HOW TO SPEND IT — PART 7

How Not to Be Discouraged as a Startup Founder in the Face of Competition

Different strategies for different markets

Photo by Louis Hansel on Unsplash

Recently, I coached a young and highly motivated startup founder. He had identified a problem that many business people have: information overload. He had come up with some ideas on how to better prepare and share information in a business context.

On that very day, when we had our last conversation, he discovered that there was already a productivity startup on the market. And it seemed like they had such a broad range of high-level services that it would be hard to beat them. “Should I give up?” he asked me.

That was actually the wrong question, or maybe the right question for the wrong market.

Winner-take-all markets

I have primarily started companies with a platform business model. These models tend to turn into a “winner take all” market or a “some take all” market. Customers flock to the platforms where they find the widest choice of providers. Providers focus on the platforms where the most customers are. This is a self-reinforcing process that results in only one or very few platforms remaining in the end.

Platforms compete fiercely with each other unless the target audiences are significantly different. That’s why LinkedIn and Instagram are thriving, while Myspace has become insignificant. The losers in this competition may still find a place in the long tail or need to readjust their business model.

Strategic actions to win a winner-take-all market are:

• Sufficient funding and relaxed investors: these companies need to burn a lot of cash to achieve their goals.
• Early market entry: it is important to be first or second in the market.
• Spending a fortune on marketing and advertising: It is a myth that good solutions speak for themselves.
• Actively managing user and provider attractiveness: this can be massive discounts, rebates, and referral programs that cost a lot but also make participation in the platform attractive to providers and customers.
• Active design and…