When startups compete, no one wins

http://ataussig.com/post/25505974229/when-startups-compete-no-one-wins

by ataussig • 14 years ago

22 14 14 years ago

sek• 14 years ago

I wonder why there are so few fusions, think about PayPal. Was there another big one after that?

Fusion = merger. If neither player is outsizedly profitable nor has garnered sizeable market share, the only guiding reason for the merger is to eliminate competition. If your competition thinks it is stronger than you it will balk (you're both startups) - thus, you in the best case is teaming up with someone as good as you.

Startups should be focused on building value, not wiping out local competition. That behaviour only makes sense once one has reached maturity.

JumpCrisscross2• 14 years ago

Even assuming that all startups involved can agree their value propositions are roughly identical, a Herculean prerequisite to forming a union of equals, there are good reasons given by game theory to advise against this move.

An "alliance" would be tentative as it would be a moving game of prisoner's dilemma. Further, this "union startup" would be reduced to committee behaviour, sacrificing a large portion of a startup's cultural firepower.

Our economy is healthier diversified across independent bets. Even if a me-too's only differentiating factor is that it operates in a different geography than its parent that is differentiation enough to turn a profit.

jonnymkramer• 14 years ago

So Facebook didn't win over ConnectU?

j_baker2• 14 years ago

I get this line of thinking, I really do. It's just not what our system was built for. The fundamental idea behind capitalism is that competition is good and cooperation is bad between businesses. We can agree or disagree with that idea, but you can't ignore it.

anon8083• 14 years ago

No one 'built' this system . . . there was no master architect or group of engineers. The 'system' is just how things are RIGHT NOW, doesn't mean they can't change. Nothing says i have to go along with it, I can do my own thing.

I personally think competition is a distraction. Focus on doing what you do best, and make it better because that's what you control. Who gives a shit what the other guy's doing. The only competition that makes sense is the competition against greatness, an ideal. If you compete against someone else you're letting them set the bar (what you value), since all you have to do to succeed is just beat them.

Capitalism just means resources (capital) is privately owned, how we deal with the other folks that also own capital is purely up to us. No rules around that.

j_baker2• 14 years ago

Nothing says i have to go along with it, I can do my own thing.

Capitalism just means resources (capital) is privately owned, how we deal with the other folks that also own capital is purely up to us. No rules around that.

I'm sorry, but you're just flat out wrong. I get your logic. It's just that it doesn't work that way. There are plenty of laws around cooperation between businesses, for better or worse. Flaunting them so you can do your own thing is a good way to wind up with a big fine. This blog post is stopping just short of advocating cartels, which are illegal in the US.

woohoo• 14 years ago

What matters is who your prospects position you against. If they are evaluating your offering versus another you have to position against that. Unless your prospects are comparing you to another startup, why would you? And just because you are both in the same market space does NOT mean you should necessarily partner in my opinion.

drharris• 14 years ago

Have to disagree with this sentiment. I understand where it's coming from, but it simply doesn't play out that way in reality. Competition is important to determine which service is going to last. If there are 80 startups in the exact same space, how would I (as a potential user) know which to pick? It'd be a guess at best. Let's say a year later only 5 are left, and 4 of those have slightly pivoted into other niches. Now it becomes very easy to decide which service to use. Had they not been competing against each other, none of them would have found their niche market. I'd consider THAT the "no one wins" proposition.

anon8083• 14 years ago

'how would I (as a potential user) know which to pick?' How about which one serves you the best?

So you're saying if one of the services with the shittiest product raised $100MM more than the others, gave their product away for free and outlasted all of the others, you would let that 'competition' decided which was the best service for you to use?

tg3• 14 years ago

It doesn't generally play out that way. Buying the market is a short-term play, and isn't sustainable. PayPal beat the other payment services because they figured out the fraud problem. Google beat other search engines because they brought more relevant results.

The market, meaning the aggregated mass of consumers, chooses which product is best by using (and usually paying for) the product. That product is the winner. Competition is what drives the individual players to improve their product in response to the market. Without that you have a command economy or a monopoly, both of which are notoriously inefficient and un-innovative.

jpastika• 14 years ago

I'm having a difficult time getting past the image that the author wants startups to sit around a campfire and hold hands chanting "we're all in this together". That is not the reality of business. Today it seems that the entrepreneurial spirit is being watered down, because it is considered "ok" to create a service with no monetization strategy or goal and simply hope for an acquisition. I believe competition breeds innovation as well as better businesses. It isn't about startup vs startup, it's about business vs business. Personally, I'm not building a company to see how many "friends" I can make (and subsequently share random thoughts and photos with). That being said, I do agree with the author's sentiment that in business relationships, just as in personal relationships, we have the opportunity/choice to do the right thing even when it doesn't necessarily make the most business sense.

ataussig• 14 years ago

Appreciate a lot of the comments here. Let me add a few of my own.

To start, I'm as big a capitalist as anyone. Competition is generally good, especially from the customer's standpoint. Startups should compete hard to create and distribute the right product.

My point here is that I've seen a few startups waste a lot of time and energy beating the crap out of each other, often to no avail. I don't expect these guys to get together and hold hands. I do expect them to take the high road and welcome others into an industry they are also trying to change, especially when you are going against an incumbent who really can beat the crap out of you.

I'm not advocating calling up your buddy at a competitor and saying, "Hey let's band together." That's probably a bit much. I'm referring to the situations like the following:

Say you are RelayRides. A reporter asks you, "Don't you think Getaround does X, Y, or Z better than you?" A great answer to that question is, "We love what Getaround is doing and support anyone getting car sharing into the masses. We hope you choose to use RelayRides because we think it's the best service in the industry, but as long as you're choosing to car share instead of buying a new car we think you are making a step in the right direction."

Hope that clarifies a bit of the discussion here. Thanks for the enthusiastic response.

When startups compete, no one wins

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