that you may not have lost to the competitor anyways.

  1. Fear Uncertainty and Doubt (FUD):  We’ve had this one around for a while (many of you may remember it well from the old Microsoft days).  In many cases, competitors don’t actually have to release a product in order to compete with you.  They just have to “announce” it.  This creates FUD.  FUD creates a problem for you, because you need customers now.  Another aspect of FUD is that when there is no real product behind it yet, the market can attribute whatever features and benefits to the product that they choose.  Since it doesn’t exist, it’s easy to do this (and often, the vendors supplying the FUD can help this process along by hinting at features and release dates).


So, getting back to the story of Kiko, although Google Calendar may not have actually directly competed with them (by way of taking customers), I think it’s naïve to simply make the assertion that “Google Calendar did not kill Kiko”.  Perhaps it didn’t kill Kiko directly, but maybe it took enough oxygen out of Kiko’s atmosphere such that survival and growth was simply not likely (or so difficult, that it wasn’t worth the fight).