Growing up, playing sports was a mandatory after-school activity. I spent countless hours on tennis clay courts, training every week. During the summer, our team would tour local championships but pretty soon it became clear I was far from being gifted. My father, an Olympian himself, encouraged me to play to have fun, not to win. Funnily enough, when i started doing that, i started winning.
I've always found it fascinating that sometimes the path to victory in a competitive game is not the most obvious one.
How to feel about competition
We have had dozens of competitors. At one point, i tracked more than 90 companies that claimed to do something relatively similar to the software we developed for our customers. How i've felt about competition has evolved over time: i've ignored/fought/dismissed/lost to/laughed at/ beaten competitors. It drives startup behavior, defines roadmaps, and go-to-market strategies. Competitors can be driving forces to rally your team towards a goal.
And yet, it's not often a topic that is talked about when planning strategy. Most embrace the blanket statement: copying is flattering, ignore your competitor and focus on execution. I couldn't disagree more. I believe it's one of the areas that founders and CEOs need to carefully study, and take into consideration when building a startup.
In the grand scheme of things, a lot of good writing has been focused on beating and protecting from competition. My two favorite books, 7 powers and Competition demystified, focus exclusively on building moats as the main (only) path towards sustained above-average shareholder returns. Building a moat is probably one of the hardest things you can aspire to do in a company, and it's great when you have one!
However, how do you compete when you don't have one?
Dealing with copycats
Most SaaS businesses lack the network effects we associate with tech companies. If you want to build a moat, it will likely reside on slowly building economies of scale on your R&D (the bigger the customer base, the lower the marginal cost of development).
The problem with that is that it takes time to build a large customer base that allows you to drop the price of software (that in turn deters a new entrant from investing in building a similar software). That's why there's merit to being stealth for as long as your go-to-market strategy allows you: potential competitors will not be able to copy you.
However, what do you do if you release your product in the open and others jump into the opportunity? In short, it depends on where they come from.
Direct competitor: if they build from scratch a competing product (they don't have a prior product from which they are building their competing offering) just stay focused on keeping your product roadmap execution and your pricing strategy in check. You should be able to fend them off provided your development engine is more efficient. Most direct competitors will not reach meaningful scale.
Lateral competitor: if they build their competing offering as a secondary feature set to an existing product that you don't have, things may get interesting. You can either copy what you miss (and converge on overall offerings) or execute on your roadmap to further differentiate. Your victory will depend on whether your roadmap beats the features they have and you don't.
Besides more efficient product development, what else can you do?
In both situations, you can chose to aggressively attack their current customer base, preventing them from getting a good footing (if they lose early customers it is less likely they'll be able to secure funding to further develop the offering). Poaching customers from your competitors is the hardest (and thus most expensive) selling activity there is. Should you do it? Well, if the market is growing slowly, it may be worth poaching customers as it will be less expensive than the advocacy cost of bringing a new customer (in really “old” markets there may be no new customer, and poaching may be the only alternative). In fast growing markets, this tactic may backfire because your competitor may be adding new customers at a faster rate than you are stealing them (its cheaper to add new customers than to poach).
Lastly, you can also decide to acquire a complementing offering. The enemies of your enemy may be your friend. Look for opportunities via partnerships or acquisition. You can add, overnight, years of development!
Be nice
Copying features is inevitable and table stakes in today's software industry. Everyone, big and small, does it. While it may annoy the innovator in the space, the reality is that over a long period of time everyone will end up seeking inspiration in a competitor.
We approached most of our competitors with a “rising tide for everyone” attitude. But in some situations, we have also faced what we consider a violation of an uspoken etiquette.
Competitors of ours have done to us:
List (and link to!) our own customers as a showcase and claiming to be theirs.
Copy our language on our website, we knew because they also copied our typos.
Publicly trash us reaching a milestone (ie. us being acquired).
Hit us when we were on a low. We, unfortunately had to do layoffs and put a press release about it. A competitor paid for Google Ads urging our customers to be fearful, linking to our own press release.
Be aggressive, compete and copy. But there's a line you should avoid crossing: it will catch up with you eventually!