You are a start-up with a great concept, a true first of its kind. Customers get excited, and revenue starts flowing in. As the first mover, you attract some attention from your industry, you get a little press.
And now for the proverbial good news, bad news. If you’re finding customers, someone is losing them. And in most cases, that someone is an established player with deep pockets. Congratulations. You have awakened the competition, and it wants its piece of the pie back.
It’s inevitable that a successful start-up will create product envy among the competition. It didn’t take Oracle long to create vertical application service provider (ASP) solutions when it saw a bunch of newcomers doing it first with great success. Strong, competitive companies didn’t get that way by letting others chew away at their market share. Rest assured that if you meet with some success, you will be wearing a large target on your back; and the more success you have, the more carefully the big guys will take aim.
So what do you do? Panic, sell out, and lose? No way! Just because they may be big and have vast cash resources, strong distribution, and a multinational brand doesn’t mean they get to win. As a start-up, you have some advantages over your larger foes. You can move fast. You are in touch with the needs of the customer. You know the space better. And as the first mover, you can take measures early on that will provide you with ammunition when you later engage in battle.
Here are a few tips to help you prepare for the competitive environment ahead.
Understand your competition. That may be a blatant statement of the obvious, but this aspect of research is often grossly underdone. Most competitive charts I’ve seen from start-ups are shallow and only include some of the obvious, immediate players in the business. For some reason, many entrepreneurs have their heads in the sand about who is — and more importantly, who can become — the competition. My suggestion is to ask yourself this question: Who wants to see you fail? The answer should open up a whole new world of competitors, and it may surprise you.
Once you have that list, you need to understand better than they do their strengths and weaknesses. Again, this is not an exercise in the creation of a self-gratifying chart that proves you are the first mover with the best product. This is your future battle plan. It will determine the rules of engagement when they come after you with a vengeance and tons of cash.
Create defensible patents. Depending on what your company offers (whether packaged goods, technology, or a unique service), you may be able to file for patents that will slow down and even stop the competition. Applying for and obtaining patents is an expensive and slow process. That said, a truly patentable product or service may make the competition think twice about how and whether to enter your space. Talk to a top patent attorney, and understand what your options are. And if what you are doing may qualify for a patent, find out how protected you will be.
Continue to innovate. One of the big mistakes new companies make is that they don’t continue with rapid innovation once they launch their products. To stay in the lead, you must continue to improve your product in form, function, and customer appeal. It must evolve. The ability to continuously move your product or service forward with new features that make sense for the customer will always keep you a few steps ahead and provide you with the opportunity to maintain and increase your market share.
A company I worked for in the packaged goods business had a number of long-term, defensible patents. It could have let it go at that. Instead, over the years it improved the product and technology so that when the original patents expired, they would be irrelevant. The new patents, based on the innovations created from the original patents, gave the company new life for years to come, even though competitors could now introduce similar products. Those innovations put the performance of its product so far ahead of the competition that it continued to grow the business at an aggressive pace.
Reduce product cost. A classic tactic in winning the competitive battle is to have the best product at the lowest cost. While your competition attempts to duplicate your offering, you should be working at lowering the overall cost to your customer while still maintaining a healthy margin. Then, when the competition enters the marketplace at the pricing levels you first established, you can lower your cost without taking a hit to the bottom line.
How do you do it? Look at everything from packaging to shipping to material to labor costs. If you put your mind to it, you can squeeze pennies out of each area, making a significant difference in your ability to compete.
Define the competition. Don’t wait for your competitors to introduce themselves to your customers; you should get there first. The best defense is a good offense. Meet with all your customers (give no quarter here; big and small should be defended with the same intensity) and help them compare and contrast your offering with that of your competition. Define for them the terms of battle and what features, functions, and services are important to the product’s end user. Now the competition has to respond to you.
Back in my tool days, we were about to meet heavy competition from a company 50 times bigger than we were. It was trying to knock off our flagship product. But the copy is never as good as the original. We defined the product features necessary for success with the consumer in a way that the competition couldn’t match, and we successfully kept it from reaching any significant distribution. Without that effort, many of the retailers we worked with would have let the competition in the door to test its product; that would have been a real problem for us since it had more money to market and merchandise its product.
By clearly defining the space, we won the battle that won the war.
Remember that just because a company is big, rich, and competitive doesn’t mean it has the right to win. By understanding early on that there will be fierce competition and making the necessary preparations for the war ahead, you can prove that David’s beating Goliath was not an anomaly.