written by
Daniel James

The seven deadly sins of startups: Competition

7 deadly sins 3 min read
rock, paper, scissors

Part 1 of 7. We look at common reasons startups fail. Case studies are included to provide real-world examples of the insights we discuss.

A recent study conducted by CB Insights analyzed the post-mortems of 101 failed startups. Roughly a fifth of these startups failed due to competition. Although competition isn't necessarily always a startup killer, failure to adapt in a competitive landscape can mean certain death for your company.

When facing a lot of direct competition, there are certain steps you must take to cement your market standing. Failure to do so could seal your company's fate amongst the 90% that never make it. To stand out from the crowd, one must offer something new or something much better than what already exists. Taking your competitors into account and developing a proper marketing strategy is crucial. Perhaps most importantly, the product must be priced just right. This becomes more complicated as competitors attempt to undercut each other in an effort to lure customers.

If you're a pioneer and first to the market, you’ll need to take a different approach. You need to make it hard for potential competitors to enter the market by creating barriers to entry. These include patents, government rights, access to specific distribution channels, economies of scale, etc.

While ignoring the competition is a recipe for disaster, obsessing over it is not healthy either. The mission should be to provide as much value as possible to the customer. As long as you can find better ways to give more to your customers, you will have a bright future ahead.

Case Study: Failing to adapt to competition

What happens when a company fails to properly respond to market competition? It could lead to massive debt and eventual collapse. The massive toy store chain Toys-R-Us in late 2017 experienced just this.

It began with a 10-year partnership with Amazon wherein Toys-R-Us would pay Amazon $50 million a year plus a percentage of sales to serve as the exclusive vendor. Due the success of the partnership, Amazon began allowing other toy vendors into their ecosystem. Ultimately, Toys-R-Us sued Amazon and attempted to launch its own website to sell toys online. By this time, it was already too late. Toys-R-Us failed to establish its own online presence and couldn’t compete with other online retailers’ prices. The plummeting sales and mounting debt left Toys-R-Us with no choice but to file for bankruptcy in late 2017.

Case study: Staying focused and coming out on top

In a market completely saturated with powerhouse players like Microsoft, Apple and Google, one humble company managed to best them all. We’re talking about online cloud storage service Dropbox. How did they manage to come out alive and on top in a market that took so many startups to the grave?

Dropbox launched in 2007 with the Minimum Viable Product (MVP) which was enough to capture many hearts. The founders continually improved their product by seeking out and responding to feedback. Dropbox offered an abundance of value by providing 2GB of free storage. This led to millions of users joining the platform and establishing Dropbox as the leader in the space. Despite the competition, they were able to position themselves above the rest through excellent execution. Sticking to that attitude, Dropbox has reached a current valuation over $10 billion.

At SUPERTEAM, we help clients understand the playing field in order to maximize chances for success. If you've got a project or idea and need expert consultation to skyrocket past the competition, drop us a line at hi@superteam.io, or visit our website at www.superteam.io

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